text:
    Frank C. Stearns, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 2297.
    Promulgated December 30, 1926.
    Where neither the cost nor the March 1,1913, value of real estate acquired prior to March 1, 1913, and sold in 1918 is established, the loss sustained upon the sale under the Revenue Act of 1918 can not be determined.

      F. L. Eaton, Esq., for the petitioner.

      J. Arthur Adams, Esq., for the respondent.
    This proceeding results from the determination by respondent of a deficiency in income tax for the year 1918 in the amount of $1,443.69. The petitioner avers that the Commissioner erred in not allowing a loss of $8,118.25 sustained in the year 1918, resulting from sale of partnership property acquired prior to March 1, 1913, and sold in 1918.
    FINDINGS OF FACT.
    The petitioner is an individual residing at Hot Springs National Park, Ark. About the year 1893, the petitioner, with one Whitting-ton, formed a partnership under the firm name of Whittington, Stearns & Co., in which the petitioner held a two-thirds interest. The partnership was engaged in the retail hardware business. Whit-tington died in 1913 and the business was continued with his heirs under the same name. The partnership had acquired, prior to 1913, various real estate holdings by purchase or by taking them in settlement of accounts due. After Whittington’s death, his heirs desired to know how they stood with respect to their interest in the partnership. Accordingly, in November, 1913, the petitioner and a former bookkeeper, who was related to and represented the heirs, made a survey of the condition of the business and agreed as to the value of real estate holdings of the partnership. These properties were designated and were valued by them as follows:
    Grand Avenue property_ $250. 00
    Gain Avenue property_ 3, 000.00
    Crown Street or Sloan property_ 2, 800. 00
    Railroad or Lott lands_ 7,600. 00
    Jesseville property_ 1, 500. 00
    Total-15,150.00
    These assets were owned by the partners in the same ratio as their interest in the partnership. The Crown Street or Sloan property was acquired in 1891 for $2,800, of which $1,787.51 represented an account due the partnership, the remainder being paid in cash. Prior to the date of the valuation, petitioner had granted an option to purchase the land, for $3,500 or $4,000, to parties planning to build a hotel on adjoining Government property. The option was not exercised due to the Government’s refusal to allow the proposed building project. The Cain Avenue property was also acquired in 1891, by a deed which recited a consideration of $3,000. The Lott lands were acquired in 1902 at a foreclosure sale.
    In addition to the above listed properties, the partners each held a 50 per cent interest in properties which were termed outside investments. These properties were also included in the above mentioned survey of November, 1913, made by petitioner and the representative of the heirs. They were designated and valued by them as follows:
    Belclen or Plateau Hotel property-$30,000. 00
    Pleasant Street or Murray property_ 4,000.00

      The building on the hotel property had been erected about 1909 on a vacant lot theretofore acquired by the partners. Some time in 1913, the petitioner was approached by one of the heirs, who stated that a certain party wished to purchase the property. Petitioner stated it was held for investment and that he would not consider less than $35,000 for it. The Pleasant Street property was acquired in 189T under a judicial sale. The court order states that the bid made was $3,000.
    The petitioner calculated his two-tliirds interest in the five properties first mentioned above at $15,150, which was the total value the parties determined between themselves as the 1913 value, or, as the petitioner computes it, $10,066.67. His one-half interest in the two properties having a value, as determined by him, of $34,000 in 1913 was, upon the basis of that valuation, $17,000. The total of his interest ⅛ all the properties based upon the agreed valuation was $27,066.67, as computed by him.
    Because of differences having arisen between the petitioner and the heirs, a suit for dissolution and accounting was filed by the latter in 1918. While this action was pending a settlement agreement was entered into between the parties by the terms of which the petitioner agreed to purchase the heirs’ one-third interest in the retail business as determined by the inventory ordered by the court. The petitioner’s interest in the above mentioned real estate was deeded over in part payment for the one-third interest purchased. The computation by which the claimed loss is arrived at is as follows:
    Cost of merchandise, fixtures, accounts and notes receivable, as per court inventory-$224,133.93
    Of which one-third interest of heirs was- 74, 711.31
    One-third interest of heirs in store building- 25, 000.00
    99, 711.31
    One-third of accounts payable assumed_$7,443.31
    By cash and credits_ 73, 319. 58 80, 762.89
    Reaving amount which must have represented the credit for real estate transferred to them_ 18, 948.42
    My interest as set forth above_ 27,066.67
    Loss sustained on sale_ 8,118.25
    The amount of $8,118.25 thus determined to be a loss was claimed as a deduction, and the disallowance thereof is the basis for the deficiency in question.
   OPINION.

Milliken:

Section 202 of the Revenue Act of 1918, so far as pertinent, provides as follows:

Sec. 202. (a) That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, xiersonal, or mixed, the basis shall be—
(1) In the case of property acquired before March 1, 1913, the fair market price or value of such property as of that date * * *.

Under this section, the proper basis for determining loss upon the sale of property acquired before March 1, 1913, is the cost or fair market price or value on March 1, 1913, whichever is lower. Accordingly, before we can determine whether a loss has been sustained in the event of a sale, it is necessary for us to know both the cost and the March 1, 1913, value of the property sold. Appeal of Anniston City Land Co., 2 B. T. A. 526. The petitioner has shown the cost of only a portion of the properties involved. The only evidence submitted as to March 1, 1913, value of the properties was the amount at which they were valued by agreement between-the parties in November of 1913. We are unadvised as to the elements or basis entering into that valuation. Apparently, the parties merely got together at that time and agreed that the partnership assets and the various real estate holdings had a certain value. Value to the parties in interest may have been entirely different from a value determined by persons dealing at arm’s length, and there is no evidence that the value determined upon by them in November, 1913, was the fair market price or value on March 1, 1913. As we have neither cost nor March 1, 1913, value, we are unable to determine that the Commissioner committed the error alleged, and we can only affirm his action in disallowing the deduction.

Judgment will be entered for the Commissioner.


source: Caselaw Access Project

author: Milliken:

license: Public Domain

text:
    W. F. Collier, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 8335.
    Promulgated December 30, 1926.
    In 1918 petitioner orally agreed to sell Ms partnership interest at a price to be later determined. In 1919 the price was agreed upon and the sale made. Seld, the agreement in 1918 did not constitute a sale to permit of a deduction in that year of the loss sustained.

      David A. Gates, Esq., for the petitioner.

      Thomas P. Dudley, Jr., Esq., for the respondent.
    This proceeding results from the determination by respondent of a deficiency in income tax for the year 1918 in the amount of $379.86, predicated upon disallowances of loss deductions on alleged sales of a stock of merchandise and of certain cotton within that year, and of a deficiency of $40.67 for the year 1919, due to alleged errors in amounts of interest and donation deductions allowable.
    FINDINGS OP FACT.
    The petitioner is an invidual residing at Clarksville, Ark. About 1905 he and one Thompson organized a partnership to engage in the mercantile business in Clarksville, under the firm name of Thompson and Collier, in which each owned a one-half interest. Due to differences existing between the partners during 1918, Thompson notified petitioner that he was going to dissolve the partnership, and they orally agreed in the summer of that year that, after the inventory as of the close of the year was taken, one of the parties would make an offer and the other would sell his one-half interest or buy the offeror’s one-half interest at that price. Sometime between Christmas and the end of the year 1918, the inVentory was completed and Thompson made an offer of 80 cents on the dollar. On or after January 1, 1919, the petitioner accepted this offer, agreeing to sell his one-half interest at 80 per cent of its cost, as shown by the inventory. In February of 1919, Thompson gave the petitioner his note for 80 per cent of the cost of petitioner’s interest. The sale was made in 1919 and any loss resulting therefrom was sustained in the year 1919.
    It was stipulated at the hearing that a loss of $3,743 was allowable for 1919 on the sale of certain cotton by the petitioner, and that the interest allowable as a deduction for 1919 was $578.99, instead of the $339.13 allowed by the Commissioner. The Commissioner also conceded error in computing the deduction to which petitioner was entitled pursuant to the provisions of section 214(a) (11) of the Revenue Act of 1918.
   OPINION.

Milliken:

In view of the stipulations entered into at the hearing, the sole question remaining is whether the loss upon the petitioner’s one-half interest in the stock of merchandise is deductible for 1918. Under the Revenue Act of 1918 losses are deductible only in the year in which sustained. The petitioner contends that the oral agreement to sell at a fixed price, which was entered into during 1918, was the equivalent of a written contract under the laws of Arkansas. However, as set forth in our findings of fact, the terms of the proposed sale were not agreed upon by the parties within the year 1918. Prior to the fixing of the terms of sale, there existed only an agreement between the parties that they would buy or sell their interest at a future date at a price to be later determined. Such was the status of the agreement throughout 1918 as shown by the record. Obviously, such an agreement does not constitute a sale. There being no sale within the year 1918, petitioner did not sustain the loss claimed within that year. The sale, however, was closed in 1919, and a loss measured by 20 per cent of the inventory as claimed was sustained in that year. The deficiencies for the years in question will be recomputed in accordance with this decision.

Judgment will be entered on 15 days’ notice, under Bule 50.


author: Trammell:

text:
    Appeal of Fred W. Warner.
    Docket No. 3713.
    Promulgated December 30, 1926.
    1. Taxpayer held to be a stockholder in a corporation which, ior services rendered, issued stock in his name, but placed it in the hands of a “ bonus custodian ” to insure carrying out a contract that taxpayer would not sell, transfer, or assign his stock.
    2. Casli dividends declared on stock owned by the taxpayer and standing in his name on the corporation’s books at the time of declaration were income to him before being diverted to his wife through an assignment which purported to transfer the right to receive dividends.

      G. J. McGuire, Esq., W. 0. Magathan, Esq., and Russel I. Rose, O. P. A., for the petitioner.

      John D. Foley, Esq., for the Commissioner.
    This is an appeal from the determination of deficiencies in income tax for the years and in the amounts as follows:
    Tear. Deficiency.
    1920-$30,634.62
    1921- 7,072. 57
    1922- 1, 313. 98
    Total- 39, 021.17
    The questions for determination are: (1) Whether certain payments made to the taxpayer were dividends or additional compensation; and (2) whether, under an assignment and two trust indentures executed by the taxpayer, the income received by the assignee and the beneficiaries was taxable as income to them or to the taxpayer.
    FINDINGS OF FACT.
    The taxpayer is an individual residing at Pontiac, Mich. From 1914 to June 30, 1921, he was president of the Oakland Motor Car Co., a subsidiary and a division of the General Motors Corporation. In 1918 he was vice president and a director of the General Motors Corporation.
    On August 15, 1917, the president of the General Motors Corporation addressed a letter to the taxpayer confirming an agreement they had made, whereby the taxpayer was to receive, as compensation for his services for the year August 1, 1917, to July 31, 1918, as manager of the Oakland Company, 5 per cent of the profits of the company. Under this agreement the taxpayer agreed to accept 60 per cent of his compensation in common stock of the General Motors Corporation “ in lieu of cash in the discretion of the Finance Committee of the Corporation.” The agreement was fully performed and the taxpayer received his compensation for that year partly in cash and partly in General Motors stock.
    13y letter of August 1, 1918, the president of the General Motors Corporation outlined an agreement entered into with the taxpayer, whereby the latter was to receive as compensation for the period August 1,1918, to December 31,1919, the sum of $150,000 per annum and a percentage of the profits of the Oakland Company, if the profits exceeded a specified amount. Under this agreement the taxpayer was permitted to elect what portion of his compensation, which remained unpaid when the amount was finally determined, should be paid in cash and what portion should be paid in General Motors stock, except that at least one-third should be liquidated by a bonus allotment of stock in accordance with a plan hereinafter described. The letter of August 1, 1918, concludes as follows:
    As the aim and intent of this form of compensation agreement is to effect a large and continuing investment in General Motors stock by the General Managers, the forfeiture clause as embodied in paragraph 7 of the Bonus Plan, whereby a forfeiture would occur in case you are removed by the corporation, will be waived.
    In other words, if the corporation severs your connection with the business, the forfeiture provision in your particular case will not be enforced. If, however, you should leave the service of the corporation of your own volition the provisions of the Bonus Plan will apply as in other cases.
    This agreement was fully carried out, part payment being made in cash and part in stock.
    Pursuant to the 1917 and 1918 agreements, the General Motors Corporation executed, in the name of the taxpayer, certificates of its capital stock equal in value to the compensation which he had not drawn, as follows:
    Date Number
    of issue. of shares.
    February 28, 1919- 1,250
    June 12, 1920_10,-218
    The certificates of stock so executed were not to be delivered to the taxpayer until he had severed his connection with the company. He received, however, a certificate from the bonus custodian that the stock had been allotted to him. The certificate for 1,250 shares of a par value of $100 was later exchanged for a certificate for 12,500 shares of no par value.
    The bonus plan above referred to was a system adopted by the General Motors Corporation for giving its employees additional compensation by the allotment to them of capital stock. The bonus plan for 1918 and subsequent years is described in a pamphlet issued by the corporation; the parts thereof, which are material to the case here, are as follows:
    1. Bonus fund. The corporation will establish a bonus fund to which shall be credited yearly an amount equal to 10% oí the net earnings of the corporation after deducting 6% on the capital employed in the business of the corporation; it being intended that this fund shall be invested in stock of the corporation.
    * * * * * * *
    5. When bonuses are awarded, a stock certificate for the number of shares allotted to each beneficiary shall be issued in his name and delivered to the Bonus Custodian, who shall hold the same for the beneficiary for a period of five years from the first day of the preceding January until finally delivered or settled for as hereinafter provided. The Bonus Custodian shall notify each beneficiary, through the Head of his Division, of the award granted, and shall procure from him irrevocable powers of attorney to be used to re-transfer the stock as herein provided in case the beneficiary leaves the service of the corporation or is dismissed.
    6. The Bonus Custodian shall open an account with each beneficiary, charging him with the par value of the stock awarded and crediting him as of the last day of each month, beginning with January of the year in which the award is made, with 1/60 of its par value. When the credits so made against each award equal the debits, the Bonus Custodian shall deliver to the beneficiary the said stock so awarded, free from all restrictions.
    7. If a beneficiary leaves the service of the corporation of his own volition, or is dismissed because of unsatisfactory service, of which the Executive Committee shall be the sole judge, that portion of his bonus represented at the time by the debit balance of his account shall revert to the corporation, and a certificate for the portion of his bonus represented by the total credits in his account shall be delivered to the beneficiary free from all restrictions, provided, however, that no fractional share shall be issued. The corporation shall purchase at par any fractional share to which the beneficiary is so entitled.
    * * * * * * ⅜
    9. Upon the death of a beneficiary the Bonus Custodian shall deliver the certificate or certificates evidencing the total bonuses awarded the beneficiary to his executor or administrator, free from all restrictions.
    10. Subject to the rights of the Bonus Custodian to retain possession of the stock certificate for the period of five years from the first day of January in the year in which the award is made, or to transfer the stock as herein provided, an award shall vest the beneficiary with all the rights of a stockholder in the stock awarded, including the right to vote and to receive dividends thereon, but excepting, however, the right to sell, assign, or pledge his interest in the stock.

      The stock issued in the taxpayer’s name was held by the bonus custodian, as provided for in the plan above described.
    On July 2, 1920, the taxpayer entered into the following agreement with his wife, Bertha S. Warner:
    Agreement, made this 2nd day of July, 1920, between Feed W. Warner, of the City of Pontiac, State of Michigan, party of the first part, and Bertha S. Warner, wife of the said first party, party of the second part.
    WITNESSETH!
    Whereas there have been allotted to the first party by General Motors Corporation, a corporation of Delaware, Twelve thousand five hundred (12,500) shares of the common capital stock of said General Motors Corporation, without nominal or par value, for the year 1918, pursuant to the Bonus Plan of said corporation, which said shares are deliverable to the first party on the 31st day of December, 1923, or sooner, as in said Bonus Plan provided; and
    Whereas the first party desires to assign to the second party the dividends, rights and income payable thereon, or in respect thereto while said stock is held by General Motors Corporation.
    Now therefore, in consideration of the premises, the sum of Ten ($10) dollars to him in hand paid, receipt whereof is hereby acknowledged, and other valuable considerations, the first party hereby assigns, transfers, sets over and delivers unto the second party, all his right, title and interest in and to any and all dividends, rights or income payable or accruing on or in respect to the said Twelve thousand five hundred (12,500) shares of the common stock of General Motors Corporation without nominal or par value, held by said General Motors Corporation for the first party, pursuant to said Bonus Plan, represented by certificate numbered C15063_and hereby authorizes and empowers the said General Motors Corporation to pay and deliver any and all dividends, profits or rights payable thereon or in respect thereto, to the said Bertha S. Warner.
    In witness whereof, the said first party has hereunto set his hand and affixed his seal the year and day first above mentioned.
    (Signed) Fred W. Warner.
    On the same date, July 2, 1920, he executed two instruments, one of which is as follows:
    Know ail men by these presents, that I, Fred W. Warner, of the City of Pontiac, State of Michigan, herein referred to as “ Trustee,” being the owner of six thousand two hundred eighteen (6,218) shares of the common capital stock of General Motors Corporation without par value, as evidenced by certificates numbered-, respectively, have dedicated and set apart, and do hereby dedicate, set apart and declare that from and after as of the date hereof the said shares of stock in whosesoever possession the same may be for my account were transferred and delivered, and I hereby transfer and deliver to myself, said Fred W. Warner, as Trustee, for the use and benefit of my son, Fred W. Warner, Jr., of the City of Pontiac, State of Michigan, hereinafter referred to as “ Beneficiary,” for the following purposes and upon the following terms and conditions:
    To receive and collect the income, profits, interest and dividends therefrom, and after first deducting all taxes, commissions and other charges against tlie same, to pay saicl income to the said beneficiary during the period of his natural life up to December 31, 1924.
    On December 31st, 1924, or upon the death of the said beneficiary the trust hereby created shall cease and determine and the principal of the said trust fund shall be paid over to the said Fred W. Warner, the party of the first part, absolutely, and free from any claim hereunder.
    In the event of the death of the trustee prior to the death of the beneficiary, the rights, duties and obligations of said trustee shall devolve upon the wife of said trustee, or upon such other person as the trustee herein named shall designate by his last will and testament, failing which designation said trust shall vest in the Guaranty Trust Company of New York, and on failure of either of these to act a substituted trustee shall be designated by the executor or personal representative of the trustee first above named herein.
    This indenture is upon the further provision and condition that the trustee first above named is authorized and empowered to continue to retain the investments of principal of this trust in the securities hereinbefore specifically described, and said trustee shall not be responsible for any loss or shrinkage in the value of said securities forming the principal of said trust by so doing; and further that the trustee is authorized to sell the same or any part thereof and to invest and re-invest the proceeds of the sale thereof in bonds or stocks of corporations, in bonds or notes secured by mortgages on real estate, or in any other manner; the trustee being in no wise restricted as to such investments except to the obligation of good faith in making such reinvestment and except also that on the death of the trustee first above named there shall be no change from the securities in which the said trust fund is then invested unless such reinvestment shall be made in such securities as may be then authorized by the laws of the State of New York for the investment of trust funds.
    In the event that any stock dividends shall be declared upon any stock held under this indenture, the stock received pursuant thereto shall for all purposes be treated and deemed to be principal, even if the said stock dividends shall represent earnings.
    This trust is with the express provision that no part of the principal of said trust estate or the income therefrom shall be liable for any debts or obligations of the said beneficiary, and the said beneficiary shall have no power to anticipate or assign the whole or any portion of the income from said trust estate, but the same shall be paid to said beneficiary free of all. claims of any kind or nature whatsoever.
    In witness whereof the said trustee has hereunto subscribed his hand and affixed his seal the 2nd day of July, 1920.
    (Signed) Feed W. Wabneb.
    The other instrument is the same as the above, except that the number of shares involved is 4,000 and the beneficiary is Daniel S. Warner, another son of taxpayer.
    Cash dividends on the stock here involved, in the amount of $15,000, were paid to the taxpayer in 1919, and $9,429.50 during the period January 1, 1920, to July 2, 1920. These payments were reported by the taxpayer in his income-tax returns for the years in which received, as dividends subject only to surtax. During the period July 2, 1920, to December 31, 1920, and in the years 1921 and 1922, the taxpayer’s assignee and beneficiaries under the instruments above described received cash dividends amounting to $42,881.50, which they reported in their income-tax returns as dividends. During the year 1920 the assignee and beneficiaries also received, on account of stock issued in the name of the taxpayer, stock dividends of 1,'703-36/40 shares, which were not reported in their income-tax returns.
    The cash dividends were paid by checks bearing the notation, “ dividend on common stock quarter ending [appropriate date].” The stock dividends were paid as such by the General Motors Corporation, not to the bonus custodian, but to the persons named by the taxpayer as assignee and beneficiaries in the above-mentioned instruments. In authorizing dividends on the stock, the board of directors of the General Motors Corporation made no distinction between the so-called bonus stock and the remainder of the outstanding capital stock.
    The taxpayer reported his income on the basis of cash receipts and disbursements.
   OPINION.

Trammell:

The first question for determination is whether the taxpayer was a stockholder of the General Motors Corporation with respect to the stock which had been issued in his name and was held by the bonus custodian. Upon the solution of this issue depends that of whether distributions made by the corporation on the basis of stock held by the bonus custodian were dividends in the hands of the taxpayer or whether they constituted additional compensation.

The stock was issued in the name of the taxpayer as a part of his compensation in accordance with agreements between the issuing corporation and the taxpayer, the latter having performed the services required. The corporation laws of the State of Delaware under which the General Motors Corporation is organized provide that capital stock may be purchased “ by labor done.” (Section 14, General Corporation Laws.) In this case the taxpayer had fully performed the services for which the stock was to be issued, but, under the bonus plan of the corporation and the agreement under which he performed the services, he waived his right to physical possession of the stock certificates. Article 10 of the bonus plan specifically gives the persons to whom an award of stock has been made all the rights of stockholders except the right to sell, assign, or pledge their interest in the stock. The waiving by the taxpayer of his right to possession of the stock certificates did not make him any the less the owner of the stock under the definitions of that term. An owner is “ one who has dominion over a thing, which he may use as he pleases, except as restricted by law or by agreement; * * * one who has the legal or rightful title whether he is the possessor or not; * * * the person in whom property is for the time being beneficially Tested, and who has the occupation or control or usufruct of it.” 29 Cyc. 1549.

It is well established that a person need not have in his possession stock certificates to be a stockholder, the certificates being merely evidence of stock ownership. In Pacific National Bank v. Eaton, 141 U. S. 221, the United States Supreme Court said:

Millions of dollars of capital stock are hold without any certificate; or, if certificates are made out, without their ever being delivered. A certificate is authentic evidence of title to stock; but it is not the stock itself, nor is it necessary to the existence of the stock. It certifies to a fact which exists independently of itself.

See also Beardsley v. Beardsley, 138 U. S. 262.

The certificates in question were made out and appeared in the name of the taxpayer, except that the corporation gave effect to the assignments and trust agreements in paying dividends on the stock.

In Turnbull v. Payson, 95 U. S. 418, it was held that the name of a person appearing on the stock book as a stockholder, or a receipt given for a dividend upon the shares standing upon the books in his name, creates a prima facie presumption of his being a stockholder. See also Franklin Bank v. Commercial Bank, 36 Oh. St. 350; State v. Ferris, 42 Conn. 560; Swobe v. Brictson Mfg. Co., 279 Fed. 560.

While the taxpayer might have forfeited a part of the stock by severing his connection with the company before a specified date, the fact remains that, while he was in the employ of the company, his relation to it was that of a stockholder. Furthermore, the evidence shows that the cash dividends were paid periodically as dividends by the company in accordance with the usual declaration resolutions, and that in authorizing dividends on its stock the board of directors of the company made no distinction between the so-called bonus stock and the remainder of its outstanding capital stock.

From what has been said above it clearly follows, in our opinion, that the amount of $67,311 paid to the taxpayer or his nominees constituted dividend payments and not additional compensation. Consequently, that amount is subject only to the surtax.

It was stipulated by the parties to this appeal that the so-called stock dividends “ were paid as such ” by the company. Holding, as we do above, that the taxpayer was actually a stockholder of the company in so far as the stock here involved is concerned, it is clear that the 1,703-36/40 shares of stock issued by the company in 1920 were true stock dividends, and accordingly are not subject to tax under the decision in Eisner v. Macomber, 252 U. S. 189.

The dividends which were paid to the taxpayer’s wife were paid to her by virtue of a contract dated July 2, 1920. This contract provided that the taxpayer “ assigns, transfers, sets over and delivers unto the second party [Bertha S. Warner] all his right, title and interest in and to any and all dividends, rights or income payable or accruing on or in respect to the said Twelve thousand five hundred (12,500) shares of the common stock of General Motors Corporation without nominal or par value, held by said General Motors Corporation for the first party.” This right was assigned to the taxpayer’s wife only for the period during which the stock was held by the General Motors Corporation for the taxpayer. The instrument does not purport to convey or transfer the stock itself.

Ordinary dividends are the distributions of earnings of a corporation to its stockholders. A corporation is not authorized to distribute earnings as dividends to those not stockholders, except under the authority and at the request of those entitled to receive them as stockholders. When dividends are declared the corporation then becomes indebted to its stockholders for the amount. United States v. Guinzburg, 278 Fed. 363, and Plant v. Walsh, 280 Fed. 722. If the stockholder assigns his right to receive the dividend, the corporation by paying the dividend to the assignee satisfies an obligation to the stockholder. The right to receive it from the corporation accrues by virtue of the stock ownership. It is a stockholder’s right, although they are paid to others whose rights are derived from the stockholder’s right to receive them. The situation is analogous to a case where A owes B a debt and authorizes O to pay money owing to him to satisfy the debt. In so far as A is concerned, he receives income when his debt to B is paid.

In the case of Rensselaer & Saratoga R. R. Co. v. Irwin, 249 Fed. 726 (certiorari denied by the United States Supreme Court, 246 U. S. 671), the Circuit Court of Appeals had before it what seems to us a similar situation. There a corporation leased its railroad and agreed that the rental should be paid to its stockholders and bondholders, except that an amount not in excess of $1,000 per year should be paid to the corporation. It was contended- that the corporation did not receive the rents and did not have the right to receive them, and therefore the amounts should not be included in its taxable income. This contention was denied by the court, which used the following language:

It is true that the rent of its road does not go into the plaintiff’s treasury and that it has no means of withholding the tax from it. It is also true that the rent reserved by the lease is paid by the lessee in fixed sums to third parties. All the same, the rent is the property of the plaintiff, and remains such, though by the terms of the lease paid out to others, whose rights are derived through it. While the rent is a debt of the lessee to the lessor, it is, as between tbe lessor and its stockholders, tbe lessor’s income, out of which the dividends, if any, are to be paid.
The application of the rent under the lease is a mere labor-saving device, the effect being exactly the same as if it be paid to the lessor and by it paid out as far as necessary to bondholders for interest, and the surplus in dividends to its stockholders. The description of the fixed sum to be paid by the lessee of 8 per cent, to the lessor’s stockholders as a dividend shows that the payment is made as agent of the lessor.”

To the same effect, see also Blalock v. Georgia Ry. & Electric Co., 246 Fed. 387; Anderson v. Morris & Essex R. R. Co., 216 Fed. 83; West End Street Ry. Co. v. Malley, 246 Fed. 625; Houston Belt & Terminal Ry. Co. v. United States, 250 Fed. 1; Boston Terminal Co. v. Gill, 246 Fed. 664; Hamilton v. Kentuclcy & Indiana Terminal R. R. Co., 289 Fed. 20.

In view of the foregoing, we are-of the opinion that the dividend from the stock, the dividends or right to dividends on which were assigned to the taxpayer’s wife, was income to the taxpayer before it could he diverted to another, and, as such, the amount of cash dividends received by the taxpayer’s wife is subject to tax as the taxpayer’s income. Appeals of Ormsby McKnight Mitchel, 1 B. T. A. 143; American Telegraph & Cable Co., 2 B. T. A. 991.

With respect to the 10,218 shares of which the petitioner created trusts for his two sons, a different situation exists. A valid trust having been created with respect to those shares, it is clear that the dividends are not taxable to the petitioner in his individual capacity.

Judgment will be entered after 15 days’ notice, under Rule 50.


author: Trussell:

text:
    Appeal of William A. Slater Mills, Inc.
    Docket No. 4241.
    Promulgated December 30, 1926.
    Jubisdiotion. — Under the provisions of section 283(f) of the Bevenue Act of 1926, the Board has jurisdiction in a case in which a jeopardy assessment was made in February, 1924, a claim for abatement made, considered, and finally rejected on March 31, 1925.

      James W. Mudge, Esg., for the petitioner.

      B. G. Simpich, Esg., for the Commissioner.
   Trussell:

The petitioner’s complaint is based upon the Commissioner’s letter dated March 21, 1925, reciting the result of an audit of petitioner’s income and profits-tax returns for the years 1918 and 1919, and asserting deficiencies for both of said years and rejecting a claim for abatement of a jeopardy assessment for additional income and profits taxes for the year 1917.

The issue presented involves only the additional taxes for the year 1917. The Commissioner interposed a plea to the effect that the Board had no jurisdiction as to the year 1917 and moved that the action be dismissed.

At the hearing upon this motion it appeared that the petitioner is a Massachusetts corporation, organized in the year 1920 as the successor to a corporation of the same name organized in the year 1916; that on March 28, 1918, the predecessor corporation filed its income and profits-tax return for the year 1917; that on December 28, 1920, it executed and filed a waiver of the three-year statute of limitations respecting the assessment of taxes under the Act of 1916, as amended by the Act of 1917; that on January 21, 1924, the Commissioner issued and forwarded to the petitioner a preliminary notice commonly known as a 30-day letter, indicating the finding of additional tax liability for the years 1917 and 1918, and requested petitioner to furnish waivers for each of said years. On January 30, 1924, the petitioner forwarded a protest against such additional taxes; applied for a hearing, and set up the claim that it should have the benefit of sections 210 and 328 of the Revenue Acts of 1917 and 1918, and further pleaded that the five-year limitation contained in the Revenue Act of 1921 had already run against the assessment of additional taxes for the year 1917 and at the same time forwarded a waiver as to the year 1918. On February 12, 1924, the Commissioner acknowledged the receipt of these documents and denied the request for a hearing as to 1917 unless a waiver was furnished. On February 28 or 29, 1924, the petitioner received from the collector of its district a demand for the payment of additional taxes for the year 1917 in the amount of $28,310.77. On March 10, 1924, the petitioner filed a claim for abatement of said 1917 additional taxes. Further correspondence between the petitioner and the Commissioner followed from the petitioner on April 18, November 8, December 1, 1924, and February 25, 1925, and from the Commissioner on December 10, 1924, and February 17, 1925, and finally the Commissioner’s deficiency letter dated March 21, 1925, which is in full as follows:

March. 21, 1925.
IT: E: SM-60-D
SEW-21833
A-21834
B-21835
William A. Slatee Muís, Inc.,
% Ropes, Gray, Boy den, and PerJcms, 60 State Street, Boston, Mass.
Sins:
Aji audit of your income and profits tax returns for the taxable years 1918 and 1919, indicates a deficiency in tax amounting to $107,007.36, the details of which are set forth in the attached statement.
In accordance with the provisions of Section 274 of the Revenue Act of 1024, you are allowed 60 days from the date of mailing of this letter within which to file an appeal to the United States Board of Tax Appeals contesting in whole or in part the correctness of this determination.
Where a taxpayer has been given an opportunity to appeal to the United States Board of Tax Appeals and has not done so within the 60 days prescribed and an assessment has been made, or where a taxpayer has appealed and an assessment in accordance with the final decision on such appeal has been made, no claim in abatement in respect of any part of the deficiency will be entertained.
If you acquiesce in this determination and do not desire to file an appeal, you are requested to sign the inclosed agreement consenting to the assessment of the deficiency and forward it to the Commissioner of Internal Revenue, Washington, D. C., for the attention of IT: E: SM-SEW. In the event that you acquiesce in a part of the determination, the agreement should be executed with respect to the items agreed to.
Respectfully,
D. H. Blair,
Ofimmissioner.
J. G. Bright,
Deputy Commissioner.
B
Inelosures s
Statements.
Agreements — Form A,
STATEMENT.
IT:E: SM-60-D
SEW-21833
A-21834
B-21835
In re: William A. Slater Mills, Inc.,
60 State Street, Boston, Massachusetts.
Tear. Deficiency in tax.
1918-$65,608.82
1919- 41,399.04
Total- 107, 007. 86
After careful consideration and review and an examination of all the facts submitted, your application under the provisions of Section 210 and 327 for assessment of your profits taxes for the years 1917, 1918, and 1919, under Sections 210 and 328 of the Revenue Acts of 1917 and 1918, respectively, has^ been denied, for the reason that no abnormality affecting either your capital or income has been disclosed which would bring your ease within the scope of Section 210 or Paragraph (d) of Section 327. Further, the audit of your case discloses no exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of Sections 210 and 328 and the tax computed by reference to the representative corporations specified in those sections.
The deficiency in tax of $65,608.82 and $41,399.04 for the years 1918 and 1919, respectively, of which you were advised in Bureau letter dated February 17, 1925, is, therefore, sustained.
In accordance with the above conclusions, your claim for the abatement of $28,310.11 for 1911, will be rejected in full. (Italics ours.)
The Collector of Internal Revenue for your district will be notified of the rejection at the expiration of thirty days from the date of this letter.
Upon receipt of notice and demand from that official payment should be made to his office in accordance with the conditions of his notice.
Bureau letter dated March IT, 1925, stating that the deficiency in tax had been assessed against you is in error, and is hereby revoked.

The petition was filed with the Board on May 15, 1925.

While all the foregoing proceedings leading np to this case were had prior to the enactment of the Revenue Act of 1926, this cause, and any and all proceedings had before the Board, are now governed and controlled by the provisions of the Revenue Act of 1926, and especially by section 283 (f) of said Act, a part of which reads as follows:

(f) If any deficiency in any income, war-profits, or excess-profits tax imposed by the Revenue Act of 191(5, the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 8, 1924, but was not paid in full before that date, and if the Commissioner after June 2, 1924, but before the enactment of this Act finally determined the amount of the deficiency, and if the person liable for such tax appealed before the enactment of this Act to the Board and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. * * *

The Board has heretofore had occasion to interpret and apply the above-quoted provisions of the Revenue Act of 1926 in Appeals of Covert Gear Co., 4 B. T. A. 1025; Elizabeth W. Stranahan, 4 B. T. A. 1141; and Nice Ball Bearing Co., 5 B. T. A. 484.

We are convinced that the facts and the history leading up to this cause of action bring it clearly within the provisions of the above section 283 (f) and the rules laid down in the appeals cited above.

The Commissioner’s motion is, therefore, denied, and the cause is restored to the general calendar to await such further appropriate action as may be deemed necessary.


author: Green:

text:
    Warren M. Horner, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 12256.
    Promulgated December 30, 1926.

      A. H. Murray, Esq., for the respondent.
    The petitioner seeks a redetermination of his tax liability for the years 1920 and 1921, for which the Commissioner determined deficiencies in the sums of $1,217.42 and $1,614.40, respectively, alleging that certain amounts, the whole of which the Commissioner included in gross income, were in part a return of capital.

      FINDINGS OF FACT.
    In 1904 the petitioner, then a resident of Minneapolis, Minn., became a representative of the Provident Life & Trust Co. of Philadelphia, Pa. In 1906 he became the general agent of that company for the State of Minnesota. He carried on his business under the name of Warren M. Horner Insurance Agency. At the time the petitioner became the general agent he entered into a contract with the company. On November 1, 1918, a further contract was entered into with the company.
    The Commissioner has increased the taxpayer’s income for 1920 in the amount of $15,279.46 and for 1921 in the amount of $15,330.74, on the ground that these amounts represented a portion of the commissions received in those years on renewal insurance premiums.
   OPINION.

Green:

It is alleged in the petition that the general agency contract had a fair market value on March 1, 1913, in the amount of $100,000, which contract was sold by the petitioner on November 1, 1918, under the contract with the Provident Life & Trust Co., and that the amounts designated by the Commissioner as commissions on renewal insurance premiums and by which he has increased the petitioner’s income for the year involved constitute a return of capital from the sale of the general agency contract.

There was no 'appearance for the taxpayer at the hearing and no proof was submitted to substantiate the allegations of fact mentioned above. Inasmuch as the petitioner, through his failure to submit proof to substantiate these allegations of fact, has failed to show error on the part of the Commissioner, the Commissioner’s determination must be approved.

Judgment will be entered for the Commissioner.


text:
    James Pantazas, Spiro Pomonis, Charles Pantazas, and Dennis Pomonis, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 3382.
    Promulgated December 30, 1926.

      Sam Bounds, G. P. A., for the petitioners.

      Robert A. Littleton, Esq., for the respondent.
    This is a proceeding for the redetermination of deficiencies in income and profits taxes for 1920 of $4,439.79 against James Pan-tazas, $1,140.42 against Spiro Pomonis, $187.30 against Dennis Po-monis, and $251.12 against Charles Pantazas. The deficiencies re-suit from an increase in the income of a partnership of which the petitioners are members.
    FINDINGS OP FACT.
    The petitioners are members of a partnership which operates the Lafayette Cafe in Tulsa, Okla.
    During the year 1920 the partnership records consisted of two books, one of which contained a record of cash receipts and payments, made each day from the cash register, while the other recorded payments by check, these payments being segregated under such general headings as “ Salaries,” “ Merchandise,” “ General Expenses,” and “ Supplies.”
    In determining the gross income of the partnership for 1920 the Commissioner collected data from the partnership books, bank deposits and other sources. Of the amount disclosed by the bank deposits and included in gross income, $14,000 represents capital paid in to the partnership during the taxable year by James Pan-tazas and George Petropol, another of the partners, in equal amounts.
    In the Commissioner’s determination, depreciation at the rate of 10 per cent was allowed on all machinery, furniture and fixtures to the extent of the full costs as shown by the taxpayers’ books.
   OPINION.

Green:

The petitioners contend: (1) That the books of the Lafayette Cafe properly reflect gross income and that the increase based on bank deposits and other data is erroneous; (2) that inventory for the beginning of the year as shown by the books should be used in determining income; and (3) that the various items on which depreciation is determined should be segregated and depreciation computed on the basis of the life of each particular item.

From the record it appears that the only evidence supporting these contentions is that $14,000 of the amount included in gross income on the basis of bank deposits represented capital paid in to the business during the taxable year. Income should be accordingly reduced in that amount. There was some testimony to the effect that certain checks cashed for accommodation had been returned for lack of funds, but there is no evidence in the record from which we are able to determine the amount of such checks, and for that reason, no allowance can be made.

The record also fails to disclose sufficient facts to justify any change in the Commissioner’s computation of depreciation on furniture and equipment, and with reference to inventory no attempt was made to justify the allegation of error.

Judgment will be entered after 16 days’ notice, under Bule 60,


text:
    Appeal of Max Sarfert.
    Docket No. 3436.
    Promulgated December 30, 1926.

      Held that a loss was sustained as the result of the purchase and sale of German marks.

      William E. Howe, G. P. A., for the petitioner.

      M. N. Fisher, Esq., for the Commissioner.
    This is an appeal from the determination of a deficiency in income and profits taxes for 1919 in the amount of $31,689.16. The Commissioner has disallowed as a deduction an amount claimed as a loss resulting from the purchase and sale of German marks in connection with the purchase of machinery in Germany, on the ground that the purchase and sale of the marks was a part of the transaction wherein the machinery was purchased, and the loss should be treated as a part of the purchase price of such machinery.
    FINDINGS OF FACT.
    The petitioner is an individual residing at 4902 North 13th Street, Philadelphia, Pa.
    In 1919 he was engaged in the business of manufacturing hosiery under the name of Rockland Hosiery Mills. During that year the demands of his business required the purchase of certain machinery, which could be obtained only from one Carl Lieberknecht, in Chem-nitz, Germany. Lieberknecht cabled quotations on the machinery in terms of marks and an order at the prices quoted was placed for three of the machines. On August 28, 1919, the petitioner purchased from Hans Weniger & Co. 1,500,000 marks, the total cost being $77,250. These marks were deposited to the credit of the petitioner in the Stahl Bank, in Stuttgart, Germany, t® be used as the initial payment on the machinery.
    In November the petitioner proceeded to Germany, and upon reaching Chemnitz was advised by Lieberknecht that marks would not be received in payment for the machines and that the machines would be delivered only if the purchase price was paid in American dollars. After investigating the financial conditions in Germany the petitioner agreed to make payment as demanded. The petitioner then sold 1,450,000 of the marks previously purchased, receiving therefor $39,219, which was applied on the purchase price of the machines.
    The account with Hans Weniger & Co. arising from the purchase of the marks above mentioned was settled by payments amounting to $50,747.46 in 1919 and $26,502.54 on January 28,1920,

      The petitioner kept his books of account and reported his income on a cash receipts and disbursements basis.
   OPINION.

Green:

It is the contention of the Commissioner that the purchase and sale of the marks was a part of the transaction of purchasing the machinery and the loss therefrom constitutes a part of the cost of such machinery, but that, if the Board should find that the purchase of the marks and the purchase of the machines were separate and distinct transactions, the purchase price of the marks having been paid, part in 1919 and the remainder in 1920, and the petitioner’s returns having been made on a cash basis, the loss should be deducted partly in 1919 and partly in 1920, the amounts of the deductions to be determined on the basis of the payments made in the respective years.

On the facts before us, there can be little room for doubt that the purchase and sale of the marks and the purchase of the machinery were separate and distinct transactions. Treating the purchase of the machinery in the manner most favorable to the Commissioner, that is, that there was a contract for the purchase of the machinery which required payment in marks, we are nevertheless confronted with the fact that such a contract was never carried out, but that the machinery was actually purchased under a new contract, separate and distinct, requiring payment in American dollars, and the mere fact that part of the price paid was procured from the sale of marks which the petitioner then had, even though such marks were purchased for carrying out the provisions of the original contract, is too remote and far removed to be considered a part of the final transaction. It does not appear, however, that the purchase of the marks was any part of the original contract, but rather that the marks were purchased purely for the convenience of the petitioner in making payment under such contract.

The petitioner has suffered a loss from the purchase and sale of 1,450,000 marks and is entitled to deduct this loss under section 214 of the Revenue Act of 1918 which provides:

Sec. 214. (a) That in computing net income there shall be allowed as deductions :
* * * * * * *
(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business.

The Commissioner takes the position that a deduction should be allowed in 1919 only to the extent that the payment on the purchase price of the marks made in that year exceeds the sale price. In this regard we need only to call attention to the fact that the loss was sustained on the sale of the marks in 1919, and that on consummation of the sale the loss was definitely fixed and determined, and the fact that the account with Hans Weniger & Co. was not fully paid until 1920 can not make a loss sustained in 1919 deductible in 1920.

Judgment will he entered after 15 days' notice, under Bule 50.


text:
    George E. Mickel, Petitioner, v. Commissioner of Internal Revenue, Respondent. Tom E. Mickel, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 439, 440.
    Promulgated December 30, 1926.

      Held, that tbe dividend declared by a corporation was a stock dividend and that the petitioners received no taxable income thereby.

      Henry G. Moeller, Esq., and Harry E. Judd, Esq., for the petitioners.

      L. G. Mitchell, Esq., for the respondent.
    The above-entitled proceedings came on for hearing at the same time, and inasmuch as the questions of fact and the issues of law involved in both proceedings are identical, it was stipulated that they might be consolidated for hearing and decision.
    The deficiency found in the case of George E. Mickel was in the sum of $394.88, and in the case of Tom E. Mickel, $265.97. The question in the case is whether a dividend declared in 1920 was a cash or a stock dividend.
    FINDINGS OF FACT.
    The taxpayers are residents of Omaha, JSTebr., and stockholders of the Mickel Investment Co., a corporation. The company had an authorized capital stock of $150,000, consisting of $100,000 common stock, all of which had been issued prior to the year in question, and $50,000 of preferred stock, a portion of which is involved herein.
    The petitioners, together with Will E. Mickel, owned all of the outstanding capital stock. On April 3, 1920, the directors of that corporation held a meeting, the minutes of which were as follows:
    April 3rd. At the annual meeting oí the Board of Directors of Mickel Investment Co. the following being present:
    Thos. E. Mickel, Pres.
    Will E. Mickel, Secy.
    Geo. B. Mickel, Treas.
    representing all the stock issued — -Report of the Treasurer read and accepted by unanimous vote. Capital Stock Dividend of 6% was moved, seconded and accepted unanimously. Same officers for ensuing year elected by unanimous vote. There being no further business to come before the meeting adjournment was ordered.
    By (Signed) Will E. Miokel,

      Secretary.

    Subsequent to this meeting, the bookkeeper was instructed by George E. Mickel, treasurer, to make the proper entries on the books of the company to show a stock dividend of 6 per cent, and on May 14 the following entry was made in the journal:

    On July 10, 1920, the directors met again and, when the minutes of the meeting of April 3 were submitted for approval, question arose as to whether or not they clearly reflected the action taken with reference to the declaration of the dividend. They were corrected to show that a stock dividend, had been declared. The correction was made by the insertion of the words “ and ordered issued ” after the words “ accepted unanimously.” The minutes of the meeting of July 10 read as follows:
    July 10th. At a special meeting of the Board of Directors of Mickel Investment Oo. the following being presents
    Thos. E. Mickel, Pres.
    Will B. Mickel, Secy.
    Geo. E. Mickel, Treas.
    representing all stock issued — Minutes of last meeting read and correction made making payment of dividend perfectly clear. This being a stock dividend of $6,000 was ordered paid by issue of preferred stock as follows: $2,800 to Thos. E. Mickel, $2,800 to Geo. E. Mickel, $600 to Will E. Mickel, making total of $6,100, the difference of $100 being paid in cash.
    Report on repairs on building at 15 and Harney read by Thos. E. Mickel and approved. Orders given to continue work on building, completing repairs to basement floor.
    By (Signed) Wm, B. Miokel,

      Secretary.

    Under date of July 15 a second entry was made in the journal as follows:

      At the time of the meeting on July 10 none of the directors knew of the manner in which the entry of May 14 had been made. Pursuant to the last resolution, preferred stock was issued to the stockholders in proportion to their previous holdings.
   OPINION.

Green:

Counsel for the Commissioner contends that the journal entry of May 14, followed by the action of the board of directors on July 10 in correcting the minutes of the meeting of April 3, and the entry in the journal under date of July 15, conclusively show that a cash dividend was originally declared and that the action taken by the directors on July 10 was only an attempt to change the cash dividend into a stock dividend. Careful examination of all of the facts, however, leads to a different conclusion. It is true that the journal entry of May 14, standing alone, might justify a finding that the dividend was a cash dividend, but it is also true that the bookkeeper was instructed to make an entry to reflect a stock dividend, and, even though the bookkeeper had made an entry specifically designating the dividend as a cash dividend, it would nevertheless be a stock dividend, if such was the dividend declared by the directors. At the most, book entries are only evidential and are not always conclusive of the facts they are supposed to reflect. Doyle v. Mitchell Bros. Co., 247 U. S. 179; Appeal of Huning Mercantile Co., 1 B. T. A. 130; Appeal of Chatham & Phenix National Bank, 1 B. T. A. 460; Krieg Tanning Co. v. Commissioner, 4 B. T. A. 1081. Furthermore, it appears that at the time of the meeting of the directors on July 10 none of them knew of the style of the entry of May 14, and the sole reason for the correcting of the minutes of the meeting of April 3 was because it was thought that those minutes, as submitted for approval, did not properly show that a stock dividend had been declared.

On these facts, there can be no doubt, except as to the $100 cash dividend, that the dividend declared on April 3 was a stock dividend, and, therefore, not income to the petitioners.

Final order of redetermmation will be entered after 10 days’ notice, under Bule 50.


author: Korner, Chairman:

text:
    George W. Hardy, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 7981.
    Promulgated December 30, 1926.

      O. M. Pasquier, C. P. A., for the petitioner.

      W. F. Gibbs, Esq., for the respondent.
    This proceeding involves income taxes for the calendar year 1921 in the amount of $562.21. The deficiency grows out of the disal-lowance by the respondent of deductions from income of debts alleged by the petitioner to have been ascertained to be worthless and charged oif in the taxable year. The matter arises under section 214 (a) (7) of the Revenue Act of 1921.
    FINDINGS OF FACT.
    Petitioner is an individual residing in Louisiana. He is a cotton grower, and during the year 1921 he owned and operated a cotton plantation of about one thousand acres. The manager of his plantation was one Gayle. Petitioner’s plantation was operated on what is known as the “ share basis.” His tenants were negroes who paid to their landlord a portion of the crop raised by them as rent. During the year the petitioner advanced supplies and moneys to these tenants and charged their respective accounts with the amounts so advanced. These advances were made with the agreement that such accounts would become due and payable at the time the cotton was sold. All the cotton and other crops raised on the plantation in 1921 were sold before the end of that year.
    The cotton raised by the tenants was not purchased by the petitioner from them. The cotton was placed with a cotton merchant who sold it. The proceeds were received by the petitioner, who credited the respective accounts of his tenants with the share of the proceeds belonging to each.
    In the year 1921, after all the crops were sold and the tenants’ shares credited to their respective accounts, there were not enough of such proceeds to discharge the debts of a number of these negro tenants. The unliquidated balances so left outstanding were in the total sum of $11,194.89. The tenants were all insolvent. The petitioner knew the financial condition of all of them and that the accounts were uncollectible. On December 31, 1921, he ascertained these accounts to be worthless and charged them off his books of account as worthless. No part of the amounts so charged off in 1921 had been charged off or deducted from income by the taxpayer in any preceding year.
    Some of the tenants had been with the petitioner in a prior year and a portion of the amounts charged off as worthless had been carried forward for such prior year. Others of these tenants had not worked for the petitioner in a prior year. Some of these tenants remained on the plantation of the petitioner in 1922 and were advanced by the petitioner in that year. One tenant did not so remain in 1922. No part of the amounts charged off in 1921 has since been collected by the petitioner.
    To the extent that the petitioner sold goods or made advances in kind to these tenants, he credited merchandise sales and reported income thereon accordingly.

      Gayle, the manager, had an open and running account with the petitioner, who also held Gayle’s note for $300. The total indebtedness of Gayle, including this note, was $1,475.68 at the close of the year 1921. On December 31, 1921, petitioner charged off $300 by the following entry: “ December 31, 1921. Note charged off $300.” No other portion of the Gayle account was so charged off. Gayle continued thereafter to manage the plantation for the petitioner. There is no showing that Gayle was insolvent or that the $300 note was uncollectible.
    The petitioner took deduction in his return on account of bad debts, in the amount of $11,619.52. The debts of the negro tenants, plus the $300 note of Gayle, total $11,494.89, which is the amount which petitioner now contends is properly deductible. The return of the petitioner showed a net loss of $997.82, which was later corrected to $649.62. The respondent disallowed the deductions' above referred to and restored the amounts thereof to income. This resulted in the deficiency here in question. The amount of the deficiency determined by the respondent, of which the petitioner was duly notified, is $562.21.
   OPINION.

Korner, Chairman:

The evidence here is illustrative of the Biblical adage that the poor we have always with us. If these tenants were not poor they would not be “ cropper ” tenants in the cotton belt. Generally, they are poor and almost universally they are judgment proof. On the other hand, another set of such tenants would be just as poor. If a cotton grower is to have tenants, it is from such that he must choose them. There appears to be little choice among them. If a crop is good and brings a price fair or better, they may be able to discharge to their landlord the debts incurred for advances. If their share of the crop is sufficient for that purpose, such debts are usually liquidated. The landlord generally sees' to that. But if the crop is a failure or brings a low price or worse, the landlord is out of pocket and the tenant is not much the worse off, because a year to him is just a living. Whether that living comes out of the crop he raises or out of the landlord’s pocket matters little or nothing to him. If he has done the best he could under the situation, he can be fairly sure of staying on — at the landlord’s risk, of course. If he has not proved reasonably efficient in the judgment of the landlord, he merely lives the next year at the expense of another landlord until another crop tells him the extent of the risk he has been to that landlord during that year. In the end it is all one to the tenant. The landlords, under this system, are fairly philosophical, although it is said they are at times exacting in respect of financial arrangements with, and collections from, their cropper tenants. This system of farming is not without its hazards to the landlord, as the bank reports in the cotton belt in a bad year will show. One who knows something of the cropper tenant system in the cotton belt does not have to tax his credulity to believe that the landlord finds means to credit his outstanding accounts to the capacity of the tenant. He commonly sees to it that there is rendered to Caesar the due that is Caesar’s. If aught is left over, and there sometimes may be, that may be rendered to whomsoever it may be rendered. But the landlord is rarely a poor collector. The Commissioner defends on the ground that the writing off of the indebtedness of these tenants constituted a gift or forgiveness of indebtedness. Our judgment tells us that this is not so. We do not incline to the opinion that eleemosynary considerations entered into the petitioner’s operation of his plantation, or that it was an impulse of generosity which prompted his charging off these debts.

To one who has read the record, it is apparent that the financial picture here can not be drawn with the fine point of a Bembrandt or a Dürer, or painted with the nicety of a Botticelli. A broad brush must be used, for the picture is a broad one of the lives of the lowly.

It is clear to us that the petitioner knew the financial conditions of his tenants. No one knew better. In the light of that knowledge, he ascertained these accounts to be worthless and in the taxable year he charged them off. The statute gave him a right to do so and to take a deduction from his tax return accordingly. That he continued to employ these tenants, under the conditions shown here, can not affect the result. Midland Coal Co., 1 B. T. A. 311.

As to the overseer or manager of the plantation, Gayle, we are not so convinced. Gayle had a substantial account with the petitioner, who also held Gayle’s note for $300. He continued on thereafter as manager of the petitioner’s plantation. The only amount petitioner charged off at the end of the taxable year was Gayle’s note of $300. The open account in a substantial amount was not charged off. We are not convinced that the petitioner correctly ascertained the note "to be worthless, while at the same time holding the open account to be good.

In our opinion the petitioner is entitled to his deduction for bad debts to the extent of $11,194.89.

Judgment witt be entered on 15 days’ notice, under Bule 50.


author: Morris:

text:
    Glenwood Hotel Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 2919.
    Promulgated December 31, 1926.
    Losses claimed by the petitioner on the sale of stock disallowed.

      E. H. Tooley, 0. P. A., for the petitioner.

      D. D. Shepard, Esq., for the respondent.
    The petitioner appeals from the determination of a deficiency of $7,648.84, income and profits taxes for the fiscal year ended May 31, 1921. The question involved is whether alleged losses of $21,089 and $6,107.03 upon the sale of two separate blocks of stock on May 31,1921, are deductible.
    findings of fact.
    The petitioner is a California corporation, operating the Glenwood Mission Inn, at Riverside, Calif.
    Some time during 1906 or 1907 the petitioner acquired stock in the Huntington Park Association, which was organized to purchase a piece of real estate on the outskirts of Riverside. The property included Mt. Rubidoux, upon which it was proposed to have a semi-public park, to be reached by a road constructed around the mountain, the funds for which were to be acquired by the subdivision and sale of lots at the base of the mountain. Huntington and Miller, who was president of the petitioner, were intimate friends and were active in the organization and incorporation of the Huntington Park Association. The petitioner acquired stock expecting to benefit from the tourist trade.
    The petitioner also acquired stock in the Victoria Club, a local golfing organization, where guests of the hotel were privileged to play upon payment of a small fee.
    The petitioner set up on its books as a debit on June 1, 1920, an amount of $18,165, under an account headed “ Huntington Park Association stock,” which was brought forward from an old ledger. On April 30, 1921, this account was further debited with an amount of $2,925, which represents two items of $2,630 and $295 charged to expense as of May 31, 1919, and disallowed as expense deductions by a Government examiner, resulting in total debits to the account of $21,090. The account headed “ Victoria Club Stock ” was debited on June 1,1920, in the amount of $3,125, which was transferred from an old ledger. There were posted subsequent to June 1, 1920, amounts totaling $2,983.03, part of which represents items charged to expense as of May 31, 1918, and May 31, 1919, and disallowed as expense deductions by a Government examiner, making total debits to that account as of May 31, 1921, of $6,108.03. These total debits represent purchases of stock in the Huntington Park Association most of which was acquired in 1906 or 1907, purchases of stock in the Victoria Club, most of which was acquired prior to 1913, but some thereafter, and assessments which were made on the stock of both companies after its purchase by the petitioner.
    At a meeting of the board of directors of the petitioner held May 16,1921, the following resolution was adopted :
    Whereas, the corporation is the owner o£ certain securities, which, in the opinion of the board of directors, are carried on the hooks of the corporation in excess of their real value as follows: Stock, Huntington Park Association, $21,090; Stock, Yosemite Park Company, $5,000; Stock, Victoria Club, $6,108.03; Stock, Riverside Realty Company, $1,000; Stock, Riverside Holding Company, $1,900; therefore be it resolved that the President be and is hereby authorized to dispose of any part or all of said securities for cash at the best price obtainable.
    On May 31, 1921, the stock of the Huntington Park Association was sold to Alice M. Hutchings for $1, and that of the Victoria Club to Dewitte B. Hutchings, her husband, for $1. Both of these stocks stood in the name of Miller, and Alice M. Hutchings is his daughter. At the time of the sale Miller owned a majority of the stock of the petitioner, his daughter was its secretary, and both she and her husband were stockholders. Miller would not sell the stock to an outsider who would insist upon its transfer on the stock records. He wanted it to remain on the books as originally issued.
    As of May 31, 1921, the accounts of the Huntington Park Association and the Victoria Club show a credit in each case of $1 and additional credits of $21,089 and $6,107.03, respectively. The latter amounts are posted from the journal account, profit and loss, as of May 31,1921.
    The amounts of $21,089 and $6,107.03 were claimed as deductions by the petitioner in its return for 1921 and disallowed by the Commissioner.
   OPINION.

Morris:

The question presented to us in this proceeding is whether upon the facts hereinabove set forth the petitioner may deduct during the taxable year in question the loss claimed. As to the major portion of the loss the record is lacking in the salient factors for the determination of that question. We are advised of certain book entries carried forward from prior ledgers representing purchases of the stock in question both prior and subsequent to March 1, 1913, and assessments thereon. The record is silent as to the number of shares purchased, the dates thereof, the dates of the assessments, the March 1, 1913, value of the stock held on that date and the purchases and assessments subsequent thereto. The fact that assessments were made on the stock leads us to believe that the March 1, 1913, value was substantially less than cost, which inference is substantiated by the testimony of one of the witnesses to the effect that the stock in question was never worth what it cost and, with the possible exception of the Huntington Park Association, was not even bought for investment purposes but for the indirect benefits flowing from its acquisition in the increased volume of hotel business.

It appears, however, that certain expenditures were made in the fiscal years 1918 and 1919 and charged to expense, which were, after the opening of the new ledger, debited to the two stock accounts in question, representing either additional purchases of stock or assessments. Whether one or the other is immaterial, as in either event such expenditures should be added to the March 1, 1913, value of the stock, and if such value were zero, they would constitute the basis for computing the loss in the absence of specific evidence of other such expenditures after that date. It therefore becomes necessary to determine whether under the instant facts the petitioner may deduct as a loss the difference between those expenditures and the sale price of the stock.

The resolution of the board of directors authorized the sale of the stock for cash at the best price obtainable. There is no evidence of any effort being made to sell the stock to outside interests. On the contrary, Miller did not want any sale to be made which would necessitate a transfer on the stock records. The stock stood in his name; he was president of the petitioner. Two weeks after the passage of the resolution the stock was sold to other stockholders, one his daughter, who was secretary of the corporation, and her husband. The stock was purchased primarily with the idea that through its ownership business would be increased. After the sale the petitioner continued to derive whatever advantage existed from its ownership.

We were not given the benefit of any testimony from the principals in the transaction whose knowledge of the facts might have thrown considerable light thereon. On the basis of the facts presented, we are of the opinion that the sale was not bona -fide, and that, even to the extent of the expenditures made after March 1, 1913, and identified, minus the sale price of the stock, the petitioner did not sustain a deductible loss.

The deficiency for 1981 is $7fiJ¡,8.8J¡.. Order will be entered accordingly.


author: Sternhagen:

text:
    Emilio Marino, Petitioner, v. Commissioner of Internal Revenue, Respondent
    Docket No. 7465.
    Promulgated December 31, 1926.

      T. M. Mather, Esq., for the respondent.
   Sternhagen:

The petitioner was engaged as a salesman for selling certain goods to retail drug stores. His salary was $60 a week and this was his sole income. He claimed to have paid $30 a week to a chauffeur to drive him in a Ford automobile to his various customers, and these payments, together with oil, gas and repairs, amount to $1,786, which he deducted as an ordinary and necessary expense. The deduction was disallowed by the Commissioner, resulting in a deficiency for the year 1923 of $23.86.

After hearing the petitioner’s evidence, we are not convinced that the amount claimed was in fact sustained as an ordinary and necessary expense of the business, and, therefore, affirm the Commissioner’s disallowance.

Judgment will he entered for the Commissioner.


author: Lansdon:

text:
    Appeal of J. W. Blair, Administrator, Estate of W. A. Blair.
    Docket No. 1870.
    Promulgated December 31, 1926.

      W. E. Bak'd, C. P. A., for the petitioner.

      Robert A. Littleton, Esq., for the Commissioner.
    This appeal is from the determination of a deficiency of $188.59 in the income taxes of the decedent for the year 1920. The deficiency arises from the disallowance by the Commissioner of a loss of $1,780, sustained by the decedent in the sale of a residence in the City of Atchison, Kans.
    FINDINGS OF FACT.
    Some time prior to March 1, 1913, the decedent purchased a residence in Atchison, Kans., and lived in it until in 1917, when a fire compelled him.to remove his furniture therefrom. Thereafter he resided for a few months with his parents, and then in a suburban residence which he purchased and occupied as his home. The property in which the fire occurred remained vacant until early in 1918, when he remodeled and reconstructed the building to put it on a rental basis, expending about $2,000 for that purpose. Thereafter he rented it for profit and regularly accounted for the rentals in his income-tax returns. In 1920 he sold the property to his tenant.
    In his income-tax return for the year 1920 the decedent deducted from his gross income the amount of $1,780, as a loss sustained in a transaction entered into for profit. Upon audit of such return, the Commissioner disallowed the alleged loss, added the amount thereof to the decedent’s gross income, and determined the deficiency here in controversy.
   OPINION'.

Lansdon:

The petitioner has failed to prove the cost of the property, its value at March 1, 1913, the amounts expended in its repair for rental purposes, or the sale price. Lacking these essential factors for the determination of gain or loss, we approve the determination of the Commissioner.

Judgment will he entered for the Commissioner.


text:
    Thomas Barrett, Jr., and Frank H. Barrett, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 878, 879.
    Promulgated January 5, 1927.
    In the taxable year the petitioners received certain payments from a corporation of which they were stockholders, officers and executives. Such payments were accounted for as salaries. Held, that the payments in question were salaries or bonuses and were subject to normal tax and surtax.

      George M. Stanton, Esq., for the petitioners.

      P. M. Clark, Esq., for the respondent.
    The Commissioner has asserted deficiencies in income taxes and surtaxes as to Thomas Barrett, Jr., for the fiscal years ended June 30, 1919, 1920, and 1921, and as to Frank H. Barrett for the fiscal years ended June 30,1920 and 1921, in amounts not disclosed by the record. At the hearing counsel for the petitioners abandoned all contentions as to 1919 and 1920, leaving in controversy only the asserted deficiencies for 1921. Two issues are involved: (1) The nature of certain payments made to the petitioners by Barrett & Company, a corporation; and (2) whether each of the petitioners is entitled to deduct certain amounts from gross income as losses sustained during the taxable year. Counsel stipulated that the two proceedings should be consolidated for hearing and decision.
    FINDINGS OF FACT.
    The petitioners are individuals who resided in the State of Georgia during the taxable year and each was a stockholder, officer and executive of Barrett & Company, a corporation engaged in business as a cotton factor. Throughout the year 1921, Thomas Barrett, Jr., owned 25 shares of the stock of that company, which he acquired on September 1, 1913, at a cost of $179.11 per share, and Frank H. Barrett owned 267 shares, which he acquired at various dates and costs, namely: 175 shares in 1912, at $100 per share; 9 shares on September 1, 1913, at $179.11 per share; and 83 shares on June 30, 1916, at $641.39 per share.
    In the year 1921, Thomas Barrett, Jr., and Frank H. Barrett received from Barrett & Company the respective amounts of $25,000 and $50,000, which were charged into the profit and loss account of the co'mpany as salaries.
    Barrett & Company was a going business concern in 1921 and in that year enjoyed its usual volume of transactions.
   OPINION.

Lansdon:

There is no dispute that the payments in question were made.

The petitioners presented no evidence in support of their contention that the amounts received were either regular or liquidating dividends. The only witness called, the bookkeeper and secretary of Barrett & Company, testified that the payments were made and accounted for as salaries. On this point we approve the determination of the Commissioner.

The petitioners also contend that they are entitled to certain deductions from their respective gross incomes for the taxable year on account of losses sustained during such year. The deductions claimed are on account of losses alleged to have been sustained by reason of the stock of Barrett & Company and certain other corporations becoming worthless in the year 1921. Barrett & Company was a going business concern and handled a very large volume of its usual transactions during that period. The record contains no evidence that its stock or any other stock owned by the petitioners became worthless in 1921.

Judgment will be rendered for the Gomrms-sioner after 15 dags’ notice, wider Bule 50.


text:
    Ewing B. Swaney, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 2863.
    Promulgated January 5, 1927.
    On the evidence, held, that cost of liming soil for the purpose of increasing productiveness over a term of years is a capital expenditure which is subject to annual deductions for exhaustion, wear and tear during the period in which such liming is effective.

      ’William D. Karris, Esq., and Charles L. LeweUyn, Esq., for the petitioner.

      J. L. Deveney, Esq., for the respondent.
    The Commissioner has asserted deficiencies for the years 1919 and 1920 in the respective amounts of $933.99 and $1,947.81. Two issues are involved: (1) Whether the cost of applying burned lime to the soil of the farms owned by the petitioner is an ordinary and necessary business expense for the year in which such applications were made or a capital expenditure. (2) If the cost of- such applications of lime is a capital expenditure, what is the correct rate of exhaustion for the computation of annual allowances for exhaustion, wear and tear?
    JTINDINGS 03T FACT.
    The petitioner is an individual residing on and operating his own farm as a trade or business. The farm in question consists of two tracts, one of 185 acres purchased in 1903, and the other of 200 acres purchased in 1917. The tracts are not contiguous, but during the taxable years were operated by the petitioner as a single business enterprise.
    During the year 1919 the petitioner prepared and burned three large lime kilns and scattered the lime so produced over a large part of his farm, all at a total cost of $9,024. During the year 1920, in like manner, he limed an additional area of his farm at a total cost of $5,800. In his income-tax returns for each of such years he deducted such costs from his gross income as ordinary and necessary expenses incurred in trade or business. The method of preparing and burning the kilns was such that, after the lime was carted away, nothing of value remained. From 5' to 8 tons of lime were scattered on each acre of the farm so treated.
    There are numerous coke ovens in the immediate vicinity of the farm. The smoke and fumes from these ovens are detrimental to the productive capacity of the land. The soil is mostly clay and on account of long use and its contiguity to the coke ovens it can not be farmed profitably without regular applications of lime. Due to the smoke from the coke ovens and the nature of the soil, a single application of lime in the amount used by the petitioner is not effective for more than 4 years. The Commissioner has held that the cost of applying lime to the soil of the petitioner’s farm is a capital expenditure and has allowed exhaustion of the same at the rate of 10 per cent per annum.
   OPINION.

Lansdon:

We have already held in the Appeal of J. H. Sanford, 2 B. T. A. 181, and in the Appeal of Goodell-Pratt Co., 3 B. T. A. 30, that disbursements of the nature here involved are capital expenditures. The evidence adduced convinces us that applications of burned lime in the quantities proved by the petitioner are effective for not more than 4 years. We are of the opinion that the cost of such liming should be exhausted for income-tax purposes at the rate of 25 per cent per annum.

Order of redetermination will be made on 10 days’ notice, under Rule 60.

Smith dissents.


text:
    Kaweah Lemon Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 4583.
    Promulgated January 5, 1927.
    1. A commercially operated lemon grove is a depreciable asset.
    2. Bates of depreciation on lemon trees, orchard equipment, trucks, and tractors, determined.

      Clyde F. Murphy, Esq., and L. H. Rogers, O. P. A., for the petitioner.

      D. D. Shepard, Esq., for the respondent.
    This is a proceeding for the redetermination of a deficiency in income and profits tax for the fiscal year ended July 31, 1920, in the amount of $639.97. The controversy arises from the disallowance by the Commissioner of any depreciation on lemon trees owned by the petitioner at March 1, 1913, and on certain tractors and trucks acquired during the taxable year.
    FINDINGS OF FACT.
    The petitioner is a California corporation, with its principal office at Lemon Grove, where it is engaged in the production and sale of lemons. At March 1, 1913, it owned a producing grove of 15,000 lemon trees, which had a fair market value of $12 each at that date. The normal, productive, useful life of a lemon tree is 30 years.
    During the taxable year the petitioner acquired trucks, automobiles, tractors, and spray outfits as listed below with dates of purchase, cost, and rates of depreciation stipulated by the parties and which the Board finds are reasonable:

   OPINION.

Lansdon:

The evidence convinces ns that the petitioner owned a lemon grove of 15,000 trees at March 1, 1913, that such grove had a fair market value of $180,000 at that date, that the grove was producing lemons in commercial quantities at such date, and that the useful life of a lemon tree is 30 years.

During the taxable year the grove was in full bearing as a commercial orchard, and the petitioner is entitled to an annual allowance for its exhaustion under the provisions of section 234 (a) (7) of the Revenue Act of 1918. We have found that the normal useful life of a lemon tree is 80 years. It follows, therefore, that the average composite useful life of all the trees in the grove is 30 years and that the petitioner is entitled to an annual allowance of 3½ per cent as a deduction from gross income, based on value at March 1, 1913, plus subsequent capital additions.

There appears to be some confusion in relation to equipment acquired during the taxable year. The petitioner alleges that the Commissioner refused to allow any deductions on account of depreciation of such equipment, but this is denied. The petitioner is entitled to deduct from its gross income for the taxable year depreciation on implements and equipment acquired during the year at times and costs and stipulated rate of depreciation as set forth in our findings above.

Judgment will be entered after W days' notice, under Rule SO.


text:
    Lester H. Cranston et al., Executors, Estate of R. B. Cranston, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 3890.
    Promulgated January 5, 1927.
    The Board has no jurisdiction to determine whether an overpayment of tax shall be credited or refunded, or whether refund is barred by the period of limitation provided by the statute.

      Frank I. Ford, Esq., for the petitioners.

      George E. Adams, Esq., for the respondent.

      This is a proceeding for the redetermination of deficiencies in income tax amounting to $3,183.19 for 1921 and the period January 1 * to November 3, 1923. The notice of deficiency shows the following tabulation:

    FINDINGS OF FACT.
    R. B. Cranston died November 3, 1923, at which time he resided at Woodland, Calif. By his will, dated January 18, 1922, he appointed his four children, Lester H. Cranston, George B. Cranston, and Thornton E. Cranston as executors, and Hazel V. Cranston as executrix. The estate having been administered and the obligations and incumbrances having been satisfied, the Superior Court of California issued a decree of distribution on the ninth day of January, 1925, distributing the real and personal property in equal shares among the children in accordance with the will.
    During April, 1924, a revenue agent made an examination of decedent’s liability for 1919 to November 3, 1923, inclusive, and submitted a report dated May 20, 1924, to the Commissioner. May 5, 1924, an “ income and profits tax waiver ” form provided by the department, waiving the statute of limitations for 1917 and 1918, was executed, being signed “ R. B. Cranston, by George It. Cranston, Executor,” and was filed with the Commissioner prior to June 15, 1925. The other executors and the executrix were consulted before the execution of the purported waiver and agreed thereto. On May 29, 1924, the executors executed a claim for refund for 1918 of $1,630.65, the amount of the total tax shown on the original return of the decedent for that year, filed March 15, 1919, which was received by the Commissioner June 13, 1924. A supplemental investigation of the decedent’s tax liability for 1918 to November 3, 1923, was made by a revenue agent who, in a report dated July 23, 1924, recorded a refund for the calendar year 1918 in the sum of $1,630.65. Under date of October 18, 1924, George R. Cranston, executor, was notified that the claim for refund of $1,630.65 for 1918 on the return filed by R. B. Cranston, deceased, was rejected, for the reason that waivers filed by an executor of an estate are not acceptable with reference to the tolling of the statute of limitations and do not operate to extend the period for filing claims for refund, as provided in section 281 (e) of the Revenue Act of 1924, and, since the claim was not received until June 18, 1924, it was not filed within four years from the time the tax was paid. A so-called thirty-day letter for the years 1919 to November 3, 1923, inclusive, was mailed on or about October 20, 1924. It was stated therein that the overassessment indicated for the year 1918 is barred by the statute of limitations, as explained in a separate communication. The deficiency letter is dated March 3, 1925, and contains the following with reference to the year 1918:
    The apparent overassessment for the year 1918 can not be offered. It appears that under the statutes of the State of California an executor will not be permitted to waive the Statute of Limitations upon a credit which is barred. Consequently a waiver filed by an executor in the State of California would not be valid if the Statute of Limitations had run at the time the waiver was executed.
    The Statute of Limitations ran against the 1918 return in question on March 15, 1924.
    The waiver executed by you under date of May 5, 1924, therefore, is not valid, consequently the claim for refund filed by you on June 13, 1924, can not be allowed.
    At the hearing the Commissioner moved that the petition, in so far as it relates to the year 1918, be dismissed on the ground that the Board has no jurisdiction, in that the final determination for that year was on October 18, 1924.
   ORINIOET.

Morris:

The petitioners do not dispute the correctness of the over-assessments for 1920 and 1922 or the deficiencies for 1919, 1921 and 1923. The only question raised is the refusal of the Commissioner to credit the overpayment for 1918 against the deficiencies for those years. The Commissioner contends that the Board has no jurisdiction to consider the year 1918, as his final determination for the year took place in October, 1924, and that he is without authority to refund the taxes paid in 1919 for 1918, as the purported waiver signed by one of the executors subsequent to the expiration of the period allowed by law for making assessment of taxes for the year for which such waiver was given may not, under the laws of California, be considered a valid waiver on which the allowance of a claim for refund may be based. The petitioners contend that the final determination was made by the Commissioner in his letter of March 3, 1925, that under the Appeal of E. J. Barry, 1 B. T. A. 156, and kindred appeals, the Board has jurisdiction of 1918, that the waiver of May 5, 1924, was valid, as the executors and heirs of the estate of R. B. Cranston were the same persons, and that therefore the over-assessment for 1918 should be credited against the net deficiency of $2,487.24.

It is unnecessary for us to go into the various questions raised by the parties to this proceeding. We have no jurisdiction over the year 1918, even though the Commissioner’s final determination as to that year is contained in the deficiency letter of March 3, 1925. Appeal of Cornelius Cotton Mills, 4 B. T. A. 255. As to how an overassessment for any taxable year should be applied is a matter of administrative policy which we have previously held is no part of our duty to decide. Appeal of Cleveland Home Brewing Co., 1 B. T. A. 87; Appeal of Dickerman & Englis, Inc., 5 B. T. A. 633. In the latter appeal we further held that whether credit or refund is barred by the period of limitation provided by the statute is beyond our jurisdiction. It follows, therefore, that the determination of the Commissioner must be approved.

Judgment will ~be entered for the Commissioner on 10 days' notice, under Buie 50.