author: Sternhagen:

text:
    Anderson Steam Vulcanizer Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 3683.
    Promulgated April 6, 1927.
    1. An organization held, in view of the agreement of its creation, to be an association taxable as a corporation.
    2. Patent value not proven held properly excluded from invested capital.

      Leroy Sanders, Esq., for the petitioner.

      William S. DeLaney, Esq., for the respondent.
    Deficiencies of income and profits taxes of $62.36 for 1918, $3,440.50 for 1919, and $2,116.50 for 1920, the petitioner claiming a patent value as the basis for exhaustion deductions, and, as to 1920, that it was a trust and not taxable as a corporation.
    FINDINGS OF FACT.
    In September, 1916, an Ohio corporation was organized called the Anderson Steam Vulcanizer Co. In 1919 an Indiana corporation of the same name was organized. On December 26, 1919, a so-called “ agreement and declaration of trust ” was made, and the name “Anderson Steam Vulcanizer Company” was recited and used as the designation of the so-called trustee.
    Thomas Bemis became a stockholder of the Ohio corporation in-June, 1917, and its assets were a patent and a small machine shop. It was not in good financial condition at that time. The business had needed money and Bemis had loaned it some. Its capital stock at that time was $50,000 common and $500 preferred. This stock was shown by the corporation’s records to have been issued in 1916 for a patent applied for but not yet issued. Prior to the issuance of the stock the inventor had been manufacturing vulcanizers, but the earnings therefrom are unknown. The patent was first issued in May, 1918, and was reissued October 23, 1928. The .reissue was to improve certain claims. The reissue contains the following:
    Newton Merritt Anderson, of Indianapolis, Indiana, assignor, by mesne assignments, to Thomas Bemis, Sr., Thomas Bemis, Jr. and Ruth Bemis, trustees of Anderson Steam Vulcanizer Company, of Indianapolis, Indiana, a real trust.
    Vulcanizer.
    Original No. 1,200,901, dated May 21, 1918, Serial No. 90,180, filed April 10, 1910. Application for re-issue filed September 0, 19] 9. Serial No. 322,191.
    The aforesaid “Agreement and Declaration of Trust ” is as follows:
    This Agreement made this 20th day of December, 1919, by and between Thomas Bemis, Sr., Thomas Bemis, Jr., Lucette Bemis, Pearl Bemis, Ruth Bemis, and Julia E. Bemis, together with his or their assigns, herein designated “ Subscribers ” and Thomas Bemis, Sr., Thomas Bemis, Jr., and Ruth Bemis together with their successors, herein designated “ Trustees ”,
    Witnessetii, That Whereas the subscribers propose to transfer, assign and deliver to the Trustees, under the designation of Anderson Steam Vulcanizer Company certain property, patents, rights detailed and described as follows:
    All the property real, personal and mixed, including patents, tools, machinery, good will and business of Anderson Steam Vulcanizer Company, a corporation, all as more fully appears and is shown in proper assignments, bill of sale or deed therefor, and a schedule identified by the signature of the parties hereto in papers properly executed and filed with the trustees, and the trustees for the purpose of defining the interests of the subscribers, and their assigns in such property, have agreed to issue to the subscribers and their assigns negotiable certificates for One thousand (1000) shares, of which none shall be preferred and all shall be common, each share to be expressed of the par value of One Dollar ($1.00), and all of said shares to be issued to the subscribers or their assigns in the following proportions, viz: in such amounts as they may have heretofore mutually agreed with their assigns in the preliminary organization.
    Now, Therefore, the trustees hereby declare that they will hold said property, patents and rights, so to be transferred to them, as well as all other property, patents, or rights which they may acquire as trustees, together with the proceeds and' profits thereof, in trust; to manage and dispose of the same for the benefit of the holders from time to time of the certificates of shares issued hereunder, according to the equitable value or priorities that may be expressed therein, and in manner and subject to the stipulations herein contained, to wit:
    Eirst: It is the intention of the parties hereto to create a real trust and not an association or a partnership. All property and rights of the, Company are the property of the Trustees and they are the masters.
    Second: The trustees in their collective capacity shall be designated so far as practicable as Anderson Steam Vulcanizer Company and under that name shall, so far as practicable, conduct all business and execute all instruments in writing in performance of their trust. •

      Third: (a) The trustees shall always be three in number and the trustees herein mentioned shall hold their office from the organization of the Company until the final liquidation thereof. In ease of death, resignation or inability to act of any trustee, the remaining trustees shall accept any resignation and fill the vacancy. In case the remaining trustees shall be unable to agree upon a successor or successors to fill such vacancy, then such remaining trustees or. trustee, shall call a meeting of the shareholders, who shall elect a trustee or. trustees to fill such vacancy or vacancies. As soon as any trustee elected by the trustees, or by the shareholders to fill a vacancy, shall have accepted this trust, the trust estate shall vest in the new trustee or trustees, together with the remaining trustees, without any further act of conveyance.
    (b) In ease of the death, resignation, or inability to act of all of the trustees, then any shareholder may call a meeting of the shareholders, who shall at such meeting, select a new board of trustees, and upon the acceptance by said new board of this trust, the trust estate shall vest in such new board without any further act of conveyance.
    Fourth: (a) The trustees shall Jiold the legal title to all property and rights at any time belonging to their trust, and shall have and exercise the exclusive management and control of the same; they shall assume all contracts for and obligations and liabilities ,in connection with or growing out of the property rights, securities or things of value assigned to them by the subscribers and the management of the same, as before specified, and to the extent of the value of such rights, property and business, but not personally, shall agree to hold the subscribers and any persons associated or acting with them, harmless and indemnified from and against any loss, cost, expense or liability, by reason of, or in connection with any such contract, obligation or liability; they may adopt and use a common seal; they may collect, sue for, receive and receipt for all monies at any time coming due to said trust; they may employ counsel to begin, prosecute, defend and settle suits at law, equity or otherwise; with the consent of all their members given at a meeting called for that purpose, but not otherwise, they may borrow money for purposes incidental to the proper management and conduct of said trust, and may pledge the i>roperty of said trust in such manner as they may deem best, to secure said loan, but said borrowings shall not exceed in the aggregate Fifty Thousand Dollars ($50,000.00) ; they may buy, sell, hold, exchange, mortgage or convey real estate or personal property, patents, leases or equities therein wherever situated; they may manufacture, buy, sell or trade generally in goods, wares, merchandise and personal property of any and every class and description and wherever situated.
    They may especially carry on and transact the business of the manufacture and sale of vulcanizers, metal castings, tools, machines and machinery, mechanical devices and contrivances of all kinds, and parts thereof and therefor, and materials and supplies for same; to buy and sell merchandise similar to that manufactured;, to do any and all kinds of machine work, and \ise any and all kinds of power required to operate such plant or plants, to purchase, sell and dispose of bonds, stocks and other securities, and patents.
    They shall have power to vote in person or by proxy upon all shares of the capital or stock of any company or corporation at any time belonging to the trust; to acquire the good will, stock, securities, rights, patents and property of any person, firm, .association, company or corporation; to pay for the same in cash, the certificates of shares of the capital of this company, in bonds, notes, preferred sliare.s, property or otherwise; to hold or in any manner to dispose of the whole or any part of. the property or rights so purchased;, to conduct in any manner the whole or any part of any business so acquired and to exercise all the powers necessary or convenient in and about the conduct and management of such business.
    (b) So far as strangers to this trust are concerned, a resolution of the trustees authorizing a particular act to be done, shall be conclusive evidence in favor of such strangers that such act is within the powers of the trustees, and no purchaser from the trustees or one loaning money to the trustees shall be bound to see the application of the purchase or loaned money or other consideration paid or delivered by or for said purchaser or loaner to or for said trustees.
    Fifth: Stated meetings of the trustees shall be held at least once every twelve months, and other meetings shall be held from time to time upon the call of any oiiieer or any two trustees. A majority of the trustees shall constitute a quorum, and the concurrence of all the trustees shall not be necessary to tlie validity of any action done by them, but the wish of a majority of the trustees present and voting at any meeting shall be conclusive except as herein-before provided. The trustees may make, adopt, amend or repeal such by-laws, rules and regulations, not inconsistent with the terms of this instrument, as they may deem necessary for the conduct of their business, or for the government of themselves, their agents or representatives.
    Sixth: (a) The trustees may elect officers with th'e authority and duties usually incident to like officers in corporations or associations, or such duties as the trustees may determine or fix. Two of such officers elected, at least, shall be from ilioir own members. The trustees shall have authority to elect temporary officers to serve during- the absence or disability of regular officers; to employ such agents, servants, attorneys and employees as they may deem necessary; to fix the compensation of any or all the officers or agents or servants they may employ or appoint, and are likewise authorized to pay themselves such compensation for their services as they may deem reasonable.
    (b) The trustees shall not be liable for errors of judgment, either in holding property originally conveyed to them, .or in acquiring and afterwards holding additional property, nor for any loss arising out of any investment, nor for any act or omission to act performed or omitted by them in the execution of their trust in good faith, nor shall they be liable for any of the acts or omissions of each other or of any officer, agent or representative or servant appointed by or acting- for them, and they shall not be obligated to give bond to secure the due performance of this trust by them.
    Seventh: (a) Shares hereunder shall be expressed of the par value of One Dollar ($1.00) each, and excepting the shares hereinbefore provided for issue to the subscribers, or their assigns, shall in the discretion of the trustees be issued, either as common or preferred shares, as hereinafter provided.
    (b) As an evidence of the ownership of such shares, the trustees shall cause to be issued to each shareholder a negotiable certificate or certificates, which certificates shall be in manner of form as determined by the trustees.
    Eighth: (a) In addition to the shares to be originally issued to the original subscribers, as hereinbefore provided, the trustees may, for the purpose of acquiring additional funds, or for carrying out the purposes and business of their trust, issue and sell at public or private sale, upon such terms and for such price as they may deem expedient additional shares, each share of which shall be of the par value of those of the original issue, and which shares may be all common or all preferred shares, or may be part- preferred and the balance common shares.
    (b) In case any preferred shares shall be issued by the trustees, the holders of such shares may, in the discretion of the trustees, be given preferred claim to the net earnings or profits of the trust, m amount not exceeding a cumulative dividend at the rate of eight (8) per cent per annum, and payable before any dividend shall be declared or paid to the holders of the common shares, and in case a dividend shall be declared on the common shares in excess of eight (8) per cent per annum, said preferred shareholders may, at the discretion of said trustees, be entitled to receive an additional dividend upon such preferred shares to mate the dividend declared thereon equal to the dividend declared during said year on the common shares. In ease of liquidation, such shareholders may be fully secured by first claim to the proceeds of the liquidation, and also, such shares may be made subject to redemption at not less than par, as provided in such certificates.
    (c) Except as aforesaid no shares shall be issued by the trustees, in excess of the amount originally issued to the subscribers, as hereinbefore stated.
    (d) In case of loss or destruction of any certificate of shares issued by the trustees, the trustee may, under such conditions as they may deem expedient, issue new certificates for such shares in place of those lost or destroyed.
    Ninth: The trustees may from time to time declare and pay dividends out of the net earnings from time to time received by them, but the amount of such dividends and the payment of them shall be wholly in the discretion of the trustees; except that dividends on any preferred shares issued by the trustees shall be payable annually on the first days of January and July in each year, and the surplus earnings or profits shall not be maintained as a separate fund but shall be merged into the body of the trust estate.
    Tenth: The fiscal year of the trustees shall begin on the 1st day of January in each year, and end on the 31st day of December in each year, beginning with the year 1920.
    Eleventh: (a) Special meetings of the shareholders may be called at any time upon ten days’ notice, given by mail to each shareholder at his or her registered address at least ten days before said meeting.
    (b) At all meetings of the shareholders, each holder of shares shall be entitled to one vote for each share held by said holder, and any shareholder may vote by proxy.
    (e) No business shall be transacted at any special meeting of the shareholders unless notice of such business has been given in the call for the meeting.
    (d) No business except to adjourn shall be transacted at any meeting of the shareholders unless a majority of all the shares outstanding are present in person or by proxy.
    (e) The trustees may from time to time refer any matter or question to a meeting of the shareholders, for their recommendation as to the course to be pursued by the trustees, in the transaction of any business for the trqst.
    Twelfth: (a) The death of a shareholder or trustee during the continuance of this trust shall not operate to determine the trust, nor shall it entitle the legal representative of the deceased shareholder to an accounting, or to take any action in the courts or elsewhere against the trustees; but the executors, administrators or assigns of the deceased shareholder shall succeed to the rights of said deeendent under this trust upon surrender of the certificate for the shares owned by him.
    (b) The ownership of shares hereunder shall not entitle the shareholder to any title in or to the trust property whatsoever, or right to call for a participation or division of the same, or for an accounting, or for any voice or control whatsoever of the trust property or of the management of the trustees.

      Thirteenth: (a) The trustees shall have no power to bind the shareholders personally, and the subscribers and their assigns and all persons or corporations extending credit to, or contracting with, or having any claims against the trustees shall look only to the funds and property of the trust for payment under such contracts or claims, or for any debts, damages, judgments or decree, or for any money that may otherwise become due and payable to them from the trustees, so that neither the trustees nor the shareholders, present or future, shall be personally liable therefor.
    (b) In every written order, contract or obligation which the trustees shall give or enter into, it shall be the duty of the trustees to stipulate that neither the trustees nor the shareholders shall be held to any personal liability under or by reason of such contract, order or obligation..
    Fourteenth: (a) This trust shall continue from the date hereof for a term of fifty (50) years, at which time the trustees shall proceed to wind up its affairs, liquidate its assets, and distribute the same among the holders of the shares according to the values and priorities therein expressed; Provided, However, that if prior to the expiration of said period, the said trustees shall call a meeting of the shareholders, and at said meeting the holders of at least two-thirds of the shares then outstanding shall recommend and vote to terminate or continue in existence for a further like period or such shorter period as may then be determined, then said trust shall either terminate or continue in existence for a further like period or such shorter period.
    (b) For the purpose of winding up the affairs and liquidating the assets of the trust, the then trustees shall continue in office until such duties have been fully performed.
    (c) This Agreement and Declaration of Trust may be altered or amended except as regards the liabilities of the trustees or shareholders at any special meeting of the shareholders with the consent of the holders of at least two-thirds of the shares then outstanding; provided notice of the proposed amendment or alteration shall have been given in the call for the meeting, and said amendment or alteration approved by said trustees, and said amendment or alteration shall be certified by the chairman of such meeting, and countersigned by at least one of the trustees, and shall be attached to and made a part of this agreement, and a copy thereof shall be filed with the Recorder of Deeds or oilier official- where this instrument has been filed.
    The subscribers were the family of Thomas Bemis, Sr., and his wife, each owning one-sixth of the shares. The trustees owned one-half the shares. The agreement has been carried out. All documents were signed “Anderson Steam Yulcanizer Co., Thomas Bemis, secretary-treasurer.”
    Dividends were authorized of the 1920 earnings and the shareholders included in their individual income their distributive shares.^
   OPINION.

Sternhagen:

The petitioner contends that in 1916 it acquired a patent right worth $50,000 for stock of that value and that it has the right to annual deductions for patent exhaustion on this basis. The value of the patent was not proven and hence there is no cost basis for depreciation.

The agreement of December 26, 1919, sets up an association essentially similar to that considered in Burk-Waggoner Oil Association v. Hopkins, 269 U. S. 110, and held to be taxable as a corporation. Petitioner’s counsel in his brief makes no reference to this case. We hold the organization to be an association within the meaning of the Eevenue Act of 1918. See Hecht v. Malley, 265 U. S. 144.

There is furthermore a question as to parties. If, as contendod, the petitioner is in reality three separate entities, how can they be joined as a single petitioner by one verified petition?

Judgment will Toe entered for .the respondent.

ARundell not participating.


source: Caselaw Access Project

author: Steeni-iagen :

license: Public Domain

text:
    William B. Grise, Petitioner, v. Commissioner of Internal Revenue, Respondent. Charles C. Allen, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 3324, 3367.
    Promulgated April 6, 1927.
    Under a contract a taxpayer becomes a partner in a business and agrees to pay for his interest out of his share of partnership earnings and gives his note therefor to the'other partners: Held, the amounts credited by the partnership to him and applied directly on the note are taxable income for the years in which they are so credited and applied.

      R. 0. Alderson, Esg., for the petitioners.

      L. 0. Mitchell, Esg, for the respondent.
    Deficiencies as to Grise of $603.97 for 1919, $73.53 for 1920, and $68.39 for 1921; and as to Allen of $76.67 for 1919, $575.13 for 1920, and $322.50 for 1921, arising from the respondent’s increase of each petitioner’s income from a partnership, The facts are taken from the admissions in the pleadings and a stipulation offered at the trial. No other evidence was offered.
    FINDINGS OF FACT.
    Petitioners in the years in question were physicians in Austin, Minn.
    On March 23, 1918, petitioner Grise entered into the following written contract with Lewis and Rebinan;
    Thi§ Ageeement made and entered into this 23d day of March, 1918, by and between C. F. Lewis, E. O. Rebinan and W. B. Grise,
    Witnesseth, That each of the parties hereto, for and in consideration of the agreements of the other parties hereto, and each of them, agrees as follows:
    First. The parties hereto hereby associate themselves together, for the purpose of practising medicine .and surgery, at Austin, Minnesota, under the name of Lewis, Rebman & Grise. The partnership shall begin April 1, 1918, and shall continue until the $12,000.00 hereinafter referred to, has been paid out of the profits of the business above $200.00 per month; and thereafter for an indefinite period.
    Second. The personal property owned by each of the three parties and by Lewis & Rebman as a copartnership, excepting book accounts, and the whole thereof, shall be inventoried at its present fair cash value, and each shall receive credit upon the books, for the amount of personal property so transferred and inventoried; and of that which belongs to Lewis & Rebman,:said C. IP. Lewis shall receive credit for one-half, and E. O. Rebman for one-half. Thereafter all of said personal property shall belong to the copartnership, and the interest of each therein shall be one-third.
    Third. After April 1, 1918, each of the parties hereto shall give his whole time to the best interests of the partnership, in general in the same manner as has heretofore been done by the said Lewis and the said Rebman, while they were copartners under the name of Lewis & Rebman. Each copartner shall be entitled to a vacation of three weeks in each calendar year.
    Fourth. Each copartner shall furnish his own automobile, for the use of himself in the firm business; but shall be credited for the use thereof, fifteen cents per mile, for each mile which said automobile is used for firm business, outside of the City of Austin, and the amount thereof shall be credited to each upon the books daily.
    Fifth. A set of books shall be kept showing the business done by the partnership and including income and expenses. All moneys collected shall be paid into the partnership account. From said account, after paying the current expenses, including the automobile hire as hereinbefore provided, there shall be withdrawn by the said W. B. Grise, the sum of $200.00 per month. Thereafter, the said C. F. Lewis and the said E. C. Rebman shall each draw out sufficient to make $200.00 per month; the residue shall be drawn out by the said Lewis and Rebman, whenever it amounts to $150.00 or a multiple thereof; and of such $150.00, $75.00 shall be drawn by said Lewis and $75.00 by said Rebman; but $50.00 shall be charged to Lewis, $50.00 to Rebman, and $50.00 to Grise; and the $50.00 charged to Grise shall be credited upon his note hereinafter referred to.
    Sixth. Said Grise pays to said Lewis.& Rebman the sum of $12,000.00, for one-third interest in the business, in addition to the provision hereinbefore provided for the appraisement of personal property. Said $12,000.00 shall be represented by a promissory note dated April 1, 1918, drawing interest at the rate of six per cent per annum, payable annually, “ payable out of the profits of the business of Lewis, Rebman & Grise, in the manner provided by a contract dated March — 1918.” At the option of Lewis and Rebman, the indebtedness of $12,000.00 may be represented by several notes, but in an amount of $50.00 or a multiple thereof, and all payable in the same way. Said note shall be paid by having applied upon it the profits of the business accuring to said Grise, above the expenses of the business and the $200.00 per month which he is permitted hereby to withdraw; and said obligation of $12,000.00 shall not be a personal obligation upon him, in any other manner excepting from the proceeds of the said business,
    Seventh. In case of difficulty in making the appraisement of personal property hereinbefore provided, an outside appraiser may be employed, and his appraisement shall be final. In case of any dispute among the parties hereto as to the meaning of any of the terms hereof or the method of carrying it out, and such dispute cannot be setted between the parties hereto, it may be settled by arbitration, each party selecting one arbitrator, and the cost of arbitration shall be paid by the partnership.

      In compliance with this contract said Grise executed two promissory notes dated April 1, 1918, each for $6,000 with interest at 6 per cent, and each payable to “C. F. Lewis and E. C. Lehman,” and each bearing on its face the statement, “ Payable out of the profits of the business of Lewis, Lehman & Grise, in the manner provided by a contract between them, dated March 23, 1918.” One note has written across one end of its face the initials O. F. L., and the other, the initials E. C. E. The following endorsements appear on the back of the two notes respectively:

      With, both notes is an additional slip of paper showing the following :
    Total amt. due_$2619.41
    Nov. 4 credit (% Dr. A. payment)- 133.34
    Dec. 6 “ (from Clinic)'_ 500.00
    6 “ ( “ L. R. G.)_ 476.67
    1920
    Jan. 8 “ ( “ L. R. G.)_ 300.00
    8 “ ( “ Clinic)_' 300.00
    Jan. 26 “ ( “ L. R. G.)_ 300.00
    20 “ ( “ Clinic)_ 300.00
    Deb. 19 “ _ 507.43
    309.40 Principal.
    198. 03 Interest.
    507. 43.
    Thereafter, until March 20, 1919, Lewis, Rebman, and Grise associated themselves in the practice of medicine and surgery in compliance with the terms of the contract of March 23, 1918.
    On March 20, 1919, the following contract was entered into by Lewis, Rebman, Grise, and petitioner Allen:
    This Agreement made and entered into this 20th day of March, 1919, by and between Charles If. Lewis, E. C. Rebman, Charles C. Allen and W. B. Grise.
    Witnessetii that each of the parties hereto for and in consideration of the agreements of the other parties and each of them agrees as follows:
    First: The parties hereto hereby associate themselves together for the purpose of practicing medicine and surgery and of conducting a Clinic at Austin, Minnesota. The name of said partnershii> shall be “Austin Clinic.” Said partnership shall continue for five years at which time it shall continue for succeeding periods of five years each unless more than thirty days previous to the termination of a five year period one or moré of said partners shall in writing notify each of the other members of said partnership that upon the expiration of the then existing five year period he withdraws from and terminates said partnership.
    Second : The existing partnership of Lewis, Rebman and Grise is hereby dissolved and terminated from and after March 19, 1919, except for the purpose of making payment in full of a certain note of said Grise to said Lewis and Rebman as provided in the articles of Partnership of Lewis, Rebman and Grise.
    Third : The personal property ownéd by each of the four parties: by Lewis and Rebman and by Lewis, Rebman and Grise as a co-partnership, excepting book accounts of Lewis and Rebman, and Lewis, Rebman and Grise and' the whole thereof shall be inventoried at its.present fair cash value and each shall receive credit upon the books for the amount of personal property so transferred and inventoried. Of that belonging to Lewis and Rebman, said Lewis shall receive credit for one half find said Rebman shall receive credit for one half: of that belonging to Lewis, Rebman and Grise,.said Lewis shall receive credit for one third, Rebman ope third and Grise one third. Hereafter all of said personal property shall belong to the co-partnership and the interest of each therein shall be one fourth.

      Fourth : All outstanding Lewis and .Collins, Lewis and Rebman, and Lewis, Rebman and Grise accounts shall be received in the office of the firm and the bookkeeper shall credit them to the respective parties in accordance with the articles of partnership under which said accounts were earned.
    Fifth : After March 20, 1919 each of said parties hereto shall give his whole tima to the best interest of said partnership in general in the same manner as has been heretofore done by the said Lewis, Rebman and Grise while co-partners as Lewis, Rebman and Grise. Each co-partner shall be entitled to a vacation of one month in each calendar year the time of said vacations to he chosen with regard to seniority in said partnership.
    Sixth : Each partner shall furnish his own automobile for- the use of himself in the firm business; He shall be credited for the use thereof 15 cents per mile for each and every mile which said automobile is used in firm business outside of the city of Austin and the amount thereof shall be credited to each upon the books at the close of each business day.
    Seventh : The first business day of said partnership shall be closed at 3:30 P.M. March 21, 1919 and each succeeding business day at the same hour, thereafter. The bookkeeper each Monday morning shall prepare a typewritten statement of the firms’ business for the preceding week ending with the close of the business day on the preceding Saturday. The books of said partnership shall be closed on the twentieth and the- balance sheet shall be completed on the twenty-second of each and every month at which time all the members of the partnership shall meet to discuss any matters arising in connection with said partnership. All cash received by each of said partners during the day as shown by his daily service shall be turned into the bookkeeper in one sum at the close of each business day. All checks of said partnership shall be signed by at least two members thereof.
    Eighth : A set of books shall be kept showing the business done by the partnership including income and expenses. All money collected shall be paid into the partnership account. From said account shall be paid on the twentieth day of each month: . •
    1 — -Current expenses of said partnership.
    2 — Automobile expenses as herein provided.
    3 — Three hundred dollars each to said Lewis, Rebman, Allen and Grise.
    4 — The remainder and residue of said account shall be considered as the net profits of said partnership, and shall be divided as follows:
    a — Until the notes of said W. B. Grise and Charles C. Allen are paid, said Lewis and Rebman may draw therefrom the sum of $200 which shall' be divided equally between them. This shall be charged as follows:
    $50 each to Lewis and Rebman.
    $50 to Grise. This shall be credited upon the note of said Grise to said Lewis and Rebman.
    $50 to Allen. This shall be credited upon the note of said Allen hereafter referred to.
    b — After the note of W. B. Grise has been paid but before the note of Charles O. Allen has been paid, said Lewis, Rebman and Grise may draw therefrom the sum of $200 of which each shall receive one third. This shall be charged as follows:
    $50 each to Lewis, Rebman and Grise.
    $50 to said Allen. This to be credited upon the note of said Allen hereafter referred to..
    c — After the notes of said Grise and Allen have been paid in full whenever . the profits of said partnership shall amount to $200 or any multiple thereof said partners and eaeli of them shall receive one-fourth of said profits and be charged with one fourth of all sums so received.
    Ninth; : Said Charles C. Allen pays to said Lewis, Rebman and Grise the sum of $12,000 for a one fourth interest in the business in addition to the provision heretofore provided for the appraisement of personal property. Said $12,000 shall be represented by a promissory note dated March 20th, 1919, due in five years drawing interest at 6% per annum payable annually, payable out of profits of the business of the Austin Clinic in the manner heretofore referred to. Said note shall be paid by having the profits of the business accruing to said Allen applied upon it as provided for by paragraph eight. Said obligation shall not be a personal obligation upon said Charles C. Allen, his heirs, representative or assigns in any other manner than from the proceeds of said business. As further consideration for said one fourth interest said Charles C. Allen agrees to give up his private practice of medicine and surgery and relinquish his private office.
    Tenth : In ease of difficulty in making the appraisement of personal property hereinbefore provided, an outside aiipraiser may be employed, and his appraisement shall be final. In case of any dispute among the parties hereto as to the meaning of any of the terms hereof or the method of carrying it out, and such dispute can not be settled between the parties hereto, it may be settled by arbitration, each party selecting one arbitrator and these shall then in turn select a fifth. The cost of such arbitration shall be paid by the partnership.
    Thereafter, through the remainder of 1919 and through the year 1920 said Lewis, Rebman, Grise and Allen associated themselves in the practice of medicine and surgery in compliance with the terms of the contract of March 20, 1919.
    During 1919 Grise received from said two partnerships $200 per month and in 1920, $300 per month as provided in said two contracts, and in addition thereto received credit on his two notes aforesaid of $7,357.27 in 1919 and $1,700 in 1920. These amounts represented the portion of the net profits of the partnerships, in addition to the drawing accounts received by him, accruing to the interest of Grise in said partnerships under the two contracts. The Commissioner included these amounts in Grise’s income.
    During 1919, 1920, and 1921, Allen received from the partnership $300 per month, as provided in the contract of March 20, 1919, and in addition thereto received credit on his note aforesaid of $900 in 1919, $6,047.94 in 1920, and $4,500 in 1921. These amounts represented the portion of the net profits of the partnership, in addition to the drawing account received by him accruing to the interest of Allen in said partnership under the said contract. The Commissioner included these amounts in Allen’s net income.
   ' OPINION.

Steeni-iagen :

The petitioners contend that the effect of the contract and its performance is merely to give them the prescribed drawing account, and that this amount alone is income to each of them until under the contract the notes of $12,000 are discharged; that since in fact they did not receive any amounts in excess of the drawing accounts, no such amounts may be taxed as their income. But this is a disregard of the contracts and the acts of the parties to them in their performance. Grise in 1918 bought an interest in the partnership for $12,000 and agreed to pay for such interest out of his share of the partnership income. For this he gave his notes and, instead of taking his full distributable share in cash and therewith periodically discharging his notes, he by the contract authorized the partnership to apply part of his share on the notes. At the end of the year he had enjoyed income by the amount of such credits, had acquired pro tanto an unincumbered interest in the partnership, and to this extent was richer at the end of the year than at the beginning. The fact that he received credit on his notes instead of actual cash makes it no less income.

It may be, as petitioners contend, and we do not decide, that if the partners had agreed that Grise should have a distributable share of $200 a month and Lewis and Rebinan an equal distribution of the remainder until they had received $12,000 more than he, whereafter the distribution should be one-third to each, his taxable income up to that time would have been only $2,400. But the contract before us expressly provides otherwise, giving him at once a one-third interest in the proceeds and applying part thereof as purchase price. That the subsequent use of income does not affect its taxability is settled.

The situation is legally similar as to Allen, and as to both, the respondent is sustained.

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


author: SteRNi-iageN :

text:
    Joslyn Manufacturing & Supply Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 9809.
    Promulgated April 7, 1927.
    The cost of stock which by the evidence is clearly shown to be worthless within the taxable year may be deducted as a loss sustained.

      Henry W. Wales, Esq., for the petitioner.

      John W. Fisher, Esq., for the respondent.
    Deficiency of $23,849.81 income and profits tax for 1920, only part of which is contested by petitioner. The issue as to such part is whether petitioner in 1920 sustained a deductible loss of $29,635.68 in respect of stock alleged to have become worthless.

      FINDINGS OF PACT.
    The petitioner is an Illinois corporation with its principal office at Chicago.. It is, and was during 1920, engaged in the business of manufacturing and distributing outdoor electrical construction material, selling exclusively to wholesale dealers or jobbers.
    The petitioner did not have a satisfactory outlet for its products in the southeastern part of the country. During the war one R. T. Stewart of Atlanta, Ga., approached the petitioner with the suggestion that, in view of this lack of representation, a jobbing house be organized at Atlanta to sell in that territory, of which he would be the head, and in which he would take an interest. This was agreed to and the Southern Electric Supply Co. was organized. The petitioner purchased two-thirds of the capital stock of this company and advanced to Stewart the money necessary for him to purchase one-third of the stock.
    The management of the Southern Electric Supply Co. by Stewart was unsatisfactory and he was discharged and one Boyd became manager in his place.
    The business grew and sales increased up to and during the first half of 1920. During the early part of 1920 jobbers throughout the country were having difficulty in getting supplies and Boyd placed duplicate orders with factories for materials to meet the requirements of the Southern Electric Supply Co. Rental had theretofore been paid in the amount of $175 a month, but Boyd at this time contracted for the construction of a building, the rental of which was approximately $900 a month.
    About July, 1920, there was a decided change in business conditions in the electrical industry. Prices declined and there was no market except at a sacrifice. There was a decline in the values of merchandise between July and the end of the year averaging at least 40 per cent.
    The sales of the Southern Electric Supply Co. dropped from $75,000 a month to $25,000 or $30,000 a month in the latter half of 1920. Whereas some dealers began to cancel orders on factories and to liquidate stock about the first of July, and many had done so by the first of August, all orders placed by Boyd for the Southern Electric Supply Co. were taken in full, even though duplicated and triplicated and in some instances ordered ten times. A large part of this material was of very poor quality.
    In November the petitioner called upon Boyd for a statement of the amount of stock on hand and of other details of the Southern Electric Supply Co. business, and a report was sent to the petitioner on December 1, 1920. This report showed about $200,000 worth of merchandise on hand, inventoried at cost, and losses which impaired the capital of the company.’ Giving effect to the decline in the market value of the merchandise, there was an additional deficit of $80,000, a total extinction of the stockholders’ equity.
    In the month of December, 1920, the petitioner, rather than put the company into bankruptcy, took steps to liquidate the business of the Southern Electric Supply Go. Arrangements were made with one McKirahan and one Warner to go to Atlanta to take charge of the liquidation of the company. As an inducement to them the petitioner agreed that on July 1, 1921, an inventory of the assets of the Southern Electric Supply Co. should be taken and that it, petitioner, would absorb the deficit between the value of the assets and the liabilities of the Southern Electric Supply Co. and at the same time would pay in $75,000 in cash for new stock of the company.
    About January 10, 1921, the Southern Electric Supply Co. furnished to the petitioner a detailed financial statement as of January 1, 1921. This statement showed a deficit of $31,826.84. A check of this statement was made by McKirahan about Januarjr 12, 1921, and again after he reached Atlanta in May, 1921. Inspection of the merchandise at that time disclosed that there was an overvaluation in the merchandise inventory of $21,323.60, and it was determined that an aggregate amount of $28,103.23 of the accounts receivable appearing upon the statement was uncollectible.
    The business of the Southern Electric Supply Co. was in process of liquidation from December, 1920, to July 1, 1921. On the latter date an inventory of the assets of the company was taken, and pursuant to the arrangement with McKirahan and Warner, the petitioner then absorbed the deficit between the assets of the Southern Electric Supply Co. and its liabilities, which amounted to from $25,000 to $30,000; paid in cash $75,000 for new stock of the company; and canceled or caused to be canceled and surrendered to the company certificates representing the original issue of $75,000 of stock.
    In the month of December, 1920, the petitioner wrote off on its books its stock investment in the Southern Electric Supply Co. amounting 'to $29,635.68, which was the cost to it of the stock which it owned.
    There were no extraordinary business conditions from the first of January, 1921, to July, 1921, that di$ not obtain in the month of December; the slump came .in the falf of 1920. A slow gradual recovery caine in 1921, and the inventory values of merchandise were slightly higher on July. 1,1921, than on J anuary 1,1921.
   OPINION.

SteRNi-iageN :

The petitioner contends that in the calendar year 1920 the stock of the Southern Electric Supply Co. which it owned at a cost of $29,635.68 became worthless and was therefore deductible as a loss sustained in the taxable year. From the foregoing facts it is apparent that at the close of the year 1920 the financial and commercial position of the Southern Electric Supply Co. was valueless and hopeless. It had so far committed itself to purchases of materials at high prices that it had an inordinately inflated inventory on hand, much of which was of inferior quality and which could not be disposed of. Its financial statements showed that it was insolvent and a AUirification of this later disclosed that there was not during the year 1920 anything for the stockholders and no hope that anything would be left for them after liquidation. Not only were the officers bona fide convinced of the worthlessness of the venture, but the true condition of the business fully substantiated their judgment. The only reason why the petitioner continued any relations with the Southern Electric Supply Co. was its desire to bear its full share of the burdens of the mismanagement and misfortune of the company.

Some point was made at the hearing that the definite ascertainment of the worthlessness of the stock -was not until after the close of 1920, but as petitioner properly points out, the statute does not make the loss deduction dependent upon the time of ascertainment but rather upon the time when the loss is.truly sustained. Carl Muller, 4 B. T. A. 169. See also Henry M. Jones, 4 B. T. A. 1286. Furthermore, even if ascertainment wore necessary to support the deduction, it may fairly be said that such ascertainment occurred in 1920 a.nd that subsequently further investigation was made to determine the extent of the deficit and the demands upon the petitioner which the liquidation would make. This subsequent investigation corroborated the petitioner’s judgment of 1920. Upon this issue the Commissioner is reversed.

Judgment will be entered on 20 days' notice, under Rule SO.


author: Trammell :

text:
    William W. Mead and Julia A. Carroll, Executors, Estate of Martha A. Watson, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 7228.
    Promulgated April 7, 1927.
    Executors’ fees, paid out of income of the estate and allowed by tbe probate court having jurisdiction, for services in maintaining and protecting the property of the estate over a long period of years, rendering other services in connection therewith in selling the property, collecting deferred payments and making investments, are deductible as expenses by the estate in determining its net income.

      Joseph Kirwin, Esq., for the petitioners.

      J. E. Marshall, Esq., for the respondent.

      This proceeding is for the redetermination of deficiencies in income taxes for 1920, 1921, and 1923, in the amounts of $597.15, $1,355.06, and $3,029.36, respectively. The deficiencies arise from the action of the Commissioner in disallowing as deductions executors’ fees and commissions in determining the net income of the estate.
    FINDINGS OF FACT.
    William W. Mead and Julia A. Carroll are the executor and executrix of the last will and testament of Martha A. Watson, deceased. The decedent died testate on June 15,1915. At the time of her death she was a resident of Michigan. Her will was probated by the Probate Court of Kent County, Michigan, on July 27, 1915. Letters testamentary were issued to the above named executor and executrix.
    The estate of the decedent consisted almost entirely of a tract of pine timberland containing 12,520 acres, in Greene County, Miss. The land was uninclosed and was surrounded by farms. At the time of decedent’s death the land was not accessible to market. It was several miles from a railroad and transportation facilities were poor. After decedent’s death a spur track was built into the tract of land. The executor and executrix rendered aid in the procurement of the extension of the railroad to the timber.
    After the building of the railroad into the timber sales were made, the first sale of substantially half thereof being made in November, 1919, at the price of $656,500. On April 13, 1923, the remaining half was sold for $680,000. The sales were made upon contracts. A cash payment was made in each instance and the balance of the purchase price was to be paid over a series of years. The vendee under the contracts could cut the timber only as he paid for each subdivision unless bonds were put up as security for the payments before they became due.
    The executor and executrix rendered service in preserving and protecting the timber, procuring estimates in advance of making-sales by determining the amount and value of the timber. They had abstracts prepared and titles checked and perfected where they were defective.. They protected the property from trespasses. They collected the interest on the contracts and Saw that timber was not cut or removed' before payments-were made on the different subdivisions. When interest' was collected "or payments made on .the contracts, the aihounts were invested by the executor and executrix according to the terms of the will of the decedent in income-paying properties. They also paid the taxes and interviewed the state and county assessing authorities for the purpose of seeing that the property was not dverassessed and that proper values were put upon the timber. The executor went down personally and looked over the land several times each year to see that the person who was employed to prevent trespasses was performing his duties. Considerable trespasses had been committed on the timber and the executor and executrix prosecuted the individuals who committed the offenses. They saw to it that the contracts relating to the sales of the timber were performed and carried out by the vendees. The executor and executrix kept the principal of the estate intact and have paid the expenses for the care, protection and management out of income. During the years 1920, 1921, 1922, and 1923 all of the timber was still standing.
    The decedent, at the time of making her will, talked of making a provision therein for an annual salary for the executor and executrix but she did not know what the land would produce when sold or the amount of services that would be required and determined to leave the matter of compensation to the court to fix.
    Paragraph 5 of the will contains the following provision:
    Inasmuch as my property consists almost entirely of unproductive real estate, it is my will that such real estate hereby devised and bequeathed to said Trustees, shall not be forced to sale or sacrificed for the purpose of converting said trust estate hereby created into income paying property, but that it shall only be disposed of when sales can be made on advantageous terms of which said Trustees shall be the sole judges.
    Direction is also given in said paragraph to pay all necessary expenses for the care, protection and management of said estate as the decedent herself might do if she were alive and to pay one-third of the net income to Marion Mead, daughter of an adopted son, during her life, with remainder to her children, if any, or if she should die without issue, the remainder to Julia A. Carroll and William W. Mead, or the survivor of them.
    An equal undivided one-third of the residue of the estate was bequeathed to Julia A. Carroll and William W. Mead each. Marion Mead was a child of eleven years of age at the time of the execution of the will on Augüst 19, 1902, and was 23 years of age at the time of the death of decedent on June 14,1915.
    The fifth paragraph of the will also provides as follows:
    Said Trustees shall take possession of, manage and control the same, and receive the income, rents and profits thereof, and they are hereby authorized and empowered to sell and convey all of said trust estate as I might do if alive, using and expending for that purpose so much of either the income or principal of said trust estate as may be necessary. Inasmuch as my property consists almost entirely of unproductive real estate, it is my will that such real estate hereby devised and bequeathed to said Trustees, shall not be forced to sale or sacrificed for the purpose of converting said trust estate hereby created into income paying property,. but that it shall only be disposed , of when sales can be made on advantageous terras, of which said Trustees shall be the sole judges, during the minority of Marion Mead, hereinafter mentioned; and further, it is my will that during her said minority the judgment of said Trustees respecting such sales shall not be controlled or directed by any person, court or official whatsoever. Said Trustees may make such sales on such credit and security for deferred payments as they may deem proper. I direct said Trustees to invest all of said trust estate, including the proceeds of all real estate sold, in such interest bearing or dividend paying securities as they shall think proper, and to receive the income thereof, and I empower and authorize them to change, shift and vary such investments, from time to time, to others of a like nature at their discretion. After paying all the necessary expenses for the care, protection and management of said trust estate, I will and direct said Trustees to pay the net income thereof to said Marion Mead, the daughter of my adopted son James A. Mead, deceased, for and during her natural life. From and after the death of said Marion Mead, I give, devise and bequeath all of the said trust estate in equal shares to her children and to the issue of any deceased child or children by right of representation.
    The estate is still iii the hands of the executor and executrix in the process of administration.
    The fees and commissions allowed executors and other representatives of estates of deceased persons are regulated and determined by statute in the State of Michigan. In the care, protection and management of the estate the executor and executrix performed services not ordinarily required of an executor, which services required considerable time and were of material benefit to the estate.
    The probate court of Kent County, Michigan, in allowing the annual accounts of the executor and executrix for the years 1920, 1921,1922, and 1923, took into consideration such services so rendered and allowed them compensation therefor as provided by statute, in the following amounts:

    The above amounts were paid out of the income of the estate and not out of the corpus, in accordance with the petitioner’s interpretation of the provisions of the will. The executor and executrix,' in compliance with section 219 of the Revenue Act of 1918, filed income-tax returns for the estate for the years 1920,1921,1922, and 1923, and each year deducted from the gross income of the estate the amounts so paid to them as fees and commissions for services rendered.
    The respondent, upon audit of the returns for those years, determined that the estate was not entitled to deduct such fees and commissions so allowed the executor and executrix for such services in arriving at the estate’s taxable income and disallowed the same as deductions. This action of the respondent gave rise to the deficiencies here involved.
    The pertinent provisions of the statutes of Michigan are as follows:
    Section 1. The probate court, at the time of granting letters testamentary, or letters of administration, shall make an order allowing to the executor or administrator, a time for disposing oí the estate, and paying the debts and legacies of the deceased person, which time shall not, in the first instance, exceed one year and six months. (3 Comp. Laws, 1915, sec. 13883, p. 4SC3.)
    The compensation of executors and administrators is also fixed by statute, 3 Comp. Laws, 1915, secs. 14117,14118, p. 4935, as follows:
    (14117) AVhen no compensation shall be provided by the will, or the executor shall renounce all claim thereto, he shall bo allowed all necessary expenses in the care, management and settlement of the estate, and commissions upon the amount of personal estate collected and accounted for by him, and of the proceeds of real estate sold under an order of the court for the payment of debts, as follows: For the first thousand dollars, at the rate of five per cent; for all above that sum and not exceeding five thousand dollars, at the rate of two and one-half per cent; and for all above five thousand dollars, at the rate of one per cent; and the same commissions shall be allowed to administrators, or such executor or administrator shall be entitled to receive one dollar for each day and fifty cents for each half day for the time necessarily employed by him in the care and management of the estate together with the actual and necessary disbursements therein. ,
    (14118) In all cases where the executor or administrator shall perform any extraordinary services, not required of an executor or administrator in the common course of his duties, and in cases of unusual difficulty or responsibility, such further allowance may be made as the judge of probate shall deem just and reasonable; Provided, however, That such allowance shall only be made upon the filing of a petition therefor, setting forth in detail such extraordinary services, or the reasons for considering the case one of unusual difficulty or responsibility, and the order making any such allowance shall recite in detail the extraordinary services for which such allowance is made, giving the amount allowed for each item thereof, or the reasons for considering the case one of unusual difficulty or responsibility; and in case the order does not contain such recitals as herein required, the same shall be void and of no effect.
    Sec. 13795, 3 Comp. Laws, 1915, p. 4834, provides:
    If the testator shall make provision by his will, or designate the estate to be appropriated for the payment of his debts, the expenses of administration, or family expenses, they shall be paid according to the provisions of the will, and out of the estate thus appropriated, or so far as the same may be sufficient.
   OPINION.

Trammell :

It is the contention of the petitioners that the fees and commissions paid to the executor and executrix in the year involved are allowable deductions from the gross income of the estate. The respondent, on the other hand, contends that the commissions of the executor and executrix are allowable deductions in determining the net estate subject to the estate tax and are not allowable deductions in determining the net income of the estate.

We agree with the respondent that ordinarily executor’s fees and commissions should be applied against the gross estate in determining the net estate subject to the estate tax, and ordinarily they are not allowable as deductions in determining the net income of the estate. A distinction, however, should be drawn between administration expenses paid or incurred in settling up an estate and those expenses paid or incurred in preserving the estate over a period of years, making sales, collections and doing other things which were necessary in maintaining the properties and producing income. In the Appeal of Estate of Seymour H. Knox, 3 B. T. A. 143, a similar situation was presented. Knox left a large estate and instead of permitting his executors to receive the fees and commissions that would otherwise be paid to them under the laws of New York for their services, he made provision for the payment of fixed annual compensation. The services rendered by the executors consisted of managing and taking care of the estate and the income therefrom and there was paid to them during 1919 for their services for that year, $12,000 each, making a total of $24,000. In that case we said:

The only question presented by this appeal is whether or not the estate oí Seymour H. Knox, in computing its net income for the year 1919, is entitled to deduct the amount of $24,000 paid to the executors of the estate as compensation for services rendered by them in that year. The Commissioner allowed as a deduction that part of the compensation so paid which bears to the total compensation the same ratio that the taxable net income of the estate bears to the total net income. However, at the hearing it was contended by the Commissioner that no part of the compensation paid to the executors of the estate in the year 1919 should have been or should be allowed as a deduction from gross income.
Seymour H. Knox, in his will, named certain persons who should act as executors in the necessary proceedings for the settlement and distribution of his estate, and provided further that the same executors should at once become .the trustees of certain trusts specifically provided for and set forth in the will. The decedent, knowing that his estate would continue to produce a large income annually and that the execution of the trust provided for would extend over a period of years much longer than the period ordinarily required for the administration and settlement of an estate, provided in his will that his executors and trustees should, during the period of their service in such capacity, receive as compensation a fixed annual salary in lieu of statutory fees and commissions. He also provided that such salary should be paid out of the income of the estate.
* * * * * * *
Section 219 of the Revenue Act of 1918 laid upon the executors and trustees in this case the duty of making an income-tax return for the estate and properties under their charge, and it further provided that the gross and net income of such estate should be ascertained and computed in substantially the same manner as required of living persons. The executors and trustees are essentially employees of tlie estate. Their compensation is one of the ordinary and necessary expenses of the estate and properly deductible from the income thereof without regard to the fact that a portion of the estate’s income is exempt from taxation.

In our opinion expenses which were necessary to be paid out over a number of years in preserving the estate, seiling the property and collecting interest or deferred payments on sales, are deductible from the gross income of the estate. Such expenses come under the classification of ordinary and necessary expenses in carrying on a trade ■or business. Under section 219 of the Revenue Act of 1918 an estate or trust is entitled to the same deductions for such expenses as are allowed to individuals.

Considering the will in its entirety, it was manifestly the intention of the testator that the expenses of preserving the estate, selling the timber and other expenses involved in collecting the gains and profits, were to be deducted from the income of the estate and not from the corpus. The intention of the testator in that regard, while not, controlling as to whether the expenses should be deducted in determining the net income for the purposes of the tax, should be given great weight.

The testator knew that the property of the estate could not be sold immediately; she knew that it would take possibly several years to sell and dispose of the property and convert it into income-producing property. She also knew that her executor and executrix would have to render services in connection with the estate in order to pro- ■ tect it and derive income therefrom.

■ Where it is known that an estate can not be settled and closed up within the ordinary period allowed for the administration thereof, and it is known that an indeterminable period of time will be required for that purpose, during which period the estate must be protected, property sold, income collected and expenses paid, it is our opinion, that such expenses should be deducted from gross income. Especially is this true where the amounts are paid out according to the will from income and are allowed by the probate court having jurisdiction.

In this case the amounts paid to the executor and executrix were compensation for services rendered in connection with the production of income. The executor and executrix were in a very substantial sense carrying on business for the estate and maintaining its property and were not merely winding up or settling the estate.

Under the facts in this case the fees and commissions paid the executor and executrix are, in our opinion, ordinary and necessary expenses of the estate and are deductible in determining its net income.

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


author: Van FossaN :

text:
    Anderson-Harrington Coal Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 743.
    Promulgated April 7, 1927.
    Debts ascertained to be worthless and charged off allowed as deductions.

      Arthur H. Laws, Esq., for the petitioner.

      W. H. Lawder, Esq., for tbe respondent.
    This is a proceeding for the redetermination of deficiencies in the income and profits taxes of the petitioner for the years 1921 and 1922, in the respective amounts of $939.66 and $210.41. The deficiencies result from the Commissioner’s disallowance of certain deductions for bad debts alleged to have been ascertained to be worthless and charged off in the years in question.
    FINDINGS OP FACT.
    The petitioner, a Colorado corporation with principal offices in the City of Denver, is, and was during the taxable years, engaged in the sale of coal, hay, feed, and grain at retail to several hundred customers, both for cash and on credit. The charge accounts were kept upon loose-leaf ledger cards, each customer having a separate card or series of cards, upon which were entered all charges for merchandise sold and all credits for payments made.
    The principal officers of the corporation, who were also the principal stockholders, were in dii’ect and active control and management of the business. The petitioner had been engaged in business in Denver for a number of years prior to the taxable year, and its officers were personally acquainted with practically all its customers, their occupations and circumstances.
    The petitioner charged off its books as worthless open accounts aggregating $5,858.63 in the year 1921, and $2,477.16 in the year 1922, and in its income-tax returns for said years took the 'respective amounts as deductions of bad debts. The accounts so charged off, approximately 600 in number, were in varying amounts, from a few dollars to three or four hundred dollars.' They covered different periods ending with the years in question, one having- been opened • as early as 1914. On some accounts no debits or credits were made ' for periods of two or more years, and as to some customers cash’ sales were made while their open accounts remained unpaid. All of said accounts were carried as active, live or current accounts until the year in which charged off. Many of them had been turned over to collection agencies and were reported on adversely before being charged off.

      In each of the years involved the principal officers, with the bookkeeper who has been employed by the petitioner in that capacity since 1910, took up the open accounts and discussed individually those that were considered poor, for the purpose of determining which ones were collectible. These officers and the bookkeeper determined each year, in the light of their personal knowledge of the individual customer, his circumstances and ability to pay, which of the accounts were worthless and uncollectible. The card records of those accounts so determined to be worthless were withdrawn from the file of current or live accounts, and the total amount of such accounts was entered in the ledger in a lump sum as a charge off of bad debts. None of the accounts charged off in 1921 and 1922, respectively, had been ascertained to be worthless and charged off by the petitioner in prior years, and none of them has been since paid.
    The respondent disallowed $5,424.02 of the $5,858.63 claimed as a deduction of bad debts for 1921 and $2,142.33 of the $2,477.16 claimed as a deduction of bad debts for 1922. Such disallowances were made upon the ground that the amounts disallowed should have been written off as worthless in prior years.
   OPINION.

Van FossaN :

Section 234(a) of the Revenue Act of 1921 provides, in part:

That in computing the net income of a corporation subject to the tax imposed by section 230 there shall bo allowed as deductions:
* * * * * * *
(5) Debts ascertained to be worthless and charged off within the taxable year (or in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts) * * *.

The officers of this petitioner knew most of its customers and had personal knowledge of their affairs and financial circumstances. In the light of this knowledge the debts in question were ascertained to be worthless and were charged off within the taxable years. We think that the petitioner has complied with the requirements of the law and is entitled to the deductions claimed. Nor is it fatal to the contention of petitioner that it sold merchandise, for cash, to certain customers whose accounts remained unpaid or had been written off as worthless. Appeal of Midland Coal Co., 1 B. T. A. 311.

The respondent erred in disallowing the deduction of bad debts in the sum of $5,424.02 for the year 1921 and in the sum of $2,142.33 for the year 1922.

Judgment will be entered for the petitioner.


author: KoRNER, Chairman:

text:
    John Scott, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 10418.
    Promulgated April 7, 1927.
    Profits determined on a series of real estate transactions in the years 1920, 1921, and 1922.

      Jolm Scott pro se.

      A. B. Marrs, Esq., for the respondent.
    This is a proceeding to redetermine deficiencies in income tax for the calendar years 1920, 1921, and 1922 determined by the Commissioner in the amount of $10,904.31.
    FINDINGS OF FACT.
    The petitioner is a resident of Miami, Fla. During the years here under consideration he was engaged in buying and selling real estate. All of the properties herein referred to were acquired subsequent to March 1, 1913. Items in which error is assigned are numerous and for convenience will be referred to by their numbers as they appear in the petition. Each of them relates to the amount of profit made in the several sales or exchanges of property listed below, as follows:
    Calendar Year 1920.

      Item -5. The cost of the property to the petitioner was $341. The selling price was $750. The profit realized on the transaction was $409.

      Item 6. The cost of the property to the petitioner was $787.50. The selling price was $2,000. The profit realized on the transaction was $1,212.50.

      Item IS. The petitioner transferred a parcel of land in part payment for an apartment house. Petitioner assumed the mortgage on the apartment house and paid the balance of the purchase price in cash. The agreed value at which the land was included in the transaction was $3,000. The cost of this land to petitioner was $1,300. The profit realized by petitioner on the transaction was $1,700.

      Items 17, 18, 19, 20, 26. The five lots represented by these transactions, together with one other lot sold in 1921 which is the lot involved in item 25 for the year 1921, were originally acquired by the petitioner in two parcels of land, more specifically described as the south 100 feet of lot 9, block 97 N., Miami, and lots 5 and 6 of subdivision 16, block 86 N., and lot 9 in block 97 N. For the first parcel (south 100 feet of lot 9), the petitioner paid $6,000, of which $2,000 was cash upon execution of the sale agreement and the balance of $4,000 was represented by a promissory note due April 1,1920. This parcel was subdivided into four lots. For the second parcel, the petitioner gave $500 cash, 20 acres of land, and assumed an indebtedness thereon of $4,250. This second parcel was divided and sold by the petitioner in two lots. Six lots were carved out of the two parcels. Of these six lots, five were sold, in 1920 and one in 1921, at the price of $4,000 each. Eespondent determined the cost of four of these lots (sold in 1920) to be $1,200.67 each and of the fifth lot (sold in 1920) to be $1,196.17. Accordingly, he determined a profit of $2,799.33-on the sale of each of the four lots sold in 1920, and a profit of $2,803.83 on the sale of the fifth lot sold in 1920.

      Item The cost of the property to the petitioner was $497.72. The selling price was $3,000. The profit realized on the transaction was $2,502.28.

      Item 25. Petitioner purchased six lots at a cost of $6,000 less a brokerage commission of $600 allowed by the vendor, or a net cost to the petitioner of $5,400. The lot here in question was one of these lots and was sold in 1920 for $1,000. We find the cost to the petitioner of the-lot sold was $900, and that a profit of $100 was realized on the sale. x

      Item 29. In the taxable year, the petitioner gave to a negro, who had served him for many years, a lot which had cost the petitioner $400! The transfer was a gift and no profit was realized by the petitioner thereon.

      Hem SO. The cost of the property to the petitioner was $250. - The selling price was $500. The profit realized by the petitioner on the transaction was $250.

      Item 32. In the taxable year the petitioner desired to convey a lot of land to his wife. To effectuate this he deeded the lot to one Charles Allen, who in turn conveyed the lot to the petitioner’s wife. No consideration was received or paid in either transaction. No profit was realized by the petitioner.

      Item S3. The petitioner and one Inglis each owned a one-half interest in a lot which had cost them $3,000. The lot was sold by them in the taxable year for $4,000. One half of the realized profit belonged to the petitioner. His profit was $500.

      Item 3Jp. The cost of the property to the petitioner was $610. The selling price was $900. The petitioner’s profit on the transaction was $290. .
    CALENDAR YeAR 1921..

      Item 1. The cost 'of the property to the. petitioner was $1,800. The selling price was $4,000. The petitioner’s profit on the transaction was $2,200. ’ ■'

      Item 8. The cost of the property to the petitioner was $901.50, The selling price was $1,250. The petitioner’s profit on the transaction was $348.50.

      Item HO. The cost of the property to the petitioner was .$71.43 The selling price was $1,000. The petitioner’s profit on the transaction was $928.57.

      Item 84. The cost of the property to the petitioner was $3,108 The selling price was $6,500. The petitioner’s profit on the trans action was $3,392.

      Item 85. The facts relative to this transaction are fully set oui under Items 17, 18, 19, 20, 26, for the year 1920. This lot was the sixth and last lot to be sold. It was sold in 1921.

      Item 33. The cost of the property to the petitioner was $7,032.20 The selling price was $11,500. The petitioner’s profit on the transaction was $4,467.80.

      Item 37. The cost of the property to the petitioner was $1,550 The selling price was $2,500. The petitioner’s profit on the transaction was $950.

      Item 39. The cost of the property to the petitioner was $187.50 The selling price was $500. The petitioner’s profit on the transaction was $312.50.

      Item 4-0. This transaction was an accommodation transfer iron which no profit accrued to the petitioner. One Kohler .desired t( transfer a parcel of property to his wife, Laura Kohler. To effectuate this, Kohler and his wife conveyed the property to the petitioner.who in turn conveyed it to Laura Kohler. No consideration was received or paid in either conveyance. No profit was realized.
    CALENDAR YEAR 1922.

      Item 1. The cost of the property to the petitioner was $1,000, The selling price was $2,000. The petitioner’s profit on the* transaction was $1,000.

      Item 8. The cost to the petitioner of the property was $1,762.50. The selling price was $2,250. The petitioner’s profit on this transaction was $487.50.

      Item 3. The facts relative to this transaction are fully set out under Item 85, for the year 1920. The lot here in question is one of the six lots purchased for $5,400. It was sold in the year 1922 for $1,500., Its cost was $900. The profit on this transaction was $600. . .

      Item 8. The selling price of the lot in question under this item was $1,200. The cost pri.ee was not shown. The profit on this transaction was $1,200.

      Item 10. The cost to the petitioner of the property sold was $187.50. The selling price was $500. The petitioner’s profit on the transaction was $312.50.

      I tern 12. The cost to the petitioner of the property sold was $200. The selling price was $500. The petitioner’s profit on the transaction was $300.

      Item lip. The cost to the petitioner of the property sold was $500. The selling price was $2,000. The petitioner’s profit on the transaction was $1,500.

      Item 16. The lot involved in this transaction was acquired by the petitioner in the spring of 1922, at a cost of $6,500, of which $4,000 was paid in cash, the petitioner assuming a mortgage of $2,500. In the transaction under consideration the petitioner conveyed this lot at an agreed value of $6,500, and paid cash in the amount of $19,000, in exchange for another lot, lot 8, block 79 N., in Miami, the purchaser assuming the mortgage of $2,500. The petitioner’s equity in the lot traded in was $4,000. The respondent fixed the cost of petitioner’s equity in the lot at $3,000; and upon the basis of a selling price of $4,000, held that the profit on the transaction was $1,000. We find that no profit was made on this transaction.

      Item 21. In the year 1922, a member of petitioner’s family experienced marital difficulties which made conveyance difficult. As an expedient, petitioner took title to the property in question as an accommodating conduit of title. No profit accrued to the petitioner on this transaction.

      Item 22. The cost to the petitioner of the property sold was $71.43. The selling price was $1,000. The petitioner’s profit on the transaction was $928.57.

      Item 28. The cost to the petitioner of the property sold was $882.25. The selling price was $6,000. The petitioner’s profit was $5,117.75.

      Item §7. The petitioner bid in a lot at a tax sale for approximately $50, and received a certificate which in process of time might ripen into a title. He traded this certificate in the taxable year for some rubber stock of a value no greater than the value of his certificate. No profit resulted from the transaction.
   OPINION.

KoRNER, Chairman:

Certain of the numbered items set out above i.n the findings need a word of explanation.

Calendar Year 1920.

Item IS. The petitioner admits that the land in question was acquired by him at a cost of $1,300, and that it was turned over in payment for an apartment house at a value of $3,000. He contends, however, that the transaction involved simply an exchange of property for property, giving rise to no taxable income; and that any profit arising out of the transaction would not be realized until a sale or other disposition of the apartment house.

The petitioner’s contention that the profit on the exchange is not returnable as income, for income tax purposes, until the apartment house is sold or otherwise disposed of, is without foundation under the statute. Section 202(b) of the Eevenue Act of 1918 prescribes the basis for determining the gain or loss upon an exchange of property for other property; and the gain, determined in accordance with those provisions of the statute, must be included, under the provisions of section 213-(a) of the same Act, in gross income, for the purposes of the tax. The respondent’s computation of the gain arising out of the transaction, and his action in including such gain as income for the year 1920, must be approved.

Items 17, 18, 19, 20, 26. The selling price of the five lots included in these transactions is not in dispute. The petitioner contends that the cost of four of the lots was $3,034 each; that the cost of the fifth lot was $3,029.50; that he realized a profit of only $966 on the sale of each of the four first mentioned; and that the profit on the sale of the fifth lot was but $970.50. The issue is entirely as to the cost of the five lots.

It is clear from the evidence, that the original cost to the petitioner of one parcel of land, which was subdivided into four lots, was $6,000. The original cost of the other parcel can not be determined, the evidence simply showing that the petitioner gave for it $500 cash and 20 acres of land, and assumed the indebtedness thereon of $4,250. Our inability to determine the cost of this last parcel is due to the fact that we have not been advised as to the value, at the time of the exchange, of the 20 acres of land which was a part of the consideration. The respondent has held that the total cost of the five lots sold in 1920 was $5,998.85, and that the cost of the other lot sold' in 1921 was $1,966.67, a total cost for the two parcels of land of $7,965.52, which is $2,784.48 less than the actual cash paid and the amount of the indebtedness assumed by the petitioner, to wit: $10,750. It would appear that the petitioner is entitled to have the gain derived from the sale of the six lots computed upon the basis of a gross cost of at least $10,750.

The petitioner contends that the total cost of the five lots sold in 1920 was $15,165.50, and that the cost of the other lot sold in 1921 was $3,034, a total cost of $18,199.50; but this has not been proven. It includes the purported original cost, the amount of which we are unable to determine for reasons heretofore expressed, and an additional sum to cover the cost of street lights, paving, sewer, and brokerage fees which the petitioner, on the witness stand, estimated to be $800 per lot. Whether the petitioner actually made any improvements, such as installing street lights, paving, and sewer, or incurred any expenses in respect thereof, prior to, during, or subsequent to 1920, has not been shown. Petitioner simply testified that the costs for which he is contending include an estimated amount to cover the cost of such improvements. For aught we know, such improvements may not have been made, nor any expense incident thereto actually incurred.

However, we are of the opinion that the petitioner is entitled to the relief for which he prays, to the extent that the profit which the respondent has determined upon the sale of each of the lots under consideration, exceeds the profit determined upon the basis of the minimum gross cost of $10,750. The four lots carved out of south 100 feet of lot 9, block 97 N., cost $6,000, or $1,500 each; and the two lots carved out of lots 5 and 6 of subdivision 16, block 86 N., cost at least $4,750, or $2,375 each. Since we do not know out of which of the two parcels- of land specific lots were sold we must leave the determination of the gain to be made under Rule 50. .

CALENDAR YEAR 1921.

Item 33. Petitioner contends that this transaction was one in which he had only a half interest with another and that only one-half of the profit was realized by him. His testimony on this item was vague and uncertain. He testified that he did not handle the matter personally and that he knows nothing about the details of the transaction, either as to cost price or selling price except as he had been informed by another. No documentary evidence was introduced. Petitioner admits that he knows little or nothing about it. The determination of the respondent will not be disturbed under these circumstances.

Calendar Year 1922.

Item 1. The contention of the petitioner here is similar to that as to Items 17, 18,19, W, in the year 1920. He paid $2,000 for an equity in a lot. Pie traded this equity for a lot in Miami and an equity in a house in Miami. He later sold the equity in the Miami house for $2,000. He contends that no profit arises from an exchange of property for property. This is error, sec. 202(c)(1), Revenue Act of 1921. Pie has failed to show the value of the lot and equity acquired in Miami and in the absence of such showing, the determination of the respondent will not be disturbed.

Item 8. At the hearing, the petitioner testified that he was unable to give any facts relating to this transaction. He was not able to show the cost price of the lot or that it cost him anything. Under these circumstances the respondent’s determination will not be disturbed.

Item 10. At the hearing the petitioner abandoned his contention as to this item. The facts have accordingly been found as determined by the respondent.

Item U. At the hearing the petitioner abandoned his contention as to this item. The facts have accordingly been found as determined by the respondent.

Item 16. The .evidence clearly establishes the facts that the cost to the petitioner of the lot in question was $G,500; and that it was included in the exchange at a value of $6,500. The facts concerning this transaction were related on the witness stand by both parties involved in the exchange; and we are satisfied from the showing made that the petitioner realized no gain in this transaction. The respondent’s action in determining a gain of $1,000 on the exchange is in error.

Items M and £8. The petitioner purchased two lots constituting a triangle of land. The first of these two lots he subdivided into five small parcels and sold them for $1,000. The other lot he retained and later in the year sold for $6,000. The profit depends on the cost price. The testimony was so vague and obscure that we have been unable to ascertain the actual cost price attributable to the respective parcels. It appears that the petitioner arbitrarily allocated a cost price to each lot, but from the testimony this appears to have been no more than an estimate. In the absence of competent evidence fixing the cost of the property, we affirm the determination of the respondent and find the cost to be as determined by him.

Item 87. From the testimony of the witnesses, it appears that the parties to this transaction, in effect, swapped two bladeless knives, sight unseen. The tax certificate held by the petitioner had a high speculative value of not more than $50. The rubber stock was a commodity of about equal speculative value. It had no known value then and soon proved to be worthless. The owner of the stock told the petitioner he could get about $50 for it. Each seemed to feel that he had so little of value that no trade could result in the receipt of something of less value. As the petitioner expressed it: “We just made a quick trade.” It is apparent that to the minds of the parties to the trade the affair was de minimis, and we concur in that view of it.

The other adjustments made by the respondent going to make up the deficiency in question were not assigned as error by the petitioner.

In his statutory notice of determination, the Commissioner advised the petitioner of an overassessment of $23,239.73 for the year 1919, That matter is not before us and no comment is made with respect thereto. R. P. Hazzard Co., 4 B. T. A. 150; Cornelius Cotton Hills, 4 B. T. A. 255.

Judgment will be entered on 20 days' notice, under Rule 50.


author: TrusSell:

text:
    Treat Hardware Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 4524.
    Promulgated April 7, 1927.
    1. Loss on demolition of portion of building can not be allowed where the cost of the building or the demolished parts is not shown.
    2. Deduction for repairs in connection with capital alterations determined.

      Pcml R. Clay, Esq., for the petitioner.

      J. E. Marshall, Esq., for the respondent.
    The deficiency letter dated April 1,1925, which is the basis of this proceeding, asserted deficiencies in income and profits taxes for the year 1919 in the amount of $5,479.04, and for the year 1920 in the amount of $5,517.98. The petition alleged a number of errors on the part of the Commissioner respecting both the years 1919 and 1920. Some of these have been abandoned, and others have been settled by stipulation which will be made effective upon final redetermination.
    The only issues presented to the Board for consideration are whether (1) the petitioner is entitled to a loss of $8,400, resulting from a partial demolition of a building, and (2) a deduction of $12,248.77 for repairs, etc., to the same building. The petitioner’s contentions in these respects refer only to the year 1920.
    FINDINGS OP PACT.
    The petitioner is engaged in conducting a general hardware store, and for more than 20 years prior to 1919 had been a tenant in a building situated at the corner of Broadway and Essex Streets in the City of Lawrence, Mass. This building was a four-story brick building, 100 feet front on Essex Street and 70 feet in depth. Prior to August, 1919, the petitioner had occupied part of the basement, all of the first floor, except the corner room occupied by a bank, about one-third of the second floor, and a portion of the third floor. Other tenants had occupied portions of the second and third floors and there was a skating rink and hall on the fourth floor,

      In August, 1919, the petitioner purchased this building, and soon thereafter made preparations for and did, during the year 1920, complete changes and modifications in said building, consisting of a general rearrangement of the first floor of the building; adding an extension on the rear; cutting out a portion of the rear wall and extending the wall to the line; taking out the main stairways to the second and third floors; removing most of the partitions which represented the old office partitions of the second floor; removing two office partitions and a storeroom on the second floor; putting in a new elevator and pent house; rearranging the fire escape; straightening up the under side of the third floor with trusses; putting in new windows along the second-story front, and the store fronts on the first floor; and general rearrangement of store fixtures, with some new fixtures; rearranging the steam heating plant; painting the building inside and out; in fact, a general remodeling of the building to adapt it for the new layout. Thereafter, the petitioner occupied the entire building, except a portion used by the bank.
    The petitioner paid the sum of $135,000 for this property, including land and building. The amount of this purchase price covered the entire property and there was no allocation of the total amount as between land and building.
    In October, 1919, prior to the making of any changes, an experienced contractor and builder estimated the old building to have a then sound value of $108,250. The same contractor had charge of the remodeling of the building and estimated its sound value after the completion of the alterations to be $104,103.
    During the years 1919 and 1920, in connection with the changes and modifications of said building, the petitioner paid for labor, material, etc., the sum of $66,290.06. After the changes had been completed in the year 1920, the petitioner spread upon its books of account the amount of $64,244.47, charged to capital and expense as follows:
    Building-$26, 020.19
    Building fixtures- 6,590. 51
    Store fixtures- 10, 985.00
    Capital loss- 8,400. 00
    Repair expense_ 12,248.77
    In making its income-tax return for the year 1920, the petitioner claimed deductions of $8,400 loss resulting from the demolition of portions of the building herein described, and $12,248.77 as repair expense in connection with the same business. Both of these items were disallowed by the Commissioner.
    The sum of disbursements properly designated as repairs is $6,238.19.
   OPINION.

TrusSell:

The record of this case contains the testimony of the treasurer of the petitioner corporation, the architect in charge of the remodeling of the building, the contractor who did the work, and a person engaged in real estate and insurance, all of whom testified in detail in respect of the depreciated valúes of portions of the old building demolished and removed and the items of cost which have been classified as repairs. Among the items of cost classified as repairs appear such items as relocating old steam pipes and radiators; cleaning and painting those portions of the interior of the building which were not changed; lumber and other supplies used in making changes in store and building fixtures; painting the outside of the building, and other labor in connection with work not classified as new construction. The aggregate of these items as specifically set forth in the testimony is $6,238.19, and we have, therefore, found that for the year 1920 the petitioner may deduct from gross income on account of repairs $6,238.19.

Claim for the deduction of a loss on account of the demolition of portions of the building is surrounded with difficulties. The record shows that the contractor who did this work found the depreciated values of portions of the old building demolished in classifications as follows: Front alterations and stairways to third floor, $2,800; rear stairways, $350; 3,282 square feet of lath and plaster partitions, $1,650; 1,432 square feet of black walnut iianel-ing in ceiling, $2,864; partition sheathing, $868; three toilets, $500; electric wiring, $500; back hall removed, 35,000 bricks at $60 per thousand, $2,100; fire escape, $250; total, $11,882. The total of these items, however, was not used by the petitioner, either in making entries upon its books or in its claim for a deductible loss, and it apparently reduced the total of these items in the sum of $8,400. The record does not show what items were either omitted or reduced, or why. It may perhaps be assumed that the contractor, in making his statement of depreciated values of portions of the old building demolished, had in mind either the original cost of such items or the cost of such items new at the time of the demolition. Neither of these bases, however, is applicable under the circumstances of this case for the reason that the petitioner purchased this old building, and we are not advised' as to what was the allocable portion of the purchase price applicable to the building and are, therefore, unable to determine what may have been the cost to the petitioner of the items demolished. And, although the -record is silent respecting any salvage from the demolished portions of the building, like recoverable lumber from partitions and stairways, bricks from the rear wall, etc., which may have entered into and become a part of the new construction, the Board can not overlook the facts of common knowledge that such salvage is practically always present under like conditions. It also appears from the record that the petitioner is claiming the right to charge off, not a portion of the cost of the old building, but a portion of the cost of alterations. We are, therefore, of the opinion that the deduction of the $8,400 claimed was properly disallowed and that the entire cost of alterations, less the amount herein allowed as repairs, should have been or should now be, capitalized so that this amount may be recovered by future depreciation deductions.

The deficiencies will he redetermined in accordance with the stipulation in the record and the foregoing -fundings of fact and opinion upon 15 days’ notice, pursuant to Rule 50, and judgment will he entered i/n due course.