text:
    Appeal of E. J. GALLAGHER REALTY CO.
    Docket No. 6726.
    Submitted March 11, 1926.
    Decided June 25, 1926.
    1. Amounts paid out of earnings by a corporation as premiums on the lives of its officers in excess of that part of premiums which is applicable to pure term insurance, should be included in invested capital as earned surplus.
    2. Sold, under the evidence, that the taxpayer being on the accrual basis, received taxable gain in 1920 and 1921 from the sale of houses when it permitted the building and loan association to hold as security a portion of the purchase price which it received as payments were made to the building and loan association.

      Abram R. Serven, Esq., for the petitioner.

      John D. Foley, Esq., for the Commissioner.
    Before GratjpNer and Trammell.
    This appeal involves deficiencies in income and profits taxes of $3,025.82 for the year 1919, $13,437.49 for the year 1920, and $279.97 for the year 1921, aggregating $16,743.28. The errors alleged are (1) that the Commissioner refused to include in invested capital for 1919 and 1920 the cost of life insurance policies on the lives of its officers, instead of the cash surrender value; and (2) that he included in income for 1920 and 1921 certain amounts set up on the books as “ Hypothecated unearned income,” representing amounts retained by certain building and loan associations as further security for mortgages placed on buildings erected and sold by the taxpayer.
    FINDINGS OF FACT.
    1. The taxpayer is a Maryland corporation, engaged in the business of building and selling residences, with its principal office at Baltimore.

      2. In 1916 the taxpayer took out an insurance policy on the life of its president, with itself as beneficiary, and paid premiums thereon in the aggregate amount of $3,207.15 to December 31, 1918. The cash surrender value of the policy at that time was $1,550. During 1919 , it took out insurance on the lives of other officers, including the president, and paid out in premiums thereon the total amount of $6,450.50 to December 31, 1919. The cash surrender value of said policies at that time was $2,220. The Commissioner excluded from the invested capital for 1919 and 1920 the cost of the policies and included only the cash surrender value.
    3. During the years involved in this appeal the taxpayer built and sold a number of houses. Its practice was to sell them for a small initial payment and finance the balance by mortgages given by the purchaser to building and loan associations. Such mortgages were for amounts in excess of those for which the building and loan associations loaned on similar property and, to protect themselves, the associations withheld such excess and required the taxpayer to execute bonds as security therefor.
    4. A typical bond executed by the taxpaj^er as security for this balance not paid over by the building and loan association is as follows:
    Know all men by these presents, that E. J. Gallagher Realty Oo. of Baltimore City, a body corporate of the State of Maryland, cloth hereby assign and transfer unto the Sterling Permanent Savings and Loan Association of Baltimore City, a body corporate of the State of Maryland (hereinafter termed association) one thousand dollars, the amount deposited this 29th day of January, 1921, by it with the said association.
    This assignment is made as collateral security for the payment of a mortgage loan of fifty hundred and seventy dollars, made this day by the said association to Henry P. McGinn and Blanche M. McGinn, his wife (hereinafter termed mortgagors), on property in Baltimore City, now known as No. 3101 Ravenwood Avenue as by reference to said mortgage will more fully appear.
    The payment by the said mortgagors to the said association of the sum of one thousand dollars, and all interest due by said mortgagors to the said association on account of said loan, and all ground rent, water rent, taxes, and other public charges on said property and all losses, charges, and expenses incurred in the foreclosure of said mortgage (should that be necessary before this bond is released) will render this assignment null and void; but otherwise the same is to remain in full force and effect.
    It is agreed and understood, however, that no failure upon the part of said association to take prompt advantage of any of its rights under the mortgage securing said loan, and no failure to notify it of any delinquency by said mortgagors in the payment of said dues, interest and expenses shall in anywise affect the liability of the fund hypothecated as hereinbefore set forth.
    5. During 1920 there was retained by building and loan associations, on account of sales made during 1920, $34,879. For 1921, the amount so retained by building associations was $19,388. The taxpayer entered these amounts under an account entitled “Hypothe-cated unearned income.” The taxpayer kept its books on the accrual basis. .
    6. In computing its income for 1920 and 1921, the taxpayer did not include the said amounts of $34,879 and $19,388, respectively, or any part thereof. The Comlnissioner restored these amounts to income and increased the tax liability accordingly.

      This decision was prepared during Mr. Graupner’s term of office.

   OPINION.

Trammell:

There are two questions presented in this appeal. (1) Whether the amount of premiums paid on life insurance policies taken out by the taxpayer on the lives of its officers may be included in invested capital; and (2) whether the so-called “ hypothecated profits not yet earned ” are income.

The Commissioner has allowed in the taxpayer’s invested capital the cash surrender value of the life insurance policies taken out on the lives of its officers as of the beginning of each taxable year. The taxpayer contends that the entire amount of premiums paid on such policies should be included in invested capital as the purchase price of an asset.

The statute provides that earned surplus shall be included in invested capital. However, it does not follow that the entire amount paid out each year as premiums on life insurance policies should be included in invested capital. A portion of such premiums is for current insurance during each of the years for which the payment is made and is not applicable to an asset having a life in excess of the year for which the payment is made. The capital value of the policy is not increased by the payment of that portion of the premium which is allocated to current earned insurance. It is only the amount of payments made each year to acquire or increase the capital investment which can be included in earned surplus. See Appeal of E. A. Armstrong, 1 B. T. A. 296. The earned surplus, with respect to the insurance policies, is the excess of the amount of premiums paid each year over the current annual insurance. In the absence of evidence that the cash surrender value represented anything other than the payments in excess of the current annual insurance, the determination by the Commissioner that the amount of the cash surrender value should be included in computing invested capital is approved.

With respect to the second question, an illustration of the conditions surrounding a sale will give a better understanding of the problems before us.

The method employed by the taxpayer in disposing of the houses constructed by it was as follows:

The taxpayer would sell a house for $4,000 and require an initial payment of $500. Arrangements were made whereby the purchaser would give a mortgage to a building and loan association for $3,500. As the association did not consider the property adequate security for more than $2,500, it would pay over to the taxpayer only $2,500 and retain $1,000 until the purchaser had paid to it that amount in monthly payments; then it would pay over to the taxpayer the $1,000. The taxpayer was required by the building association to give its bond, in the form set forth in the fourth finding, as collateral security for this sum. The execution of the deéd to the purchaser, the mortgage by the purchaser to the building and loan association, and the bond by the taxpayer to the building and loan association were simultaneous transactions.

The Commissioner treated a transaction as completed with a realization of gain at the time of each sale. If we should be governed by the form of the transaction, the taxpayer received the entire cash payment for each house sold. It received $500 cash on a $4,000 house. The purchaser then placed a $3,500 mortgage with a building association, received the cash and paid the taxpayer in full. The taxpayer gave a deed to the purchaser. As a next step, however, which was simultaneous with the above transaction, the taxpayer assigned and transferred $1,000 of the money back to the building association as further security of the mortgage given by the purchaser. This is illustrated by the contract of the taxpayer with the building association, set out in the fourth finding. Looking, however, through the form to the substance, the taxj>ayer did not in substance receive the $1,000. This $1,000 is retained by the building association until the purchaser pays at least that amount on the mortgage. Out of the transaction the taxpayer does, in fact, receive in cash as much as $3,000 on the sale of the $4,000 house and the balance of $1,000 is retained by the building association. With respect to that $1,000 the building association merely acts as a collecting agent for the taxpayer and it is paid to the taxpayer out of the first money received in settlement of the mortgage. There is no question here of an installment sale. The taxpayer receives in cash as much as three-fourths of the purchase price of each house. If it receives the remaining $1,000 in installment payments, such a transaction does not come within the provisions of section 1208 of the Revenue Act of 1926 with respect to installment sales.

In view of the foregoing, we are of the opinion that, since the taxpayer was on the accrual basis, the action of the Commissioner in including in the taxpayer’s income $34,879 for 1920, and $19,388 for 1921, on account of such transactions, was correct. The fact that a portion of the purchase price for the property was assigned or left in the hands of the building association to insure mortgage payments by the purchaser and that the actual payment to the taxpayer was deferred does not, in our opinion, justify the taxpayer in excluding these amounts from income when it kept its books on the accrual basis.

The deficiencies are: $3,0%5.8% for 1919; $13,13749 for 19W; and $%79.97 for 19M. Order of redetermination will be entered accordingly.

Siiitii, SterNi-iageN, GeeeN, and MoRRis concur in the result only.


source: Caselaw Access Project

author: Korner, Chairman:

license: Public Domain

text:
    Appeal of SOUTHERN CALIFORNIA LOAN ASSOCIATION.
    Docket No. 4865.
    Submitted April 14, 1926.
    Decided June 25, 1926.
    1. When a question as to the jurisdiction of the Board is raised, that question must be determined before the Board proceeds further with the proceeding. Frost Superior Fence Go., 1 B. T. A. 1096; A. H. Stange, 1 B. T. A. 810.
    2. It is not the duty or province of the Board to decide questions of policy in the administration of the office of the Commissioner. Olois L. Green, 2 B. T. A. 148.
    3. Mailing by the Commissioner of a letter to the taxpayer by registered mail notifying the latter of a deficiency in tax, is a compliance with section 274 (a) of the Revenue Act of 1924.
    4. The statutory period within which appeals may be filed runs from the date of mailing deficiency notice and not from the date such notice bears.
    5. The Board is a quasi judicial body and Federal judicial decisions, relative to limitation of time for instituting proceedings, are applicable in its procedure and practice.
    6. Legislative history of the Board and weight to be given to it by the courts in interpreting Federal statutes reviewed.
    7. In computing the time within which appeals may be filed under section 274 of the Revenue Act of 1924, each and every day should be counted and if the sixtieth day falls on Sunday, the time for filing an appeal is not thereby extended to the following day. Following Sam Satovsky, 1 B. T. A. 22.
    8. Facts which do not appear in the record but which are contained only in petitioner’s brief, are not before the Board so as to enable it to base any decision thereon.

      Louis Laved Llamby, Esq., for the petitioner.

      W. Frank Gibbs, Esq., and J. Arthur Adams, Esq., for the Com-' missioner.
    Before KorNer.
    This proceeding came on for hearing on December 2, 1925, on the motion of the Commissioner to dismiss. The issue raised by the motion is the jurisdiction of the Board to hear and determine the proceeding. The proceeding involves income and profits taxes for the years 1918, 1919, 1920, and 1921, in the aggregate amount of $9,870.90.
    FINDINGS OP PACT.
    On April 15, 1925, the Commissioner notified the petitioner by registered mail of a deficiency, in respect of an income and profits tax, by mailing to it on that day, by registered mail, a letter notifying it of his determination that there was such a deficiency. Thereafter, on June 15,1925, the petitioner filed an appeal with the Board of Tax Appeals.
   OPINION.

Korner, Chairman:

The motion of the Commissioner goes to the jurisdiction of the Board to hear and determine this proceeding. That issue being before it, the Board must determine whether or not its jurisdiction obtains. If it does not, it can not be conferred by the parties either by their affirmative' or negative action.

I. The petitioner contends that the Commissioner’s motion raises no issue of fact because it is predicated on the fact that the petition contains allegations from which it appears that the petition was not filed within the statutory period prescribed for the filing of appeals.

The petition contains these allegations:

The above-named taxpayer hereby appeals from the determination of the Commissioner of Internal Revenue set forth in his deficiency letters of April 15, and February 28, 1925, copies of which are attached hereto as a part hereof, and as a basis of its appeal states as follows:
* » ** * * $ *
II. The deficiency letter was mailed to the taxpayer on or about, and not before April 15, 1925.

It may be stated in passing that the letters referred to were not attached to the petition nor do they appear at all in this record.

To this contention of the petitioner we deem it sufficient to reply that this Board must, from its own inspection of the record, determine whether the subject matter thereof is within its jurisdiction. Börs v. Preston, 111 U. S. 252, 255. The Board might go even further and hold that, since the Board is a tribunal of limited jurisdiction, the presumption, in every stage of the causé, is that the cause is without its jurisdiction unless the contrary appears from the record. Grace v. American Central Insurance Co., 109 U. S. 278, 283. If such a rule were applied in the instant case, the proceeding must of necessity have been dismissed on the face of the petition. There is no allegation therein contained which affirmatively shows jurisdiction in the Board. However, due to the fact that the statutory period within which appeals may be brought runs from the date of mailing of the statutory deficiency notice, and that date is peculiarly within the knoivledge of the Commissioner (although readily available to the petitioner), the Board has deemed it proper to require the Commissioner to submit evidence of the date of mailing of the deficiency notice when a motion is made by him to dismiss on jurisdictional grounds based on the failure of petitioner to file hib appeal within the statutory limitation óf time. We believe this i ule to be a salutary one and one Avhich can not but tend to convenience, expedition, and accuracy of fact.

The record here presents a question of jurisdiction which, however it be raised, we do not feel at liberty to pass without notice. Grace v. American Central Insurance Co., supra. The Board has heretofore applied this principle in matters of jurisdiction. Appeal of Frost Superior Fence Co., 1 B. T. A. 1096; Appeal of A. H. Stange, 1 B. T. A. 810, 815. When jurisdiction depends upon the existence of a fact its existence is a matter of evidence. The fact that the deficiency notice herein appealed from was mailed by the Commissioner by registered mail on April 15, 1926, was established by proof, the evidence of which was admitted by the Board with the expressed lack of objection on the part of petitioner’s counsel.

2. Petitioner’s second ground of defense to the Commissioner’s motion is that the Commissioner was required by the Revenue Act of 1924 to notify the taxpayer of the date of the mailing of the deficiency letter, and that this he failed to do.

The Revenue Act of 1924 provides:

Sec. 274 (a) If, in tlie case of any taxpayer, tlie Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the taxpayer, except as provided in subdivision' (d), shall be notified of such deficiency by registered mail * * *. Within 60 days after such notice is mailed the taxpayer may file an appeal with the Board of Tax Appeals * * *.
(c) If the taxpayer does not file an appeal with the Board within the time prescribed in subdivision (a) of this section, the deficiency of which the taxpayer has been notified shall be assessed, and shall be paid on notice and demand from the collector.

The effect of this position of the petitioner would be to require that, in addition to his mailing the deficiency notice to the taxpayer by registered mail, the Commissioner would be required to notify taxpayer that he had sent the notice and of the date of mailing thereof. In his brief petitioner’s counsel has suggested the method for effectuating this in a simple and effective manner. Much might be said in favor of his suggestion. Its adoption by the Commissioner might result in good. However, on that point we do not express an opinion. As we said in Appeal of Cleveland Home Brewing Co., 1 B. T. A. 87, 91: “It is no part of the duty of this Board, nor has it the right, to decide in any manner questions of policy in the administration of the office of the Commissioner.” See also Appeal of Clois L. Greene, 2 B. T. A. 148.

The statute has not imposed on the Commissioner the duty which petitioner contends should be his. The statute only requires that the taxpayer shall be notified of a deficiency by registered mail. The Commissioner has adopted the policy of writing a letter of notification and forwarding it to the taxpayer by registered mail. The statute provides that the taxpayer may appeal to the Board within 60 days after such notice is mailed. That is all. It then provides that if the taxpayer does not file an appeal within that time, the tax shall be assessed. It does not provide that the taxpayer may appeal to the Board within 60 days after such notice is mailed provided the taxpayer is further notified of the date of the mailing. It may be argued that such a provision is desirable but, even so, we can not supply that which Congress has omitted to say. We can only construe the statute, not write it. We do not believe that the petitioner’s contention in this respect can extend the statutory period within which a taxpayer must appeal.

The Board has never held that the date of the deficiency notice is proof of the date of its mailing or that the statutory period for filing an appeal runs from the date of such letter. The Board does hold that that period begins tp run from the date on which that statutory notice is mailed by registered mail. That is the plain statutory provision. Appeal of Hurst, Anthony & Watkins, 1 B. T. A. 26.

3. The third contention of the petitioner is that the petition was filed within 60 days after the mailing of the registered deficiency notice. By computation, the sixtieth day following April 15, 1925, was June 14, 1925. The latter day was a Sunday. The petitioner filed on June 15, 1925, and contends that in so doing he filed on the sixtieth day because Sunday is dies non juridicus. The issue may be briefly stated: Under section 274 of the Revenue Act of 1924, providing that á taxpayer may file an appeal with the Board within 60 days after the deficiency notice is mailed but that if he does not file an appeal with the Board within the prescribed time of 60 days the tax may be assessed, does the prescription “ within 60 days ” include Sunday if the sixtieth day falls on Sunday?

The Board has heretofore held in Appeal of Sam Satovsky, 1 B. T. A. 22, that all days within the prescribed period of 60 days should be counted and that Sunday should be counted as part thereof. In that appeal the Board adopted the reasoning of the Circuit Court of Appeals, Eighth Circuit, in Johnson v. Meyers, 54 Fed. 417, which is quoted in extenso in our opinion in that appeal.

The petitioner finds fault with Johnson v. Meyers, supra, and likewise with the Board for following its reasoning. The criticism of the former is that it is not in consonance with certain decisions of the Supreme Court of the United States which were called to our attention, and the latter falls under criticism on the ground that the rules applicable to limitation as to time in respect to instituting actions or appeals are not applicable to the Board. Let us analyze these criticisms.

In Johnson v. Meyers, supra, the court was construing a limitation as to time within which an appeal might be taken, under a Federal statute. This should not be lost sight of. The petitioner claims that Monroe Cattle Co. v. Becker, 147 U. S. 47; 37 L. Ed. 72, should govern. The opening words of the opinion in that case are (p. 52) :

This case involves the construction of the statutes of Texas with regard to the purchase of school lands, and depends upon the question whether, during the ninety days allowed to the proposed purchaser to make his first payment, it is competent for the surveyor to receive another application, for the same land * * *.

That case involved no Federal question or any Federal statute. A perusal of the facts therein convinces us that it has no bearing whatsoever on the point we are here considering. It is true that in the opinion the court said: “ As the ninetieth day fell on Sunday, tbe lands were not open to another application until Monday, the general rule being that, when an act is to be performed within a certain number of days, and the last day falls ©n Sunday, the person charged with the performance of the act has the following day to comply with his obligation.” But language must be read in connection with the subject matter under discussion. When the court uses the language just quoted in discussing a law of Texas relative to applications to buy school lands, we do not feel that such language is binding authority when the question under consideration is the limitation on the time for bringing an action under a Federal statute. It is quite conceivable, and to our minds probable, that, if the court had been discussing the latter issue, it might have held the contrary. We do not think the Monroe Cattle case is authority for petitioner’s position.

The case of Street v. United States, 133 U. S. 299, is urged by petitioner as favorably decisive of its contention. In our opinion that case is scarcely more in point than the one just referred to above. Indeed, it is of such doubtful support as to give reasonable grounds to the conclusion that it supports the opposite view. In 1870 Congress had enacted a statute looking to the reduction of the Army. Section 12 provided that if any supernumerary officers should remain after the first day of January, 1871, they should be honorably mustered out of service. January 1, 1871, fell on Sunday. By order dated January 2, 1871, Street was transferred to the list of supernumeraries by the Secretary of War. The plaintiff contended that, since the order of January 2, 1871, was after the first day of January, 1871, the order was illegal and of no force and effect. The court stated the case, in its opinion, as follows:

That order [oí January 2, 1871] is, therefore, the matter of inquiry.
In 1869 and 1870 acts of Congress were passed looking to a reduction in the army, and the order in question was made in pursuance to the last of these acts. The intent of Congress is obvious, and all proceedings had to carry such intent into effect should be liberally construed, and not subjected to any such technical limitations as will thwart such obvious purpose. [Pp. 299-300.]
* * * $ * * *
While it is conceded that the President might add to or take from the list of supernumerary officers, it is urged that he could muster out only those who were supernumerary officers at the close of the first day of January, 1879 [sic], the language being: “And if any supernumerary officers shall remain after the first day of January nest they shall be honorably mustered out,” etc., whereas, by the order actually made, he was transferred to the supernumerary list only on the second day of January. Concede the irregularity, and it is not such as vitiates the order. The purpose of the act is obvious. The direction of Congress was clear and distinct, and it would be strange if any executive officer could, by irregularity in executing the mandate of Congress, thwart this purpose. The matter of time was not vital. The purpose was reduction, * * * and while Congress prescribed the time within which this mandate was to be executed, there is neither m terms nor by implication any subordination of the power to the matter of time.
Again, it must be noticed that the first day of January was Sunday, that is, a dies non, and a power that may be exercised up to and including a given day of the month may generally, when that day happens to be Sunday, be exercised on the succeeding day. So that it is a matter worthy at least of consideration whether the power was not exercised within the very limits of the time prescribed by the act. [Pp. 305-306.]
All these matters justified the action of the President taken on the 2d of January, and if they do not establish that it was in full and literal compliance with the exact provisions of section 12, they certainly leave so slight a departure as scarcely to be worthy of mention. [P. 307.] (Italics ours.)

Finally, the court held (p. 307) that the action of the Secretary of War, whether irregular or not, had been validated by subsequent legislation, and the court conelüdes:

There has been thus full legislative recognition of its validity. It is too late, therefore, now to enquire as to whether it was in technical compliance with the procedure prescribed by the act of 1870. (Italics ours.)

From the foregoing, it must clearly appear that Street’s case is not determinative of the present issue favorable to petitioner’s contention, if indeed there is not strong indication therein to the contrary.

Tbe petitioner has called our attention to a line of cases arising in state jurisdictions which, it contends, support its position. We do not review these cases here for the reason that we recognize that in such jurisdictions there are numerous decisions favorable to petitioner’s position, arising under the peculiar statutes, or under the precedents followed, in such jurisdictions. Here we are concerned with a Federal statute and the construction of state courts given to their own laws can not control or modify Federal decisions to the contrary.

Danville v. Brown, 128 U. S. 503, is not authority for the petitioner’s position, for, in the statute there under consideration, there was an express exclusion of Sundays in the computation of time.

But the petitioner contends that the line of Federal decisions, among which is Johnson v. Meyers, supra, followed by this Board in iSatovsky,s case, relate to judicial procedure only and do not have any bearing on or relation to the interpretation of administrative law, and that the statutory limitation as to time within which an appeal may be instituted before this Board is purely administrative and not judicial. The petitioner contends that this Board is purely an administrative branch of the executive department and does not partake, nor have the aspects, of a judicial tribunal, and that the Federal decisions with respect to limitations as to time within which appeals may be brought can not have application. Let us examine into this.

The Board was created by the Revenue Act of 1924. But its form as it came into being was essentially different from that first contemplated. Among the amendments to the Revenue Act of 1921 proposed by the Secretary of the Treasury in his letter to the Chairman of the Committee on Ways and Means, on November 10, 1923, was one to “ establish a Board of Tax Appeals in the Treasury, but independent of the Bureau of Internal Revenue, to hear and determine cases involving the assessment of Internal Revenue Taxes.” It was stated that “ this will give an independent administrative tribunal equipped to hear both sides of the controversy * * Accordingly, the Treasury draft of the Revenue Act of 1924 provided for a Board of Tax Appeals in the Department of the Treasury, before which the proceedings were to be informed and in accordance with such rules as the Board, with the approval of the Secretary of the Treasury, might prescribe.

There were objections presented to this plan in the hearings before the Committee on Ways and Means, and that committee thereafter approved and reported out a draft of the Revenue Act of 1924 in which the appointment of the members of the Board was placed in the President. Under this draft, the adoption of rules and procedure in the Board was placed in the Boat'd, and the approval thereof by the Secretary was no longer required. The provision that the proceedings were to be informal was retained. In this form the bill was adopted by the House.

The Senate Finance Committee, after hearings, made substantial changes in the bill as reported to it from the House. It extended the powers of the Board in many respects, among which was the authority for ordering the taking of depositions and the answer, under oath, of any question of fact submitted. Provisions were made for the payment of witness fees similar to those allowed in the case of witnesses before the Federal courts. It was provided for the first time that the Board should be an independent agency in the executive branch of the Government.

A number' of important amendments were made in the bill as it passed the Senate. One was that the hearings before the Board should be open to the public. Another important amendment was the elimination of the provision that the proceedings of the Board should be informal and the substitution of the provision that the proceedings should be conducted in accordance with such rules of evidence and procedure as the Board might prescribe. The Senate bill added the provision that the testimony at the hearing should be reduced to writing. It likewise included the following new provision:

It shall be the duty of the Board and of each division to make a report in writing of its findings of fact and its opinion and decision in each case, and a copy of its report shall be entered of record and a copy furnished the taxpayer. Such report and all evidence received by the Board and its divisions shall be public records open to the inspection of the public. The Board shall provide for the publication of its reports at the Government Printing Office in such form and manner as may be best adapted for public information and use, and such authorized publication shall be competent evidence of the reports of the Board therein contained in all courts of the United States and of the several States without any further proof of authentication thereof.

The Conference Committee of the two Houses of Congress likewise made important changes further tending to formality of procedure and the practice of a court. It provided:

(h) Notice and an opportunity to be heard shall be given to the taxpayer and the Commissioner and a decision shall be made as quickly as practicable. Hearings before the Board and its divisions shall be open to the public. The proceedings of the Board and its divisions shall be conducted in accordance with such rules of evidence and procedure as the Board may prescribe. It shall be the duty of the Board and of each division to make a report in writing of its findings of fact and decision in each case, and a copy of its report shall be entered of record and a copy furnished the taxpayer. If the amount of tax in controversy is more than $10,000 the oral testimony taken at the hearing shall be reduced to writing and the report shall contain an opinion in writing in addition to tlie findings of fact and decision. All reports of tlie Board and its divisions and all evidence received by the Board and its divisions (including, in cases where the oral testimony is reduced to writing, the transcript thereof) shall be public records open to the inspection of the public. The Board shall provide for the publication of its reports at the Government Printing Office in such form and manner as may be best adapted for public information and use, and such authorized publication shall be competent evidence of the reports of the Board therein contained in all courts of the United Sates and of the several States without any further proof or authentication thereof. Such reports shall be subject to sale in the same manner and upon the same terms as other public documents. The principal office of the Board shall be in the District of Columbia, but the Board or any of its divisions may sit at any place within the United States. The times and places of the meetings of the Board, and of its divisions, shall be prescribed by the chairman with a view to securing reasonable opportunity to taxpayers to .appear before the Board or any of its divisions, with as little inconvenience and expense to taxpayers as is practicable.

The Conference Committee also agreed to a provision for the assessment and collection, upon notice and demand, of all amounts determined as deficiencies by the Board.

The Act, as finally approved by the President on June 2,1924, contained in sections 900, 274, 279, 280, 308, 312, 316 and 324, the provisions for the creation, authority and jurisdiction of the Board.

In its report to the House the Committee on Ways and Means said:

Under the provisions of the proposed bill creating a Board of Tax Appeals the taxpayer may, prior to the payment of the additional assessment of income, war-profits, excess-profits, or estate taxes, appeal to the Board of Tax Appeals and secure an impartial and disinterested determination of the issues involved. In the consideration of the appeal both the Government and the taxpayer will appear before the Board to present their cases, with the result that each member of the Board will sit solely as judge and not as both judge and advocate. (House Report No. 179, 68th Gong., 1st Sess., p. 8.)

The Senate Finance Committee reported to the Senate as follows:

The House bill provides for the establishment of a Board of Tax Appeals, members to be appointed by the President, with the advice and consent of the Senate. The Board is to act independently not only of the Bureau of Internal Bevenue, but of the Treasury Department. * * * The contentions of both the taxpayer and the Bureau of Internal Revenue will be heard and considered and the decision of the Board will be conclusive on both parties on the question of assessment. (Senate Report No. 398, 68th Cong., 1st Sess., p. 42.)

With the announcement of his having signed the Bevenue Act of 1924, President Coolidge issued a statement in which he referred to the Board of Tax Appeals. The President said inter alia:

Tlie provisions of the bill, however, with reference to the Board, make it in all its essentials practically a court of record. The Board is to be bound by formal rules of evidence and procedure.

Upon its organization tbe Board, pursuant to authority contained in the Revenue Act of 1924, adopted rules of practice and procedure. These rules were essentially the same as those obtaining in Federal courts of equity. The Board has so functioned since its organization. (Hearings before the Committee on Ways and Means, October 19 to November 3, 1925, pp. 851-945.)

The Revenue Act of 1926 continues the Board. The provisions relative to its procedure and practice are not materially changed, except that its rules of evidence must be in accordance with the rules of evidence applicable in courts of equity of the District of Columbia. (Section 907 (a) of the Revenue Act of 1924, as amended by section 1000 of the Revenue Act of 1926.)

After exhaustive hearings on the proposed Revenue Act of 1926, the Committee on Ways and Means made an extensive report to the House on the subject of the Board. Among other things it said:

In the view of the committee the decisions of the Board are judicial and not legislative or administrative determinations. (House Report No. 1, 69th Cong., 1st Sess., p. 20.)

The identical language just quoted was used by the Finance Committee of the Senate in its report to that body in respect of the same Act. (Senate Report No. 52, 69th Cong., 1st Sess., p. 37.)

The Congressional Record is replete with utterances of members of Congress as to the status of the Board. Space does not permit nor is it necessary to review them at length. A few instances may be cited as examples:

Mr. Green of Iowa. * * * And there again let me say that there is no other court in the world that considers cases which in the aggregate are of the magnitude of the cases that go before that Board. (Cong. Rec. Dec. S, 1925, p. 132.)
Mr. Garrett of Tennessee. * * * I recognize the quasi judicial character of this tax board. (Cong. Rec. Dee. 12, 1925, p. 316.)
Mr. Chirdblom. * * * Both the taxpayer and the Commissioner of Internal Revenue must seek their remedies, first in the Board of Tax Appeals and then in the Circuit Court of Appeals and finally, in proper cases, upon writ of certiorari to the Supreme Court of the United States. (Cong. Rec. Dec. 12, 1925, p. 323.)
Mr. Beedy. If the gentleman will examine the decisions of the Board, he will perceive they assumed the form of court decisions. I may add that these decisions are now being cited in some of our highest courts as authority. * * * (Cong. Rec. Dec. 18, 1925, p. 711.)
Mr. SuMmers of Texas. We are creating judicial offices by this bill. They are not technically judicial offices, perhaps, but in fact they are * * *. (Cong. Rec. Dec. 18, 1925, p. 712.)
Mr. Nokris. I want to get the Senator’s idea about some questions that have arisen in -my mind regarding the Board of Tax Appeals. I believe that it is more or less, and ought- to be more or less, of a judicial nature. They will pass purely and solely on questions of law. Am I right in that statement?
Mr. Kiiíg. Questions of fact necessarily are involved.
Mr. Norris. Oh, yes; I ought to modify my statement to that extent.
Mr. King. They are in a sense nisi prius courts.
Mr. Norris. But it is their duty to say what the law is on' the facts as they find them?
Mr. King. Tes. * * *
Mr. Norris. They are just the same as any other court in that respect?
Mr. King. Yes. * * *
Mr. Norris. It seems to me we are considering this tribunal as having rather a judicial aspect, and that, I think, is the way it ought to be considered. * * *
Mr. Norris. One of the things I think that everybody must concede as necessary if we are to obtain good results is that the decisions coming from this court shall not be conflicting; they must be uniform, of course. (Cong. Bee. Feb. 11, 1926, p. 3467.)
Mr. Shortridge. I am merely inviting the Senator’s attention and that of other Senators to the proposition that we want a speedy and correct determination of these cases, and this so-called Board of Tax Appeals is, in point of its functions, a judicial tribunal; * * *. The bill vests in the Board the functions of a trial court. It is to hear and determine facts as well as to resolve the law applicable to those facts. It is not merely a tribunal to listen to arguments touching matters of law. They receive evidence, they listen to witnesses, they receive evidence oral and documentary, as a jury does. (Cong. Be*. Feb. 11, 1926, p. 3469.)
Mr. Beed of Pennsylvania. The procedure outlined in the bill as reported from the committee treats the Board of Tax Appeals practically as a court of original jurisdiction. An appeal from the Board to the Circuit Court of Appeals is in all respects similar to an appeal from a district court to the Circuit Court of Appeals. The case is reviewed on the record and the appellate court has the power to reverse, with or without a venire de novo, or to affirm, but it does not try the case de novo. It does not take testimony. The practice is appellate practice entirely. (Cong. Bee. Feb. 11, 1926, p. 3472.)

We are not unmindful of tbe varying weight given by the courts to the different phases of legislative history in construing Federal statutes, but it seems to be well settled that while such legislative history can not be used to add to or take from the body of the statute, it may help in interpreting its meaning. Church of the Holy Trinity v. United States, 143 U. S. 457, 464; United States v. Union Pacific R. R. Co., 91 U. S. 72, 79; United States v. Fisher, 2 Cranch, 358, 386; Binns v. United States, 194 U. S. 486, 495; Knickerbocker Ice Co. v. Stewart, 253 U. S. 149, 162; United States v. Pfitsch, 256 U. S. 547, 550-551; Standard Oil Co. v. United States, 221 U. S. 1, 50, 66; New York & Cuba Mail S. S. Co. v. United States, 297 Fed. 158, 162 (C. C. A., 2d Circuit, 1924); United States ex rel. Patton v. Tod, 297 Fed. 385, 393-394 (Ibid, 1924); Acklin v. People’s Sav. Ass'n., 293 Fed. 392, 397 (D. C. 1923). (See generally “The Value of Legislative History of Federal Statutes,” University of Pennsylvania Law Review, January, 1925, pp. 157-169).

We believe that the committee hearings, the committee reports, the statement of the President, and the congressional debates indicate unmistakably the status of the Board of Tax Appeals, and this would appear to be equally clear from the statute itself.

The Revenue Act of 1926 provides for a review of the Board’s decisions by the Circuit Courts of Appeals and the Court of Appeals of the District of Columbia under such rules as the courts may adopt and, “ until the adoption of such rules, the rules of such courts relating to appellate proceedings upon a writ of error, so far as applicable, shall govern.” (Sec. 1001 (b), Revenue Act of 1926.)

In 1924 one Goldsmith applied for admission to practice before the Board. His application was denied for cause by the Board. He brought suit in the Supreme Court of the District of Columbia for writ of mandamus to compel the Board to enroll him. From a judgment dismissing his petition he appealed to the Court of Appeals of the District of Columbia. The appellate court, in Goldsmith v. United States Board of Tax Appeals, 4 Fed. (2d) 422, in affirming the court below, reviewed the authority and functions of the Board and said:

Consideration of this act [Revenue Act of 1924] as a whole convinces us that it was intended by Congress to confer upon the Board quasi judicial powers, and that hearings before it were intended to be and are of a quasi judicial character.

Goldsmith brought his case to the Supreme Court of the United States on error under section 250 of the Judicial Code. That court, in Goldsmith v. United States Board of Tax Appeals, 270 U. S. 117, likewise reviewed the duties and powers of the Board and, speaking through Mr. Chief Justice Taft, said:

We think that the character of the work to be done by the Board, the quasi judicial nature of its duties, the magnitude of the interests to be affected by its decisions, all require that those who represent the taxpayers in the hearings should be persons whose qualities as lawyers or accountants will secure proper service to their clients and to help the Board in the discharge of its important duties. * * *
Our conclusion in this case is sustained by the decision of the Supreme Judicial Court of Massachusetts in Manning v. French, 149 Mass. 391. * * * The fact that in the Manning case the body was called a court and that here the Board was an executive tribunal doe's not make the decision inapplicable. The Court of Alabama Claims was certainly not a United States court under the third Article of the Constitution. It was rather a commission to aid the fulfilment of an international award with judicial powers.

In the light of the foregoing, we feel justified in holding that the petitioner’s contention that the rules applicable to court process and procedure have no application in the case of this Board because the latter is purely an administrative body and without the characteristics or attributes of a judicial body, is without merit. The petitioner predicates bis argument on this assumption, since be admits that the rule announced in Johnson v. Meyers, supra, and followed in Satovshy's case by the Board, is a correct interpretation of a statute relating to judicial process as distinguished from a purely administrative provision. As indicated above, we believe the petitioner has founded its position on a false premise and that, accordingly, his conclusion is erroneous.

If we assume, then, that the general rules relating to judicial process are applicable, it remains only to ascertain what that rule is. We have had two cases of the United States Supreme Court called to our attention by petitioner, and we have heretofore pointed out that they do not sustain its contention because they have reference to a subject matter entirely foreign to this issue. Indeed, those cases were considered by us at the time Satovsky's case was written, but they appeared to us to be so far beside the mark that mention of them was not necessary.

The only other Supreme Court case called to our attention by petitioner is Meikleham v. Grafton, 246 U. S. 665, wherein writ of certio-rari was denied. The writ was sought for a review of the judgment of the Circuit Court of Appeals, Fifth Circuit, in the same case styled Grafton v. Meikleham, 246 Fed. 737. Reference to the latter case discloses the following language of the court:

The appeal was allowed October 2, 1916, from a judgment entered September 21, 1916. It was therefore allowed on the eleventh day, and would have been too late but for the fact that the day preceding October 2, 1916, was Sunday. Section 31 of the act of 1898 [the Bankruptcy Act] is as follows:
“ Whenever time is enumerated by days in this act, or in any proceeding in bankruptcy, the number of days shall be computed by excluding the first and including the-last, unless the last fall on a Sunday or holiday, in which event, the day last included shall be the next day thereafter which is not a Sunday or legal holiday. Comp. St. 1916, §0615.”
The appeal was taken in time.

The inapplicability of the foregoing is so patent that comment is unnecessary.

The case of Frost & Adams v. Saltonstall, 129 Fed. 481, was urged in argument by petitioner. In his brief the petitioner states, “ This [the law under consideration in that case] was purely an administrative law ” and in this we concur. As we have heretofore shown, the rules appertaining to such laws are not in issue here.

There is left for discussion only those cases which, in our opinion, are controlling of the issue before us. In Frackelton v. United States, 57 Ct. Cls. 587, the Court of Claims denied an application for appeal from a judgment of that court rendered on May 5, 1919, because the application was filed on August 4, 1919, the ninety-first day thereafter. The statute provided that appeals shall be taken within ninety days after the judgment is rendered. The ninetieth day fell on Sunday. The application was denied on authority of Siegelschiffer v. Penn Mutual Life Ins. Co., 248 Fed. 226; Meyer v. Hot Springs Imp. Co., 169 Fed. 628; and Johnson v. Meyers, supra. The court quoted with approval from the opinion in the Hot Springs case, supra, referred to hereinafter.

In SiegelsehifePs case, supra, the Circuit Court of Appeals, Second Circuit, discussed this subject at length and finds that when the last day falls on Sunday it is the general rule, made so by statute in many jurisdictions, that the act may be lawfully done on the next day. (Citing Monroe Cattle Co., supra.) The court further states that the law is not uniform as to the conditions under which this rule may apply and enumerates instances in which it may apply. The court then says:

The rule has, however, been held not to apply in computing the time limited by statute for the commencement of an action * * *.

The court then proceeds:

The theory is that, when the period within which an act is 'to be done is less than seven days, there is reason to think that juridical days are intended, and that Sunday following [sic] within such time should be excluded, but that, where the time limited is such that one or more Sundays must fall within it, the court should not extend the time fixed by excluding the last, the first, or any intermediate Sunday.

The Circuit Court of Appeals, Ninth Circuit, in Meyer v. Hot Springs Imp. Co., 169 Fed. 628, said:

But while courts may construe their own rules equitably and extend the time therein limited, they have no such power as to statutes, and the decided -weight of authority is that when the act is to be done within a time fixed by statute, and the last day thereof falls upon Sunday, that day will not be excluded, unless a different rule for computing the time is also provided by statute. (Citing numerous Federal authorities among which is Johnson v. Meyers, supra.)

The precise question now before us was presented to the Supreme Court of the District of Columbia in Belmont Smokeless Coal Co. v. United States Board of Tax Appeals. (Not officially reported to date but unofficially reported in Prentice-Hall Federal Tax Service 1926, Vol. I, p. 1202.) That court, in a memorandum decision by Hoehling, J. said:

This is a suit in mandamus to require the respondent to entertain an appeal from a deficiency assessment made by the Commissioner of Internal Revenue, April 22, 1925, when notice thereof -was mailed plaintiff.
Section 274 of the Revenue Act of 1924 (approved June 2, 1924), provides: “ * * * Within 60 days after such notice is mailed, the taxpayer may file an appeal with the Board of Tax Appeals established by Section 900.”
It is conceded that plaintiff prepared its appeal, verified it on June 19, 192ÍJ, and, on Saturday, June 20, 1925, mailed it, properly addressed, to respondent, and the latter received and filed it, Monday, June 22, 1925, being the sixty-first day from the day of the mailing of the notice of the deficiency assessment, supra — the sixtieth day being Sunday.
The short question here is whether, the sixtieth day, when it falls on Sunday, as it here did, may be extended to the next day; the statute itself being silent concerning such situation. The plaintiff contends that it should be so extended; the respondent denies that it may be, and, so. concluding, respondent dismissed plaintiff’s appeal. If the plaintiff’s contention be legally sound, the writ of mandamus should issue; otherwise not.
The question thus presented is both interesting and important; but, in the opinion of the court, it is ruled against plaintiff by the decision of the Court of Appeals of this District, in the case of Covey v. Williamson (52 App. D. C. 289;) thereafter approved in Huntt v. Brightwood Sanitarium Co., (53 id. 66).
Accordingly, it results that the petition herein should be dismissed, and judgment entered herein for the defendant with costs.

There is yet another feature in the legislative history of section 274 of the respective Revenue Acts of 1924 and 1926, the significance of which should not be overlooked. Section 274 of the Revenue Act of 1924 merely provided that “ within 60 days after such notice is mailed the taxpayer may file an appeal with the Board of Tax Appeals established by section 900,” and “ if the taxpayer does not file an appeal with the Board within the time prescribed in subdivision (a) of this section,” the deficiency shall be assessed and paid.

The Board construed that section in October, 1924, in Appeal of Sam Satovsky, supra, and has consistently followed that rule since that time. The decision of the Supreme Court of the District of Columbia in Belmont Smokeless Coal Co. case, supra, was rendered December 22, 1925. The revenue bill which became the Revenue Act of 1926 was taken up for consideration by the Committee on Ways and Means on October 19, 1925, and on December 7, 1925, the bill was introduced in the House and committed to the Committee of the Whole House on the State of the Union. The bill as it passed the House contained no essential change in section 274 from the Revenue Act of 1924, in so far as rola bes to the matter here under consideration.

In the Senate the Act was referred to the Committee on Finance and reported by that committee to the Senate on January 20, 1926. The Act as so reported contained the following amendment to the House bill:

Sec. 274. (a) * * * Within 60 clays after such notice is mailed (excluding Sundays and legal holidays of the District of Columbia), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. ■

With that amendment the Act passed the Senate and went to the Conference Committee. It will be noted that this amendment provided for exclusion of all Sundays, as well as legal holidays of the District of Columbia, thereby excluding intermediate Sundays from the computation.

The Conference Committee reported the Act with a further amendment in which the words (contained in the Act as it passed the Senate) “excluding Sundays and legal holidays of the District of Columbia ” were omitted and in lieu thereof there was inserted “not counting Sunday as the sixtieth day.” The result of this amendment as agreed to in conference was to cause the Act to read as follows:

Within GO clays after such notice is mailed (not counting Sunday as the sixtieth day), the taxpayer may file a petition with the Board of Tax Appeals for a redetermination of the deficiency.

In this form the amendment was enacted and became a part of the Revenue Act of 1926.

In commenting on the agreed amendment the Conference Report says:

The House bill authorized the taxpayer to file a petition with the Board of Tax Appeals within 60 days after the deficiency letter was mailed. The Senate amendment excludes from the computation of the 60-day period Sundays and legal holidays in the District of Columbia. Under the action of the conference committee, Sundays and holidays are to be counted like any other days, but if the sixtieth day falls on Sunday, the petition may be filed on the sixty-first day. (House Report No. 356, 69th Cong., 1st sess., p. 39.)

Two observations are to be made with reference to this amendment. (1) The Senate excluded all Sundays from the computation of the 60-day period allowed by the House bill for filing petitions, but agreed in conference to exclude only the last Sunday if that were the sixtieth day. The House bill carried the same provision in this respect as the Revenue Act of 1924. If, under the Revenue Act of 1924, the sixtieth day when a Sunday was properly to be excluded, then the amendment agreed to by the Senate and the House was a vain and innocuous thing. Yain enactments are not to be imputed to the Congress. (2) The Senate excluded legal holidays from the computation but agreed in conference to abandon this exclusion. As the law now stands the sixtieth day, if falling on a holiday, must be included in the computation, but if on a Sunday, it is excluded and this is by virtue of the amendment. Suppose the Senate had receded in conference from its amendment in its entirety, could there be a doubt but that Sundays and holidays would then be on the same footing? Common reason says no. If the Senate had so receded, the law would have been just as it was in the Revenue Act of 1924 — neither Sundays nor holidays properly to be excluded.

In Shwab v. Doyle, 258 U. S. 529, Mr. Justice McKenna, speaking for the court, at pages 534-535, said:

The initial admonition is that laws are not to be considered as applying to cases wbicb arose before tbeir passage unless that intention be clearly declared. * * *
There is certainly in it no declaration of retroactivity, “ clear, strong and imperative,” which is the condition expressed in United States v. Heth, 3 Cranch, 398, 413; also United States v. Burr, 159 U. S. 78, 82-83.

In Malley v. Howard, 281 Fed. 363, the Circuit Court of Appeals, First Circuit, said:

The history of the legislation lends emphasis to the initial impression of its import. For it is elementary that, when language used in an earlier statute has in application received judicial construction, change in language in later analogous legislation imports legislative purpose to attain a different result. * * * (pp. 365-366.)

See also United States v. Field, 255 U. S. 257, 264-265.

We believe that our decision in Satovshy's case was the correct one and we adhere to our opinion therein.

4. Petitioner’s last ground of defense to the Cotaunissioner’s motion is founded on a state of facts which do not appear in the record. It was raised for the first time in petitioner’s brief. There are no facts before us upon which we can express an opinion relative to this contention.

The appeal should be dismissed for lack of jurisdiction in the Board to hear and determine it.

Order of dismissal will Toe entered accordingly.

       For a more detailed statement of the legislative history of the Board see Holmes & Brewster's “ Procedure and Practice before the united States Board of Tax Appeals,” and “ Practice and Evidence — united States Board of Tax Appeals,” by C. D. Hamel.

      The practice and procedure before the Board is exhaustively treated in the works of Holmes & Brewster, and C. D. Hamel, above referred to. See also “ Procedure and Practice before united States Board of Tax Appeals,” by KixMiller & Baar.


text:
    Appeal of THE SHIPLEY SCHOOL.
    Docket No. 6494.
    Submitted March 10, 1926.
    Decided June 25, 1926.

      Pierce Archer, Jr., Esq., for the petitioner.

      J. A. Adams, Esq., for the Commissioner.
    Before AiiuNdell and LaNsdoN.
    The Commissioner has determined deficiencies in income and profits taxes for the fiscal years ended June 30, 1920, and June 30, 1921, in the respective amounts of $125.50 and $2,753.32, or a total of $2,878.82, all of which is in controversy. The sole issue raised by the petitioner is that the Commissioner erred in refusing to classify it as a personal service corporation for each of the taxable years.
   FINDINGS OF FACT.

The petitioner is a Pennsylvania corporation with its principal ofiice at Bryn Mawr, where it conducts a boarding and day school for girls. It was chartered in 1911, with an authorized capital of $25,000, divided into 500 shares of the par value of $50 each, all of which were issued for value. During the taxable years the stock was owned as follows: Eleanor O. Brownell 248y2 shares; Alice G. Howland 248% shares; Thomas F. Branson 3 shares. It is the successor of the Misses Shipley’s School, established in 1893 by Hannah T. Shipley, Elizabeth A. Shipley, and Katharine M. Ship-ley, and conducted by them until 1911 as a joint venture.

Kesulting from a series of contracts, the first made in 1911, all duly accomplished on terms not material to the issue here involved, Alice Gr. Howland and Eleanor O. Brownell acquired all the stock of the petitioner, except the qualifying shares issued to Branson, and all the real property used in connection with the school at a cost of approximately $175,000. The real property consists of about 2.28 acres of land and the various school buildings used by the petitioner. This property is not owned by the petitioner, but is leased by it from Howland and Brownell at a rental that was fixed at $10,000 per an-num during the taxable years.

Howland and Brownell are president and secretary-treasurer, respectively, of the petitioner and co-principals of the school. Each devoted her entire time to the business of the petitioner during the years in question. Howland supervised the housekeeping, looked after the health of the resident pupils, had charge of maintenance and repairs of the building and the purchase of new materials and furnishings, had the care of the grounds, interviewed all parents of pupils who visited the school, engaged all teachers, planned the courses of study followed in the instruction of pupils, and performed many other duties incident to the academic activity of the petitioner. Brownell interviewed new teachers and arranged for their work, represented the school whenever it was necessary to use the services of an attorney, looked after the payment of interest and taxes and other financial matters in connection with the business operations of the petitioner, had charge of relationships with colleges, visited colleges attended by former students of the school, and shared with Howland in responsibility for the maintenance of discipline and order among the pupils and teachers.

During the year ended June 30, 1920, the petitioner had 78 boarding pupils and 125 dajr pupils. For that year the charge for boarding pupils was $1,200 and for day pupils $200 a year for the younger and $300 for the older girls, and the gross income from these sources amounted to $124,850. During the year ended June 30, 1921, the petitioner had 80 boarding pupils and an average of 148 day pupils, and the fees received were unchanged, except that the charge for boarders was increased to $1,400, and the income from such fees amounted to $149,000.

During the taxable years the petitioner employed 22 and 26 teachers, respectively, and paid salaries thereto in the respective amounts of $29,951.55 and $39,268.62. Practically all teachers engaged in classroom work were graduates of institutions of higher education.

The petitioner’s income and deductions therefrom for §ach of the taxable years were as follows:

Fees for tuition and board charged by the petitioner are payable in advance for each half term and are collected not later than the end of the first five weeks of each such term.

Capital was a material income-producing factor. Judgment for the Commissioner.


author: Korner, Chairman:-

text:
    Appeal of EASTMAN GARDINER NAVAL STORES CO.
    Docket No. 10797.
    Submitted February 25, 1926.
    Decided June 25, 1926.
    Petitioner appealed from a notice of tbe Commissioner which was not a statutory deficiency notice and from which no appeal lay to the Board; thereafter, when more than 60 days had elapsed from the mailing of a statutory deficiency notice, taxpayer sought to amend its former petition so as nunc pro tunc to constitute that petition an appeal from the statutory deficiency notice. Held, that since the limitation had run against its appeal, its remedy was barred and that it could not, by process of amendment, constitute a void appeal to be a timely appeal.

      Charles P. Swindler, Esq., for the petitioner.

      T. M. Wilkins, Esq., for the Commissioner.
    Before Korner.
    This proceeding came on for hearing on the motion of the Commissioner to dismiss on the ground that the Board is without jurisdiction in the premises, for the reason that the -petition was not filed within the statutory period of limitation, and on the motion of the petitioner to amend its petition. The taxes involved are income and profits taxes for the calendar year 1919 in an amount undisclosed by the record.
   OPINION.

Korner, Chairman:-

The undisputed facts in this record disclose that on August 26, 1925, the Commissioner forwarded to the petitioner a so-called “ 30-day letter,” advising it of a proposed deficiency in tax and granting it 30 days within which to file with the Commissioner its protest or exceptions. From such a letter there is no appeal to the Board. The statute provides for an appeal to this Board only from a notice of the final determination of the Commissioner relative to the deficiency.

Thereafter, on November 19, 1925, the Commissioner forwarded to the petitioner notice of his final determination of the deficiency for 1919 — a so-called “ 60-day letter ” — from which lay the right of appeal to the Board.

On January 11, 1926, the petitioner filed with the Board a verified petition containing the following averments:

The above-named taxpayer hereby appeals from the determination of the Commissioner of Internal Revenue set forth in his deficiency letter IT :E: SM-EMB-B-26133, dated August 26, 1925, and as a basis of its appeal sets forth the following:
*******
2. The deficiency letter was mailed to taxpayer on August 26, 1925.

As has been above noted, there was no appeal open to the taxpayer, under the law, from the Commissioner’s letter of August 26, 1925. This is conceded by the petitioner. An appeal from the letter of August 26, 1925, was in every sense a nullity. It was not an appeal within the contemplation of the Revenue Act of 1924.

As it happened, however — and this appears to be conceded by counsel for the Commissioner — the statutory notice of final determination of November 19, 1925, had been mailed to the petitioner on that date and, for the purposes of this record, may be conceded to have been in taxpayer’s possession on January 9, 1926, when it forwarded to the Board its petition which was received and filed by the Board on January 11, 1926, and which has been referred to hereinabove. No mention or reference was made in the petition to the statutory notice of November 19, 1925. To this point, then, it can not be successfully contended that the appeal filed on January 11, 1926, was an appeal from the statutory deficiency notice mailed on November 19, 1925. The petitioner is specific in its petition concerning the letter from which it purported to appeal.

In due course the Commissioner, on February 5, 1926, filed a motion to dismiss the appeal of the petitioner, on tli% ground that the petition was filed 128 days after the mailing of the letter from which the appeal purports to have been taken. On February 16, 1926, the petitioner filed a motion praying:

(1) That said taxpayer be granted leave to file an amended petition.
(2) That said taxpayer be granted sixty days from tbe Board’s decision on tbis motion, within vshich to file such amended petition.

It will be noted that at the time of filing of the petitioner’s motion, just quoted, a period of 90 days had elapsed since the mailing of the statutory deficiency notice on November 19, 1925. Thus it is clear that unless the petition filed on January 11, 1926, from the 30-day letter of the Commissioner can be amended so as nunc pro tunc to constitute it in fact a petition on appeal from the statutory ■deficiency notice of November 19, 1925, the petitioner is without the right of appeal to this Board.

The taxpayer contends that the petition filed was in error in stating that it was an appeal from the Commissioner’s letter of August 26, 1925, but that it should have stated that it was an appeal from the Commissioner’s notice of November 19, 1925. It further contends, in effect, that since the Commissioner’s notice of November 19, 1925, had been mailed to the taxpayer, any appeal the latter might make should be deemed to be an appeal from the statutory notice, whether the taxpayer so stated or not, and/or in spite of any averments therein contained to the contrary. With this we are unable to agree. Suppose the Commissioner should mail a letter to a taxpayer advising it of an additional excise tax growing out of the manufacture of oleomargarine, and that thereupon the taxpayer should file a petition with the Board appealing specifically from such a letter — giving its date, symbol numbers and other pertinent identification. Suppose that, at the time of the filing of such a petition, the taxpayer had in its possession a statutory deficiency notice advising it of the final determination of a deficiency in income tax. Could it be successfully argued that after 60 days had elapsed within which it had the right to appeal from the last-mentioned notice, the taxpayer could come to the Board and at that time, by an amendment to its petition on appeal from the excise tax, institute an appeal to the Board from the determination of an income tax % We do not think so. This analogy is not a strained one. A taxpayer has no more statutory right to appeal to this Board from a 30-day deficiency letter than he has to appeal from an excise or a stamp tax. Such an action on his part is a nullity. The Board is without jurisdiction even to consider it, other than to dismiss it. Such a nullity can not be metamorphosed into a statutory and orderly appeal by the legerdemain of amendment. A sick or dying thing may be revivified and restored to life, but a dead thing can not be. A defective appeal may be remedied and made good by amendment, but an appeal which does not exist can not be made into one by the process of amendment.

In this proceeding the taxpayer filed a petition within 60 days from the date of mailing of a statutory deficiency notice. It predicated that appeal upon a prior 30-day letter of the Commissioner from which no appeal lay. Upon a motion by the Commissioner to dismiss such a petition on the ground that it was not taken from a notice which evidenced a final determination of a deficiency under the statute, the Board would be forced to dismiss. If, within 60 days from the mailing of the statutory deficiency notice, the taxpayer had filed a petition on appeal therefrom, that would have been a valid petition. If, within that same period, the taxpayer had filed a motion to substitute in the petition, then on file, the deficiency notice of November 19, 1925, for the letter of August 26, 1925, that (if done within the period of time within which a petition might be filed from the letter of November 19, 1925) might have been the basis for an order permitting the taxpayer to file a valid petition. The effect of such action might have been to substitute a timely and valid petition which in turn might, in effect, constitute the filing of a new and valid petition within the statutory period of limitation.

In the instant case, however, we have an attempt to validate, by amendment, a petition not filed with reference to, or as an appeal from, a determination of the Commissioner. We think this can not be allowed. To do so would mean that any petition, filed with the Board on any basis, or on any ground within the statutory period relating to statutory deficiency letters, might be validated and perfected as an appeal from a statutory deficiency notice, although taken without reference thereto and having no bearing or relation to the determination of the Commissioner therein contained; and irrespective of whether such statutory deficiency notice was mailed before or after such a petition was filed. Appeal of Everett Knitting Works, 1 B. T. A. 5.

The rule is stated in Willard v. Wood, 164 U. S. 502, wherein, speaking of the subject of limitation of actions, Mr. Chief Justice Fuller said (p. 523) :

The general rule in respect of limitations must also be borne in mind, that if a plaintiff mistakes bis remedy, in the absence of any statutory provision saving his rights, or when from any cause a plaintiff becomes nonsuit or the action abates or is dismissed, and, during the pendency of the action, the limitation runs, the remedy is barred. Alexander v. Pendleton, 8 Cranch, 462, 470; Young v. Mackall, 4 Maryland, 367; Wood on Limitations, 293, and cases cited.

See also an extensive discussion of this subject by Mr. Justice White in Union Pacifie Ry. Co. v. Wyler, 158 U. S. 285, 296-298.

There is a duty in the Board, imposed by statute, to hear and determine proceedings regularly and properly brought before it. There is not a duty, or even a right, in it to go outside the statute and hear and determine proceedings which are not so brought. In all those matters there is a duty in the taxpayer as well. His is the duty of pursuing his remedies, granted by the statute, in a regular, orderly and timely manner. In pursuance of its duties, the Board can not remedy fatal laches on the part of taxpayers and assume to attend, to the taxpayer’s duties as well as its own. Vigilantibus sed non dor-mientibus jura subserviunt.

We have ruled without opinion on situations almost identical with that here presented and entered orders of dismissal in the appeal of Lester C. Bissell, Docket No. 7144, and Appeal of Markar Shahpazian, Docket No. 9710, and we conclude here, as we concluded there, that the proceeding should be dismissed on the ground that it was not taken from a statutory deficiency letter and can not be perfected by amendment.

Order of dismissal will be entered accordingly.


author: Geaupnek:

text:
    Appeal of C. E. LONGLEY CO.
    Docket No. 6650.
    Submitted February 23, 1926.
    Decided June 28, 1926.
    Where the taxpayer, in making up inventories, arbitrarily deducted 7 per cent from invoice price bf goods to compensate for discounts, held,, that such method is not a compliance with art. 1583 of Regulations 45.

      Clarence L. Johnson, G. P. A., for the petitioner.

      F. 0. Graves, Esq., for the Commissioner.
    Before GraupNEr  and Tramcmell.
    This is an appeal from the determination of deficiencies in income tax of $313.27 for the calendar year 1919 and $502.90 for the calendar year 1920. The deficiencies result from the action of the Commissioner in refusing to allow a reduction of inventories for the respective years by a fixed percentage of cost.
    FINDINGS OE PACT.
    The taxpayer is a Connecticut corporation, with its principal office at New TIaven, and is engaged in the business of retailing men’s clothing and furnishings.
    For the years involved in this appeal, and for each year since its incorporation in 1898, the taxpayer has taken its inventory on the basis of cost, which it then reduced by 7 per cent to compensate for trade discounts received on purchases.
    The inventories as of January 1st, for each of the years 1919, 1920 and 1921, both on the basis of invoice prices and of invoice prices less 7 per cent, are as follows:
    Invoice price. 93 per cent basis.
    January 1, 1919-$71, 538. 34 $66, 530. 65
    January 1, 1920- 80,124. 78 74, 516. 04
    January 1, 1921- 95, 434. 22 89, 040. 82
    During the year 1919 the discounts actually received by the taxpayer averaged approximately 6 per cent of the purchases, and for the year 1920, approximately 5% per cent of the purchases.

      The amounts of the total purchases and the discounts received during these tivo years are as folloAvs:

      Purchases. Discount.

    1919-$247, 532. 56 $14, 686.15
    1920_ 304, 093. 25 17,234. 23
    Total_ 551, 625. 81 31, 920. 38
    The deficiencies in issue arise from the fact that the Commissioner rejected the arbitrary reduction of 1 per cent and adjusted the inventories for the respective years on the basis of cost, as shown by the invoices for goods purchased.
    The taxpayer’s books are kept on the acorual basis.

       This decision was prepared by Mr. Graupner during bis term of office.

   OPINION.

Geaupnek:

This proceeding is governed by section 203 of the Revenue Act of 1918, which provides:

That whenever in the opinion of the Commissioner the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.

In accordance with the authority vested in him by this section, the Commissioner, in article 1583 of Regulations 45, has prescribed that inventories shall be taken either on the basis of cost or of cost or market, whichever is lower, and that, in determining cost, trade or other discounts, except strictly cash discounts, may be deducted or not at the option of the taxpayer, provided a consistent course is adopted. This regulation of inventories is an administrative power conferred upon the Commissioner by the statute. Article 1583 is in conformity with the statute. Its requirements are reasonable.

The taxpayer herein can not be said to have complied with these regulations. An arbitrary deduction of a fixed percentage each year, without regard for the actual discounts received on the merchandise inventories, can not be said to be a compliance. That such a method does not truly reflect the cost is illustrated by the fact that in one of the years there is a variation of 1 per cent of cost between the estimated deduction and the average discounts received, and in the other year an even greater discrepancy occurs— a difference of 1 y3 per cent. See Appeal of Ederheimer-Stein Co., 2 B. T. A. 711.

The deficiencies are $313.27 for the year 1919 and $602.90 for 1920. Order will be entered accordingly.


author: Teammell :

text:
    Appeal of BENJAMIN BOOTH & CO., INC.
    Docket No. 3400.
    Submitted March 11, 1926.
    Decided June 28, 1926.

      Held, on the evidence, that the taxpayer is not entitled to a deduction on account of obsolescence of machinery.

      William, L. Wemple, Esq., for the petitioner.

      W. Frank Gibbs, Esq., for the Commissioner.
    Before Phillips and Tbammell.
    This appeal is from the determination of a deficiency in income and profits taxes -for 1919, 1920 and 1921, in the aggregate amount of $12,083.22. The sole issue is the amount of the deduction on account of the exhaustion, wear and tear, including obsolescence, of certain machinery of the taxpayer. The taxpayer claims a rate of 10 per cent apd the Commissioner has allowed a rate of 4 per cent.
    FINDINGS OF FACT.
    1. The taxpayer is a Pennsylvania corporation with its principal office at Philadelphia. It is engaged in the manufacture of card clothing. Card clothing is an article used by the textile industry in the production of woolen and cotton fabrics. It consists of sheets of heavy leather or canvas backs' studded thickly with pointed steel wires of uniform length which are used in machines for combing out the tangled fibers of wool or cotton until those fibers lie parallel with each other in order to render them spinnable.
    The machinery for manufacturing the article is automatic, highly complicated and requires precision of operation measured to the thousandth of an inch. This necessitates high efficiency of operation and requires constant inspection, maintenance and repair. The taxpayer had about 120 of these machines, costing approximately $1,000 each. The frame-work and certain parts of the machines had a long life, some, which have been operated over 25 years, being still in use. Many parts of the machinery had to be replaced or renewed every three to six months. They are subjected to great and constant vibration.
    2. There were no American manufacturers of this type of machinery, owing to the fact that there were only five other concerns in the United States which manufactured card clothing. The machinery was made in Germany and England. On account of the war, the taxpayer has, since 1916, rebuilt and manufactured its own machinery. It built 25 or 30 of its machines and rebuilt a large portion of the others, with the exception of the frames. The original machines were purchased 25 years prior from English and German firms.

      3. In 1916 the taxpayer bad an appraisal made of its plant, which had been accepted by the Commissioner as the basis for determining the deduction for depreciation purposes and also for determining a paid-in surplus. At the time of the appraisal the machinery was practically 100 per cent efficient.
    For 1918, 1919, 1920 and 1921, the taxpayer took depreciation (including obsolescence) at the rate of 10 per cent. The Commissioner allowed depreciation at the rate of 4 per cent.
    ,4. The high rate of depreciation claimed by the taxpayer was intended to include an allowance for obsolescence and to build up a reserve for any change in machinery design that might require replacing the machines with others of more modern design prior to the exhaustion of their ordinary useful life, in order to meet competition.
    5. The output of the card clothing machines depends upon the number of revolutions of certain parts per minute. There had been no radical or notable change in the machines designed from that used by the taxpayer for several years. During the taxable years in question the taxpayer had information of an indefinite character that experiments with a view to building machines with a greater number of revolutions per minute were being made in Germany. After the taxable years involved, this information became more definite and it was learned that the experiments were successful and that a machine had been perfected which would produce double the number of revolutions per minute.
    The .taxpayer occupied leased premises, under a two-year lease which expired in 1925, but under the terms of which, if notice was not given by either party thereto, it would continue under the same terms. The taxpayer considered the possibility of building an entirely new plant with modern machinery and equipment, but owing to poor market conditions in the textile industry it made no change and does not contemplate making a change in location until conditions in that industry improve. When a change is made a great part of the equipment will have to be abandoned. During the taxable years 1919, 1920, and 1921 the taxpayer’s plant operated at full capacity.
   OPINION.

Teammell :

There is no serious dispute between the taxpayer and the Commissioner with respect to the rate of depreciation based upon wear, tear and exhaustion of assets, or the cost or March 1, 1913, value of assets upon which the deduction is based. While the machines do heavy work and are subject to much vibration, the wearing parts are constantly replaced, such replacements being charged to repair and serving to keep the machines in good condition. The increased rate claimed by the taxpayer is based principally upon obsolescence. The taxpayer contends that experimentation in improved machinery for manufacturing card clothing has progressed to such a degree that in the near future there is a likelihood that the present machinery will become out of date and need to be replaced before the expiration of its life. There is no evidence, however, that the art had progressed to such an extent during the years involved in this appeal that the taxpayer could foretell that it would have to abandon its machinery and install the new and more modern machinery before the expiration of its useful life. The evidence relates more to what was known or discovered after the taxable years involved.

The deduction allowable for obsolescence is not to be based upon an expectation that progress in the art would be made in the future to such an extent that assets in use could not be profitably used in the future notwithstanding the workable condition, but is to be based on knowledge of conditions and the progress actually being made during the years when the deduction is claimed, which would lead to the conclusion that on account of such progress the assets are actually becoming obsolete. The state of becoming obsolete must be proven. What occurred after the taxable years is not sufficient to prove conditions existing during those years. There is no evidence that during the taxable years it was known that the machinery was in the process of becoming obsolete. As an illustration of the indefiniteness and uncertainty of the knowledge at that time, one of the principal witnesses for the taxpayer, when asked about conditions known in 1919, 1920 and 1922, said “ I did not hear much talk then but I knew what they were working on, but whether they had gotten them — they don’t tell us what they are doing * *

In view of the lack of evidence to sustain the taxpayer’s contention with respect to obsolescence, we must hold that it is not entitled to such a deduction. The evidence that the taxpayer was entitled to a greater deduction on account of exhaustion, wear and tear than that allowed by the Commissioner is very meager and insufficient. It was not seriously contended that a greater deduction was allowable unless it was on account of obsolescence.

With respect to the deduction claimed on account of the prospective abandonment of certain assets on account of moving to new quarters due to the expiration of the lease, we find no evidence in the record which would warrant it. The taxpayer had a two-year lease, but the lease provided that the lessee could remain in the possession of the property on the terms provided in the lease, if neither party gave notice to the other that it would not continue. No such notice was given, the taxpayer has remained as lessee under the terms of the lease, and there is no evidence as to when it is expected to give up the premises. The mere probability that within a few years the premises will be given up, which will necessitate abandoning certain assets, is not sufficient to entitle the taxpayer to an obsolescence deduction with respect to such assets. It does not appear that any plans for giving up the possession of the property had been formulated or contemplated in the years involved.

For the foregoing reasons we must sustain the action of the Commissioner.

Order of redeterm,ination will be entered on 15 days’ notice, under Rule 50.


author: Geaupnee:

text:
    Appeal of THE MACMILLAN CO.
    Docket No. 5240.
    Submitted March 17, 1926.
    Decided June 28, 1926.
    Item allowed as invested capital.

      Raymond B. Goodell, Esq., and Edward B. Burlmg, Esq., for the petitioner.

      M. N. Fisher, Esq., for the Commissioner.
    Before GeaupneR  and Trammell.
    This appeal is from the determination of deficiencies in income and profits taxes for the fiscal years ended April" 30, 1919, 1920, and 1921? in the amounts, respectively, of $12,233.17, $5,687.03, and $12,928.04— a total of $30,848.24. The Commissioner refused to allow as invested capital for the fiscal year 1919 the sum of $109,968.30, representing the amount by which the inventory was understated at the beginning of the year. Two other issues raised by the pleadings were abandoned by the taxpayer at the hearing.
    FINDINGS OF FACT.
    Petitioner is a New York corporation with its principal office at New York City.
    In the valuation of its inventories at the close of the fiscal years 1918, 1919, 1920, and 1921, the petitioner, in accordance with the practice -which it had followed for many years prior thereto, deducted 20 per cent from the gross valuation to provide for damaged stock. The amounts of the aforesaid deductions at the respective dates were as follows:
    1918_$109,968.30
    1919_ 105,794.36
    1920_ 135,066. 79
    1921_ 170, 622. 08

      The net income reported by the taxpayer in its income and profits-tax returns for the fiscal years affected was based upon the inventories thus reduced.
    Upon examination of the returns for the three years under consideration, the Commissioner recomputed the taxable income upon the basis of the inventories without the aforesaid deductions. However, in computing the petitioner’s invested capital for the fiscal year 1919, the Commissioner excluded therefrom the amount of the reduction in inventory at the close of the fiscal year 1918, to wit, $109,968.30.

       This decision was prepared by Mr. Graupner during his term of office.

   OPINION.

Geaupnee:

In accordance with a practice which it has followed for many years, the petitioner has valued its inventories at the close of the fiscal years 1918 to 1921, inclusive, on the basis of 80 per cent of the gross valuations. The purpose of valuing its inventories on such a basis was to make provision for damaged goods, which would otherwise be included therein at 100 per cent of cost or market, according to the basis used by the taxpayer in making the gross valuation. These reduced inventories were used by the taxpayer in computing its taxable income for the three years involved in the appeal. However, the Commissioner rejected the taxpayer’s inventory values, and has recomputed the net income on the basis of inventory values representing 100 per cent of the taxpayer’s gross valuations. The reduction in the inventory at the close of the fiscal year 1918, occasioned by the taxpayer’s valuing the same at 80 per cent of the gross valuation, amounted to- $109,968.30. The Commissioner added the latter amount to the opening inventory for the fiscal year 1919, for the purpose of computing the net income of that year, but has disallowed said sum of $109,968.30 as invested capital for the same year. To the taxpayer’s allegation of error on this proposition, the Commissioner interposes an answer denying error and sets out as a proposition of law that “ Where a taxpayer’s closing inventory for a fiscal year ending in 1918 is understated by 20%, in accordance with a fixed policy which had been in force for a number of years, the amount by which such closing inventory for the fiscal year ending in 1918 is understated does not constitute earned surplus or undivided profits and should not be included in invested capital for the succeeding fiscal year.” In effect the Commissioner contends that the earned surplus should be reduced by a loss for damaged goods, which loss has not yet been realized for income-tax purposes and which loss the Commissioner refuses to recognize in computing income. There is no more ground for decreasing earned surplus by unrealized depreciation than for increasing earned surplus by unrealized appreciation. That the latter may not be done is established. La Belle Iron Works v. United States, 256 U. S. 377.

Something was said by counsel for the Commissioner, during the course of oral argument, relative to article 841 of Regulations 45 and the application of the provisions thereof to the proposition we are here considering. In that article the Commissioner has recognized the right of taxpayers to adjust their surplus accounts, for invested capital purposes, so as to eliminate errors occasioned by taking inventories upon a wrong basis of valuation, etc., but has made such right dependent upon the filing of amended returns for each year in which an erroneous return has been made. We can not concede, however, that.the filing of amended returns, showing correct computations of net income for prior years, can be made a condition to correct determination of a taxpayer’s liability for income and profits taxes for subsequent years. The fact that a taxpayer has paid lower taxes for prior years than those which were rightfully due, because of erroneous computations of taxable income, and that the statute of limitations now bars the assessment and collection of any deficiency for those years, does not justify an erroneous computation of its tax liability for any subsequent year. Appeal of Goodell-Pratt Co., 3 B. T. A. 30. Income and profits taxes are levied with respect to annual periods, and each annual period must necessarily stand by itself. Appeal of Atkins Lumber Co., 1 B. T. A. 317.

A recomputation of net income for all prior years on the basis of corrected inventories, to establish the correct earned surplus at th«5 beginning of the taxable year 1919, is unnecessary, since the net result must necessarily be the equivalent of the error in the last preceding inventory. Therefore, to add to the earned surplus at the beginning of the taxable year 1919, as shown by the books of account, the amount by which the inventory at the close of the preceding taxable year was understated, will result only in reflecting the true earned surplus at the date first mentioned, and it is the true earned surplus which the taxpayer is entitled to include in invested capital under the provisions of section 326 of the Revenue Act of 1918. The invested capital for the fiscal year 1919, as determined by the Commissioner, should be increased by the sum of $109,968.30, representing the amount by which the inventory was understated at the close of the preceding taxable year.

Order of redetermination will be entered on 15 days’ notice, under Rule 50.

Geeen concurs in the result only.

Van Fossan did not participate.


author: Phillips:

text:
    Appeal of HENRY HART.
    Docket No. 9954.
    Submitted April 12, 1926.
    Decided June 28, 1926.

      George M. Powell, C. P. A., for the petitioner.

      D. D. Shepard, Esq., for the Commissioner.
    Before Phillips.
    The taxpayer appeals from the determination of a deficiency of $173.78, income tax for 1922. The appeal was submitted on the pleadings, consisting of the taxpayer’s petition and the Commissioner’s answer.
    FINDINGS OP PACT.
    The taxpayer filed- an income-tax return for the calendar year 1921 in which he reported certain amounts received as rents and claimed as a deduction therefrom amounts as follows:
    Repairs to rental buildings_ $166. 77
    Taxes on rental property_ 978.15
    Insurance on rental property_^_ 81. 64
    Total- 1,226.56
    Upon that return the taxpayer also claimed as a deduction an item of $430.96, alleged to represent taxes paid.
    To his income-tax return for 1922 the taxpayer attached a statement purporting to explain a net loss for 1921, claimed by him in computing net income for the year 1921, and claimed a deduction of $2,543.91. In determining the deficiency the Commissioner reduced the net loss claimed as a deduction in computing the taxpayer’s net income for the year 1922 from $2,543.91 to $886.19.
   OPINION.

Phillips:

The appeal is submitted to us by stipulation of the parties upon the pleadings, consisting of the petition and the answer. Every fact pleaded in the petition that is not denied in the answer is set forth in our findings.

The taxpayer seeks to deduct in 1922 an alleged net loss for 1921 of $2,543.91 which the Commissioner has reduced to $886.19. The facts admitted are wholly inadequate to permit us to determine whether any net loss was sustained in 1921 and, if so, what the amount was. The mere fact that the taxpayer claims to have made certain payments in 1921 and that he deducted such alleged payments on his 1921 return does not constitute any proof that such payments were made for the purposes claimed. The Board is charged with the duty of making findings of fact, and in the absence of any proof its findings must be confined to those facts which are pleaded in the petition and not denied by the answer, or which are admitted by stipulation.

Even though the answer could be construed as admitting that payments were made in 1921 for the purposes claimed, there would still be no proof before us from which we could determine the amount of any loss which might have been sustained in 1921. It does not appear from any admission that the reduction in net loss made by the Commissioner was due to his refusal to allow the alleged payments as deductions. There is attached to the petition what is alleged to be the statement of the Commissioner computing the deficiency, which indicates that the adjustment is due to the disallowance of these items as deductions in computing the 1921 net loss. This allegation is not admitted but is denied.

In a case where the taxpayer claims that he is entitled to certain deductions, one of the vital elements of his pleading and of his proof is to show that the deductions have not already been allowed. In the instance before us the pleading may be sufficient, but the denial of the Commissioner would make necessary proof of the fact, which is lacking. The determination of the Commissioner must be approved for want of proof.

The de-fidency is $173.78. Order will be entered accordingly.