author: Maequette:

text:
    Appeal of J. S. HOSKINS LUMBER CO.
    Docket No. 2390.
    Submitted April 30, 1925.
    Decided February 18, 1926.
    The Board lias jurisdiction of an appeal from a determination of the Commissioner, made subsequent to the enactment of the Revenue Act of 1924, denying a claim in abatement of income and profits taxes assessed prior to the date of such enactment.

      W. JS. Hammers, Esq., for the taxpayer.

      A. H. Fast, Esq., for the Commissioner.
    Before SterniiageN and Marquette.
    This appeal involves deficiencies in income and profits taxes for the years 1917 and 1918 in the amounts of $8,030.98 and $10,030, respectively.
    FINDINGS OF FACT.
    The taxpayer is a Maryland corporation, with its principal office at Baltimore. It is, and was during the years referred to herein, engaged in the lumber and timber business.
    On or about January 2, 1923, the taxpayer was furnished with a copy of a revenue agent’s report dated January 2, 1923, recommending that additional tax be assessed in the amount of $8,030.98 for the year 1917 and $10,030 for the year 1918. The taxpayer filed a protest against the proposed assessment of additional tax for the years 1917 and 1918, and requested special relief under section 210 of the Revenue Act of 1917, and section 328 of the Revenue Act of 1918.
    On March 14, 1923, the Commissioner notified the taxpayer by letter of a deficiency in tax of $8,030.98 for the year 1917 and that an immediate assessment thereof would be made in order that collection might not be jeopardized by delay. The tax was assessed on March 26, 1923, and a claim for the abatement thereof was filed by the taxpayer.
    Under date of March 20, 1924, the following letter was sent to the taxpayer by the Commissioner:
    Reference is made to your protest of January 4, 1924 against the proposed assessment of additional income and profits taxes for the years 1917 and 1918, as set forth in Revenue Agent’s report of January 2, 1923, and a request that special relief be granted under Section 210 for the year 1917 and Section 328 for the year 1918.
    Your claim for refund of $8,030.98, income and profits tax, for the year ending December 31, 1917, has been examined and is hereby rejected for reason that your claim for relief under Section 210 has been given careful consideration and assessment under this section has been denied.

      Your request for special relief under Section 327 and 328 of the year 1918 has been given careful consideration and computation of tax under this section has been denied. Additional tax as indicated in office letter of January 24, 1924, will be assessed at the expiration of fifteen days from date of this letter unless an appeal for reconsideration is made to the Commissioner within that time.
    The rejection of this claim will officially appear in next schedule to be approved by the Commissioner.
    Under no circumstances should payment be made until a bill is received from the Collector of Internal Revenue for your district and remittance should then be made to him.
    Under date of May 29, 1924, the following letter was sent to the taxpayer by the Commissioner:
    Your appeal under date of April 3, 1924 from the findings of the Income Tax Unit in respect to your returns for the years 1917 and 1918 has been transmitted to the Committee on Appeals and Review.
    In accordance with Treasury Decision 3492, there is attached a copy of the transmittal letter.
    The transmittal letter showed an additional tax dne of $10,030 for 1918 and that a claim for the abatement of the 1917 additional tax assessed in the amount of $8,030.98 had been denied. The sole ground for the taxpayer’s appeal to the Committee on Appeals and Eeview was the denial by the Commissioner of assessment under section 210 of the Revenue Act of 1917 for the year 1917, and under section 328 of the Revenue Act of 1918 for the year 1918.
    Under date of January 8,1925, the Commissioner notified the taxpayer as follows:
    An audit of your income and profits tax returns for the calendar years 1917 and 1918 has resulted in the determination of a deficiency in tax of $10,030.00 for 1918, as shown by the Bureau letter dated January 24, 1924.
    In accordance with the provisions of Section 274 of the Revenue Act of 1924, you are allowed 60 days from the date of this letter within which to file an appeal to the United States Board of Tax Appeals contesting in whole or in part the correctness of this determination.
    Where a taxpayer has been given an opportunity to appeal to the United States Board of Tax Appeals and has not done so within the 60 days prescribed and an assessment has been made, or where a taxpayer has appealed and an assessment, in accordance with the final decision on such appeal has been made, no claim in abatement in respect of any part of the deficiency will be entertained.
    If you acquiesce in this determination and do not desire to file an appeal, you are requested to sign the enclosed agreement consenting to the assessment of the deficiency and forward it to the Commissioner of Internal Revenue, Washington, D. C., for the attention of IT: E: SM ELD. In the event that you acquiesce in a part of the determination, the agreement should be executed with respect to the items agreed to.

      STATEMENT
    In re: J. S. Hoskins Lumber Co. Baltimore, Md.
    Year ' Deficiency in Tax
    1917_None.
    1918_„ $10,030.00.
    Reference is made to your income and profits tax returns for the calendar years 1917 and 1918 and to your protest dated April 3, 1924.
    You are advised that after a thorough review of your ease, the Bureau holds that on the basis of comparative data, no abnormality affecting net income has been disclosed which would bring your case within the scope of Paragraph (d) of Section 327. Furthermore, the audit of your case discloses no exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of Section 328 and the tax computed by reference to the representative corporations specified in that Section. The determination of your tax liability for -1917, as set forth in office letter dated March 14, 1923, and for 1918, as set forth in office letter of January 24, 1924, is, therefore sustained.
    In accordance with the above conclusions, your claim for the abatement of $8,030.98 income and profits taxes for 1917 will be rejected.
    The right of appeal to the United States Board of Tax Appeals as indicated on page 1 of this letter refers only to any deficiency in tax indicated herein, inasmuch as there is no provision in the Revenue Act of 1924 granting the right of appeal against the determination of any tax assessed prior to June 2, 1924,
    The taxpayer, about the year 1910, purchased a tract of land containing 1,200 acres, of which 800 acres were timber land and 400 acres were unimproved farm land. . It was necessary for the taxpayer to purchase the unimproved farm land in order to acquire the timber land. The farm land had very little value.
    After the taxpayer had removed the timber referred to, it tried to dispose of the land, but was unable to find a purchaser. It therefore improved the land by clearing and draining it, constructing buildings and fences, and putting on fertilizer, and proceeded to cultivate it. All expenditures made by the taxpayer in improving and cultivating the land were capitalized and the amount so expended was credited with amounts received from the sale of farm products, etc.
    •Upon audit of the taxpayer’s return for the year 1917, the Commissioner segregated the various amounts expended by the taxpayer in connection with the farm land and reduced its invested capital by the accumulated depreciation thereon and by the amount of the accumulated operating loss for the years prior to 1917. By reason of this adjustment, the taxpayer’s invested capital for the year 1917 was reduced by the amount of $14,976.14. Similar adjustments were made for the year 1918, reducing the invested capital for that year by $18,108.76.

      On June 28, 1916, the taxpayer sold to one William F. Halley, for $12,000, the timber rights in certain lands located in North Carolina. Halley paid to the taxpayer $1,000 in cash at the time of the sale and gave to it, for the balance of the purchase price, 14 promissory notes dated June 28, 1916, 10 of the notes being for $800 each and four for $750 each. The notes bore interest at the rate of 6 per cent from date.
    The first note became due October 1,1916, and one note became due on the first day of each month thereafter' until November 1, 1917, when the last note became due. The notes were subsequently paid, although it appears that, on account of conditions which arose due to the World War, they were not all paid when they became due. However, at the time of the sale, Halley had other property, which had a value of at least twice the amount of the notes in question, and the notes at that time were actually worth their face value and could have been sold by the taxpayer for that amount.
    The profit to the taxpayer on the sale of the timber rights to Halley was $2,267.53. The Commissioner treated the sale as a sale on the installment plan and allocated part of the profit arising therefrom to the year 1917 and subsequent years.
    In the year 1918, the taxpayer built a planing mill in Canada, at a cost of $5,307.28, for the purpose of manufacturing ship knees to be used in the building of wooden ships. The ship knees so manufactured were sold to the United States Navy Yard, Brooklyn, N. Y., the United States Navy Department, the Great Lakes Boat Building Co., and other ship building companies, and were used principally on ships built by the United States Shipping Board. Shipments'of ship knees could only be made by the taxpayer upon a permit from the United States Government. At the conclusion of hostilities in November, 1918, the taxpayer closed down the mill and it remained closed down until it was sold in 1921 for $100.
    The taxpayer, during thé year 1918, had in its employ at its Canadian mill three men — Chambers, Piper, and Ryder. Chambers was working as foreman on a commission basis and the others were on regular salaries. The mill was closed before the end of the year 1918, and at the time the taxpayer was indebted to Chambers, Piper, and Ryder for services performed. The exact amount of the indebtedness, however, was not known to the taxpayer, and the matter was therefore allowed to go over until the year 1919, when one of the taxpayer’s officers went to Canada and determined the amount of the indebtedness. Chambers at that time was paid $1,069.45, Piper, $237.78, and Ryder, $182.28. These amounts were for services rendered in the year 1918, but were not entered on the taxpayer’s books until the year 1919.

      In'the year 1918, the taxpayer, as above stated, closed down the planing mill it had been operating in Canada for the manufacture of ship knees, and it was compelled for that reason to find a new location .for the storage of the ship knees it had on hand. It therefore purchased a parcel of land in Baltimore, Md., known as the Fallaway property. This land was held under the ground rent system, and there was a building or shed thereon, which was owned by parties other than those from whom the taxpayer purchased the land. The building or shed was used by an excavating company for a stable and storehouse. The taxpayer purchased this shed for $1,150, and also paid to a real estate agent the amount of $149.38, as a commission on the sale, and to the City of Baltimore $885, as assessment on the property, ground rent taxes, and certain minor expenses, in the total amount of $106.50. The taxpayer tore out the stalls, made repairs to the shed, and thereafter used it for the storage, of the ship knees brought from Canada. The total cost to the taxpayer of the building was $2,358.43, all of which was charged to expense for the year 1918 and deducted from gross income. The Commissioner has disallowed the deduction.
    In the conduct of its business, it is necessary for the taxpayer to purchase and keep on hand a considerable quantity of “ rafting gear, ” consisting of chains, poles, axes, wedges and cant bars, used in the rafting and piling of logs. All of this gear has heretofore been carried in a gear account on the taxpayer’s books. When issued for use on a raft of timber sold by the taxpayer, the gear is charged to the purchaser of the timber at cost, and, if it is returned by him, he is credited with the cost price of the gear, less 10 per cent for shrinkage.
    On Jaunary 1, 1917, the taxpayer’s gear account had a debit balance of $10,621.53, which represented the inventory value of the gear then on hand. During the year 1917, purchases of gear were made amounting to1 $5,925.56, and sales were made in, the amount of $723.15. On November 21, 1917, the gear account was reduced by the amount of $4,059.19, which included depreciation in the amount of $708.09, leaving a debit balance in the account on January 1, 1919, of $11,764.45. During the year 1918, purchases of gear were made in the amount of $5,246, and sales of gear were made in the amount of $101.28. On December 31, 1918, the taxpayer reduced the gear account by the amount of $4,572.03, which included a write-off for depi-eciation in the amount of $547.39. The useful life of rafting gear is not more than two years.
    The taxpayer, at the end of each year, had in process of shipment a considerable quantity of its product, which it had sold, but for which it had not received freight bills. It was therefore the taxpayer’s practice to credit its customers with an estimated amount of freight charges and to set up on its books a reserve therefor. At the opening of the next year, tbe amounts credited to the shippers would be reversed and their accounts subsequently credited with the actual freight charges as they were ascertained. At the beginning of the year 1917, the taxpayer had on its books a reserve for freight charges in the amount of $12,773.14. During the year 1917, the amount charged to freight was $110,694.24, and that amount was deducted by the taxpayer in computing its net income for the year 1917. The current amount of freight bills for 1917 was $91,114.21. The reserve at December 31,1917, was $32,353.21, of which $19,508.07 represented the increase during the year 1917. The correct amount of freight bills credited or paid for the year 1918 was $100,159.44, and the amount deducted on the taxpayer’s return for 1918 was $72,966.88. The reserve for freight bills at December 31,1918, was $5,160.65.
    In its petition the taxpayer alleged that it is entitled to special assessment for the years 1917 and 1918 under the provisions of section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918, but at the hearing it presented no evidence in support of this claim.
    DECISION.
    The deficiency should be computed in accordance with the following opinion. Final determination will be made on 10 days’ notice, under Rule 50.
   OPINION.

Maequette:

The Commissioner filed a plea in bar of tl\e right of the taxpayer to maintain its appeal as to the year 1917, on the ground that “ The Commissioner of Internal Revenue has not since the enactment of the Revenue Act of 1924 proposed the assessment of a deficiency tax for the year 1917, nor has he rejected a claim for the abatement of a jeopardy assessment made for a deficiency tax for the year 1917.”

The evidence in this appeal discloses that the tax for the year 1917, involved herein, was assessed in March, 1923, under the provision of section 250 (d) of the Revenue Act of 1921. The taxpayer filed a claim for the abatement of the additional tax, and after a hearing of the claim for abatement, had before the Committee on Appeals and Review, the Commissioner on January 8, 1925, mailed to the taxpayer a letter which is in part as follows:

You are adyisecl that after a thorough review of your case, the Bureau holds that on the basis of comparative data, no abnormality affecting net income has been disclosed which would bring your case within the scope of Paragraph (d) of Section 827. Furthermore, the audit of your case discloses no exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of Section 328 and the tax computed by reference to the representative corporations specified in that Section. The determination of your tax liability for 1917, as set forth in office letter dated March 24, 1924, is therefore, sustained.
In accordance with the above conclusions, your claim for the abatement of $8,030.98 income and profits taxes for 1917 will be rejected.

In our opinion, the action of the Commissioner, as set forth in the letter of January 8, 1925, was a final determination of the income and profits tax due from the taxpayer for the year 1917, from which the taxpayer has the right of appeal to this Board. Appeal of Joseph Garneau Co., 1 B. T. A. 75; Appeal of Terminal Wine Co., 1 B. T. A. 697.

The second issue raised by this appeal is whether or not the Commissioner erred in reducing the taxpayer’s invested capital for the years 1917 and 1918 by the accumulated depreciation on its farm buildings and the accumulated farm operating losses. The evidence establishes that the taxpayer purchased the farm land in question as a necessary incident to the purchase of a tract of timber. The land, had little value and was not salable, and the taxpayer, therefore, in order to make it salable, erected buildings and fences thereon, and otherwise improved it. This occurred about the year 1910, and from that time, up to and including the year 1918, the taxpayer cultivated and operated the land as a farm, although farming was not in any way a part of its regular business.

The expenditures made by the taxpayer in improving the land were clearly of a capital nature, but we can not hold that the taxpayer should be permitted to capitalize the losses sustained from year to year in the operation of the farm. The cost of' the farm, with its improvements, became a part of the taxpayer’s invested capital, but the operating losses should have been taken into consideration each year in determining the taxpayer’s profit or loss from its entire business. The improvements on the farm were subject to exhaustion, wear and tear, like any other of the taxpayer’s depreciable assets, and, as the exhaustion, wear and tear thereof occurred, it should have been accounted for in the same manner as the exhaustion, wear and tear of the other assets. We are of the opinion that the Commissioner properly charged the accumulated depreciation and farm operating losses against the taxpayer’s accumulated earnings, and that invested capital should be reduced accordingly.

The next question is whether or not the profit of $2,267.53, realized by the taxpayer on the sale of timber rights to Halley in the year 1916, was income in that year or should be allocated over the period in which the several notes representing the deferred payments were paid.

We see no reason for holding that the sale was otherwise than for cash or its equivalent. The deferred payments were represented by notes due in from 3 to 16 months, three of which of a total face value of $2,400 fell due and apparently were paid during the year 1916. The taxpayer held title to the timber rights as security for the payment of the notes, and it further appears that, regardless of that security, the notes were worth their face value and could have been sold or discounted for that amount. The profit arising from the sale was clearly income to the taxpayer for the year 1916.

With respect to the taxpayer’s planing mill in Canada, the evidence shows that it was built by the taxpayer in the year 1918, at a cost of $5,307.28, for the purpose of manufacturing articles contributing to the prosecution of the World War. At the cessation of hostilities in November, 1918, the mj.ll became useless to the taxpayer and was closed down and remained in that condition until it was sold in the year 1921 for $100. The taxpayer sustained a loss in this transaction in the amount of $5,207.28, which it is entitled to deduct in computing its net income for the year 1918. Appeal of Walcott Lathe Co., 2 B. T. A. 1231.

The evidence presented by the taxpayer also discloses that, during the year 1918, it had in its employ in its Canadian mill three men, Chambers, Piper, and Ryder, and that, when the mill was closed down in November 1918, it was indebted to them for services they had performed in that year. The exact amount of the indebtedness, however, had not been determined and was not determined and paid until some time in the year 1919. At' that time, Chambers was paid $1,069.45, Piper, $237.78 and Ryder, $182.28. The taxpayer’s books were kept on the accrual basis and, as the services were rendered and payment therefor was due in the year 1918, the amount of the indebtedness was properly accruable on the taxpayer’s books in that year and deductible in computing its net income.

The next issue is whether or not the taxpayer is entitled to deduct from gross income for the year 1918 the cost of acquiring and altering a certain building or shed, located on what is known as the Fallawav property, in Baltimore, Md. The evidence shows that it purchased this shed at a cost of $1,150 and made certain alterations and paid assessments and taxes due. The total amount expended was $2,258.43. After the alterations had been made, the shed was used as a place to store ship knees, which the taxpayer shipped to Baltimore after it closed down its planing mill in Canada. The taxpayer claims that the shed was acquired for the production of articles contributing to the prosecution of the World War, that it had little or no salvage value, and that the taxpayer is entitled to deduct the entire cost thereof in computing its net income for the year 1918. However, as far as the evidence shows, the shed was still in use at the end of the year 1918 and was serving the purpose for which it was acquired. Apparently, its value in terms1 of use to the taxpayer had not diminished at the end of the year 1918, and, if we were to hold, which we do not, that the shed was acquired for the production of articles contributing to the prosecution of the World War, the taxpayer is nevertheless not entitled to an allowance for the amortization of the cost thereof in the year 1918.

With reference to the allowance to which the taxpayer is entitled for the exhaustion, wear and tear of its rafting gear in the years 1917 and 1918, we are of the opinion that the useful life of that property was not to exceed two years and that the allowance should be computed on that basis.

The only other question pre§ented by the record herein relates to the reserves set up by the taxpayer on its books at the close of the taxable years 1916, 1917, and 1918, to cover freight charges on products that had been shipped but for which freight bills had not been received. Although merely estimates, these reserves were included in.the amounts which the taxpayer deducted from gross income in the year 1918, and the effect thereof was that, in computing its net income for the years 1917 and 1918, the taxpayer deducted on account of freight charges $19,580.07 more for the year 1917, and $27,192.56 iess for the year 1918, than the amount of such charges actually paid or incurred in those years. These reserves represented an indefinite liability, which could not be determined until the freight was actually" paid, and they should not have been deducted by the taxpayer in computing its net income for the years 1917 and 1918. Only the amounts of freight charges actually paid or incurred in those years should have been deducted. The taxpayer’s income for the year 1917 should therefore be increased by $19,580.07, and that for the year 1918 should be decreased by $27,190.56.


source: Caselaw Access Project

license: Public Domain

text:
    Appeal of JEWETT & CO.
    Docket No. 5416.
    Submitted December 2, 1925.
    Decided February 18, 1926.

      Barry Mohun and Benjamin Mahler, Esqs., for the taxpayer.

      John W. Fisher, Esq., for the Commissioner.
    Before Littleton, Smith, and Teussell.
    This is an appeal from the determination of deficiencies in income and profits tax for the calendar years 1919, 1920, and 1921, in the amounts of $157.20, $1,526.10, and $237.81, respectively, arising from adjustment of deductions for exhaustion, wear and tear, and obsolescence of patterns. The taxpayer originally claimed a deduction of 3½ per cent of the total sales for the year, which was disallowed by the Commissioner, who computed the deduction at 6 per cent upon cost, plus additions during the years here involved. At the hearing the taxpayer, admitting the correctness of the Commissioner’s method, contended that its patterns, while having a physical life of many years, become obsolete within nine years.
    FINDINGS OF FACT.
    Taxpayer is a New York corporation engaged in the manufacture and sale of wood, coal, and gas stoves, with principal office and place of business at Tonawanda.
    As a result of the method of determining the deduction for exhaustion, wear and tear, and obsolescence of patterns, by the National Association of Stove Manufacturers, the taxpayer computed this deduction during the years here involved and those prior thereto upon the basis of 3½ per cent of the total sales for the year. Tor certain prior years the Commissioner allowed the deductions claimed, but for the taxable years changed the method of determining the deduction to 6 per cent of the cost and adjusted the income and the invested capital accordingly.
    By reason of the constant change in designs and styles of stoves to meet the public demand, patterns in use for a period of from eight to twelve years are only used for the manufacture of repair parts and, to a minor extent, in the manufacture of certain stoves, the designs and styles of which have been changed. The average useful life of patterns used by the taxpayer is ten years, and the deduction for exhaustion, wear and tear, and obsolescence should be computed upon the basis of 10 per cent of the cost, plus additions.
   DECISION.

The deficiency should be computed in accordance with the foregoing findings of fact. Final determination will be settled on 10 days’ notice, under Bule 50.


text:
    Appeal of W. F. CHILDS & CO.
    Docket No. 4127.
    Submitted July 16, 1925.
    Decided February 18, 1926.

      George E. Frazier, Esq., for the taxpayer.

      Willis D. Nanee, Esq., for the Commissioner.
    Before SteRnhagen, Lansdon, GREEN, and Love.
    There is involved in this appeal the determination of a deficiency in income tax for the year 1922 in the sum of $1,735.09. The question is the right of the taxpayer to deduct from its gross income for 1922 a net loss sustained during a three-month taxable period in 1921.
    FINDINGS OP PACT.
    The taxpayer, an Illinois corporation, with its principal office in Chicago, was organized October 1, 1921. During the taxable period October 1, 1921, to December 31, 1921, it sustained a net loss in the sum of $11,880.07 and set forth such loss in its return of income for that year. In computing its net income for 1922, it deducted the amount of the net loss. The Commissioner disallowed the deduction and determined the deficiency above set forth.
   DECISION.

The deficiency determined by the Commissioner is disallowed. United States v. Carroll Chain Co., 8 Fed. (2d) 529; Appeal of Carroll Chain Co., 1 B. T. A. 38; Patapsco Ballast Co., 1 B. T. A. 1081.


author: Teussell:

text:
    Appeal of DALLAS BRASS & COPPER CO.
    Docket No. 2629.
    Submitted June 5, 1925.
    Decided February 18, 1926.
    1. Under the Revenue Act of 1918, a corporation return for income tax is a sworn statement “ stating specifically the items of its gross income and the deductions and credits allowed by this title,” as set forth in section 239 of said Act.
    2. The so-called tentative return, Form 1031-T, as made and filed by this taxpayer, did not state any items of gross income or deductions and was not the return required by law.
    3. The time within which the Commissioner may make an assessment or assert a deficiency of income and profits taxes under the Revenue Act of 1918 is the period of five years from and after the filing of a return made as required by that Act, and limited by section 277 of the Revenue Act of 1924.
    4. The Commissioner may, in his discretion, reopen and reconsider any taxpayer’s liability to income and profits taxes originally decided by him at any time within the period of the statute of limitations, subject only to the provisions of sections 1005 and 1006 of the Revenue Act of 1924.
    5. Where an issue of fact respecting the proper application of section 328 of the Revenue Act of 1918 is raised by the pleadings and the Commissioner declines to respond to a subpcena to appear and produce the data upon which he acted in applying the provisions of said section 328, a continuance may be granted to permit the taxpayer to assemble and produce evidence in support of its allegations of fact.

      Frederick D. Silber and George S. Ward, Esqs., for the taxpayer.

      Arthur H. Fast, Esq., for the Commissioner.

      Before James, Littleton, Smith, and Tbussell.
   Teussell:

This is an appeal from the determination of a deficiency in income and profits taxes for the year 1918 in the amount of $35,213.85. The issues presented by the pleadings are:

(1) Whether a deficiency assessment made by the Commissioner on June 13,1924, was made within the five-year limitation prescribed by statute.

(2) Whether the same Commissioner may, after having once made an adjustment of this taxpayer’s liability to income and profits taxes, thereafter, upon his own motion, reopen the case and assert an additional liability to income and profits taxes and assess the same within the period of limitations prescribed by statute.

(3) Whether, after having reopened the case, the Commissioner, in applying the provisions of section 328 of the Revenue Act of 1918, used improper and unfair comparatives, with the result that the asserted deficiency is excessive, unjust, and inequitable, and imposes upon this taxpayer a rate of tax in excess of that paid by others similarly circumstanced.

Prior to the date set for the hearing of this appeal the taxpayer, through its counsel, applied for and there was issued a subpoena requiring the Commissioner to appear at the hearing of the appeal and to bring with him and produce the returns of the corporations with which he compared this taxpayer, and such other information and data as was used by him pursuant to section 328(a) of the Revenue Act of 1918 in computing the deficiency herein complained of. At the hearing, the Commissioner’s counsel announced that the Commissioner acknowledged the receipt of the subpoena but declined to furnish the returns or any other data or information in respect thereto, basing his action upon section 3167 of the United States Revised Statutes, as amended.

Thereupon, counsel for the taxpayer introduced into the record the several Commissioner’s letters, which are herein recited, and argued the questions of law concerning the running of the statute of limitations and reopening of tax cases, and at the close of the oral argument the Division of the Board announced that, in the event the decision of the Board should be unfavorable to the taxpayer upon the issues of law presented, the taxpayer would be allowed a period of 30 days within which to move for such further proceedings in connection with this appeal as might be deemed appropriate and necessary.

The taxpayer is an Illinois corporation with its principal place of business in Chicago, where it is engaged in the business of manufacturing brass and copper and articles of merchandise made from said materials, and dealing in the same, as well as in similar products manufactured by others. During the calendar year 1918, the taxpayers business produced a net income, as shown by its books, in the amount of $266,940.74, upon which its income and profits tax liability, computed in accordance with the provisions of sections 280 and 301 of the Revenue Act of 1918, aggregated $181,297.03.

Under date of February 13, 1919, the Commissioner caused announcement to be made through the public press of a plan under which taxpayers who would be called upon to make income and profits-tax returns under the Revenue Act of 1918, which had not then been enacted, would be enabled to have the benefit of an extension of time within which to file completed returns. A part of such authorized publication and notice was as follows:

To collectors of internal revenue and others concerned:
Although no general extension of time will be authorized for filing Federal Income Tax returns due March 15, the Commissioner of Internal Revenue has approved a novel feature of tax collection which will serve for all practical purposes as a possible extension of forty-five days for the filing of corporation income and excess profits tax returns in casete where corporations are unable to complete and file their returns on March 15.
If a corporation finds that, for good and sufficient reason, it is impossible to complete its return by March 15, it may make a return of the estimated tax due and make payment thereof not later than March 15. If meritorious reason is shown as to why the corporation is unable to complete its return by the specified date, the collector will accept the payment of the estimated tax and agree to accept the revised and completed tax return within a period of not more than 45 days.

Again, under date of February 27, 1919, three days after the approval of the Revenue Act of 1918, the Commissioner caused to be published in the public press and otherwise, for the information of taxpayers, further announcement concerning extensions of time within which to file income and profits tax returns, a part of which published notice is as follows:

Income taxpayers, both corporation and individual, were today granted by the Internal Revenue Bureau further relief with respect to the filing of their completed tax returns for 1918. The statement that the taxpayer is unable by March 15, to execute and file the complete return will be accepted, under the new procedure, as sufficient reason for extending for forty-five days the time for filing complete income and excess profits returns, provided in every case the taxpayer pays on or before March 15 at least 25 per cent of the estimated amount of the tax due.
⅝ ⅝ ⅝ ⅜ ⅜ H? ⅜
The tentative return to be used by corporations who make payment of the estimated tax due on or before March 15 is being printed, and a supply will be forwarded tomorrow to each collector, who will mail these Forms to every corporation on his list (to be known as Form 1031-T).

On or about April 14, 1919, the Commissioner issued his mimeographed letter No. 2101, addressed to collectors of internal revenue, and published in the public press for the information of taxpayers, the relevant portion of which is as follows:

In the ease of corporations which filed Form 1031-T on or before March 15, a further extension, where needed, to June 15, 1919, in which to file complete returns on Form 1120 is hereby granted, hut all such corporations will be required to pay on or before June 15 a sum sufficient, with the amount paid on March 15, to equal one-half the tax due as shown by the return on Form 1120, together with interest at the rate of one-half of 1% per month on any deficiency in the first installment.

On March 12,1919, the taxpayer filed with the collector of internal revenue at Chicago a so-called tentative return on Form 1031-T, and on that day paid to the collector the sum of $32,619.99, representing that said amount was one-fourth of 50 per cent of the total amount of the net income and was then paid pursuant to section 328(b) of the Revenue Act of 1918. Securely affixed to the form is a typewritten slip in words and figures as follows:

Said taxpayer, Dallas Brass & Copper Co., hereby gives notice to the Collector of Internal Revenue that it intends .to make application to the Commissioner to apply the benefit of sections 327 and 328 of the Revenue Act of 1918, in force February, 1919, to the computation of the proper tax to be paid by this corporation, and in accordance with section 328, paragraph “ B,” pays the Collector herewith the sum of Thirty-two thousand, six hundred nineteen and ⅜⅝ Dollars ($32,619.99), said installment being computed upon the basis of a tax equal to fifty per cent of the net income of said Dallas Brass & Copper Co. for the year ending December 31, 1918.

This form was signed by the president of the taxpayer corporation, acknowledged before a notary, and filed in the collector’s office at Chicago on March 12, 1919.

Thereafter, the taxpayer procured the department Form 1120, “ corporation income and profits tax return for calendar year 1918,” and caused such form to be prepared in the manner apparently indicated by the form and the instructions contained thereon, showing that the net taxable income was $266,940.74, and the 'tax computations carried out in the manner indicated by the form show—

Total excess and war profits taxes_$170,165. 95
Income tax- 11,131.08
Total tax liability- 181,297.03

This form was signed by the president of the corporation, sworn to before a notary on June 13, 1919, and filed in the office of the collector of internal revenue at Chicago on June 13, 1919, and there' is a notation on the form that a remittance accompanied it in the amount of $39,680.73.

Thereupon, the taxpayer made an application for relief, accompanied by claim for abatement, under sections 327 and 328 of the Revenue Act of 1918, and the Commissioner, under date of February 10, 1921, granted an abatement of tax in the amount of $27,-828.98. The taxpayer then made application for further special relief, in response to which, after a number of conferences, the Commissioner, under date of September 14, 1922, allowed a further reduction of assessment in the amount of $51,239.16, and forwarded to the taxpayer a letter setting forth such findings, in words and figures as follows, in so far as the said letter related to the calendar year 1918:

Net income as returned_$266, 940/74
Add:
Expenses_$2, 039, 00
Interest_ 489. 46
2, 528.46
Less:
$1,182. 66 Cost of goods.
0.15 Depreciation.
-- 1,182.81
-- 1, 345.65
Corrected net income_ 268, 286. 39
COMPUTATION OP TAX.
Profits tax (section 328)_ _ 80,132.29
Net income_ _$268,286.39
Interest on U. S. obligations not exempt_ $2, 015. 77
Profits tax_ 80,132.29
Exemption_._ 2, 000. 00
- — -- 84,148. 06
Balance subject to tax at 12 per cent_,_ 184,138.33 22, 096. 60
Total tax assessable_ _ 102, 228. 89
Original tax assessed_ $181,297. 03
Less: Amount abated' Peb. 10, 1921_ 27, 828. 98
- 153,468.05
Indicating an overassessment of. 51, 239.16
Tbe overassessments shown herein will be made the subject of certificates of overassessments which will reach you in due course through the office of the Collector of Internal Revenue for your district and will be applied by that official in accordance with section 252 of the Revenue Act of 1921.
Respectfully,
E. H. Batson,
Deputy Commissioner.

Here the subject of this taxpayer’s liability to income and profits taxes for the year 1918 appears to have rested until, on or about June 12, 1924, the Commissioner caused to be prepared and forwarded to the taxpayer a letter as follows:

IT: E: SM
LTM-A-2351
June 12, 1924.
The Dallas Beass and Copper Company,
288-231 North Jefferson Street,
Chicago, III.
Sirs : Reference is made to your income and profits tax return, Form 1120, for tlie calendar year 1918, and to Bureau letter dated September 14, 1922, in which you were advised of an overássessment amounting to $51,239.16, determined as a result of computing your tax liability under the provisions of section 328 of the Revenue Act of 1918.
A reexamination has been made of your application for assessment of your profits taxes under the relief provisions of the Revenue Act of 1918, together with all other evidence in the case, and you are advised that the above-mentioned determination of your tax liability was erroneous. A correct computation of your tax liability under section 328 of the Revenue Act of 1918 has been made and the additional assessment, $35,213.85, necessary to correct the excessive overassessments erroneously determined will be listed immediately in accordance with the provisions of section 274 (d) of the Revenue Act of 1924, without giving the sixty days’ notice as provided in section 274(a) of the same act.
The Bureau, therefore, will entertain a claim in abatement if filed within ten days of receipt of notice and demand from the Collector of Internal Revenue for your district, in accordance with the provisions of section 279 of the above-mentioned Revenue Act. An appeal covering the basis of the claim should be filed, setting forth in full all information upon which you base your protest against the above assessment and any additional facts in support of your claim for the application of the relief provisions of the Revenue Act of 1918. This appeal should be filed in triplicate and should be addressed to the Commissioner of Internal Revenue for the specific attention of IT: E: SM-LTM-A-2351. On request a conference will be arranged prior to final decision.
If an appeal is not filed, payment should be made upon receipt of notice and demand from the Collector of Internal Revenue for your district.
Respectfully,
Deputy Commissioner.
STATEMENT
IT: E : SM
LTM-A-2351
June 12, 1924.
In re: The Dallas Brass and Copper Company, 223-231 North Jefferson Street, Chicago, Illinois.
1918
Additional tax- $35, 213. 85
Profits tax (328)-:-$120,148.03
Net income_$268, 286. 39
Less:
Interest on obligations of U. S. not exempt_ $2, 015. 77
Profits tax- 120,148.03
Exemption_ 2, 000.00
- 124,163.80
Subject to tax at 12% $144,122. 59
Amount of tax at 12%_ $17,294.71
Total tax assessable_$137, 442. 74
Previously assessed:
Original return_$181, 297. 03
Less: Overassessments—
1921-$27, 828. 98
1922_ 51, 239.16
- 79, 068.14
- 102,228.89
Additional tax_ $35, 213. 85

On June 13,1924, the Commissioner caused to be made and entered upon an assessment list a deficiency assessment against this taxpayer in the amount of $35,213.85. Thereupon the taxpayer filed with the Commissioner a protest against said additional assessment and a claim in abatement of all of such assessment, which claim in abatement the Commissioner received, considered, and reviewed, and finally rejected, and he forwarded to the taxpayer a notice of such rejection dated February 6, 1925, in words and figures as follows:

Treasury Department,
Ofeice op Commissioner op Internal Revenue,
Washington, February 6, 1985.
IT: E: SM CDL-A-2351
The Dallas Brass and Copper Company,
223-231 North Jefferson Street,
Chicago, Illinois.
Sirs : Reference is made to your income and profits tax return for the calendar year 1918 and. to your protest dated July 19, 1924, and additional information subsequently submitted.
You are advised that after a thorough review of your case, the Bureau holds that the Commissioner of Internal Revenue may assess any tax found to be due even though such tax may have been previously erroneously abated or refunded, provided that such assessment is made within the time prescribed by statute; that the additional assessment of $35,213.85 against your corporation for the taxable year 1918 was made within the time prescribed by statute; and that the comparatives used in the final determination are, in the aggregate, fairly representative in all the material particulars specified in the act. The conclusions set forth in Bureau letter dated June 12, 1924 are, therefore, sustained.
In accordance with the above conclusions, your claims for the abatement of $35,213.85 and refund of $153,468.05, aggregating $188,681.90, will be rejected.
The Collector of Internal Revenue for your district will notify you as to the time and manner of making payment.
Upon receipt of notice and demand from that official, payment should be made to his office, in accordance with the conditions of his notice.
Your ease is, therefore, deemed closed by the Bureau.
Respectfully,
(Signed) J. G. Bright,
Deputy Commissioner.

From above notice of rejection of claim the taxpayer filed this, appeal on March 18,1925.

The granting of extensions of time within which taxpayers must-file the returns required by law, and which are to be the basis for-the computation and assessment of internal-revenue taxes, was pro-, vided for by statute many years prior to the levying of taxes upon incomes under the Sixteenth Amendment to the Constitution. Section 3176 of the Revised Statutes has for many years contained a provision for the granting of extensions of time within which to file returns on account of the absence or illness of taxpayers.

With the advent of income tax legislation, it was recognized that there are sometimes reasons, other than absence and illness, which require extensions of time within which to file returns. This was first recognized in the Revenue Act of 1916, section 8, which made provision for persons residing or traveling abroad, and later, in the Revenue Act of 1918, section 227 (a), which contains the following-language :

⅝ ⅝ * Tiie Commissioner may grant a reasonable extension of time for filing returns whenever in his judgment good cause exists ⅜ * *.

This Act was approved on February 24, 1919, but was specifically made effective as of January 1, 1918. The returns for the year-1918 were required to be made and filed with the proper collector of" internal revenue on or before March 15, 1919, which was only 19 days after the approval of the Act.

Some time prior to March 12,1919, the Commissioner caused notice to be given “ through the public press and otherwise that tentative returns (Forms 1031-T and 1040-T), accompanied by a first installment of one-fourth of the estimated tax due, would be accepted on that date [March 15, 1919] and that in such cases forty-five days would be given in which to file complete returns,” and at the same time the Commissioner issued and caused to be distributed in such a manner as to be available for the use of taxpayers the said so-called tentative return forms. Form 1031-T is in the nature of a communication addressed by the taxpayer to the collector and contains, the following language:

The amount stated below is remitted herewith in payment of not less than, one-fourth of the estimated amount of the income, war-profits, and excess-profits taxes for the year ended - of the corporation whose name and address appear at the head of this form.
An extension of-days in the time allowed for filing a completed return is reguested.
It is not possible to file a completed return on or before March 15, 1919, for the following reasons:

On or about March 12,1919, the taxpayer made use of one of these forms, in the proper blank spaces of which it filled in the taxpayer’s. name and address; showed that the form was used in connection with the year ended December 31,1918; and, in the space for entering the estimated one-fourth of the amount of tax due, entered the figures $32,619.99, and filed this form, signed and sworn to, with the collector of internal revenue at Chicago, accompanied by a remittance for the amount stated in the form. Later, on June 13, 1919, the taxpayer filed a complete return with the collector at Chicago.

The taxpayer now argues that the Revenue Act of 1918 required ' it to file with the collector one return; that the Act itself contains no provision or mention of any tentative return or complete return, and that, therefore, when the taxpayer filed the above-mentioned tentative return, it had complied with the provisions of the statute requiring it to file a return and that the statute of limitations contained in the Revenue Act of 1924, section 277 (a) (2), providing that taxes under various prior revenue laws “ shall be assessed within five years after the retwm was filed,” began to run on the day following the filing of the so-called tentative return.

The Revenue Act of 1918, section 239, contains this provision:

That every corporation subject to taxation under tMs title and every personal service corporation shall make a return, stating specifically the items of its gross income and the deductions and credits allowed hy this title. The return shall be sworn to by the president, vice president, or other principal officer and by the treasurer or assistant treasurer.

The return required.by the statute is a document prepared in such a manner as to set forth the information called for in the above quotation from section 239 of the Revenue Act of 1918. The form filed by the taxpayer on March 12, 1919, contained none of the information required by section 239, above quoted. We must, therefore, treat this tentative return only as a request for an extension of time within which to file the return, accompanied by a statement that' the taxpayer complied with the Commissioner’s requirement of making a payment of one-fourth of the amount of tax estimated to be due, and that this taxpayer, having availed itself of the extension offered by the Commissioner to it and all other taxpayers in similar circumstances, can not now, with any degree of propriety, claim that the simple form used by it, containing none of the information required by the statute, was a return which could start the running of the statute of limitations.

We are, therefore, of the opinion that the form of tentative return used by this taxpayer and filed with the collector on March 12, 1919, was not a return required by the statute; that the return prepared and filed with the collector on June 13, 1919, was the return required by statute; and that the five-year period of limitation within which assessment might be made began to run on the day following June 13,1919.

The taxpayer further argues that in the event the Board shall •find that the assessment of June 13, 1924, was not barred by the . statute of limitations, the Commissioner is nevertheless without .authority to make an assessment or assert a deficiency as of that • date, for the reason that he had, prior to that time, fully considered -and acted upon all the facts pertinent to the subject of the taxpayer’s .liability to income and profits taxes for the year 1918 and had made a final adjustment of such liability, and that the case was •closed and could not be reopened. The record of this appeal shows -that the return filed by the taxpayer on June 13, 1919, disclosed the •tax liability of $181,297.03; that an application for relief under .sections 327 and 328 was made and was considered by the Commis.sioner; and that on February 10, 1921, an abatement of the amount -assessed upon the return was made in the sum of $27,828.98, reducing the tax liability to $153,468.05. This last amount apparently was fully paid by the taxpayer, but thereafter the taxpayer made -application for still further relief under section 328 of the Revenue Act of 1918. This second relief application was considered by the •Commissioner and on or about September 14,1922, the Commissioner -granted to the taxpayer a further reduction of tax liability and advised the taxpayer of his action in a communication included in •the above findings of fact.

This adjustment of tax liability appears to have been followed •by a refund and payment to the taxpayer of an amount equal to ■•the overassessment last above shown, and there the matter rested until on or about June 12, 1924, when the Commissioner caused to be forwarded to the taxpayer a communication, in words and figures as set forth in the findings of fact, in which the Commissioner asserted a deficiency in tax for the year 1918 in the amount -of $35,213.85, and on the following day, June 13, 1924, the Commissioner caused -to be entered on the appropriate list an assessment •against the taxpayer in the amount last above stated.

The taxpayer now contends that the Commissioner’s actions on June 12 and 13, 1924, in reopening and reconsidering the taxpayer’s liability to income and profits taxes for the year 1918, were unauthorized, and that the Commissioner had no power at that time either to assert or assess an alleged deficiency in tax; that, by virtue of having on or about September 14,1922, arrived at a determination of tax liability and adjustment of the same satisfactorily to the taxpayer, the Commissioner had divested himself of power to take •any further action in the matter.

In support of this contention the taxpayer cites, as an authority for our consideration, the case of Penrose v. Skinner, 278 Fed. 284, where the court, among other things, said:

Ño authority has been vested in a Commissioner to overrule and reverse-the action of his predecessor in office. Commissioner Osborn, acting under-his authority, heard and determined a question of fact necessary to enable-him to act intelligently in ascertaining and determining the amount of plaintiff’s net income on which, he would be required to make the levy and assessment, and his finding on that issue not having been impeached by the answer-should, under every principle and rule of law, be regarded here as final.

In support of this view, numerous decisions of both the Supreme-Court and other Federal courts were cited in that opinion. These-precedents are urged as establishing the principle that the acts of.' one Commissioner, acting with full knowledge of all the facts, may-not be reversed by his successor. A wholly different situation, however, exists in the matter of the instant appeal. David H. Blair-was the Commissioner when all the acts and proceedings here im question were done, and we are of the opinion that Commissioner-Blair at all times possessed full authority to review his own official, acts.

It has long been recognized, both by the Commissioner and alii of his predecessors, as well as taxpayers generally, that reconsidera-tions of liability to internal-revenue taxes were both proper and; lawful. This taxpayer itself recognized this principle when, after-having received an abatement of $27,828.98 of its originally computed tax liability, it again applied to the same Commissioner for a further reduction of such tax liability. The principle or rule of' law to the effect that reconsiderations and adjustments of tax liability can be properly made seems to have been recognized by Congress when, in the Revenue Act of 1921, it enacted:

That no taxpayer shall be subjected to unnecessary examinations or investigations, and only one inspection of a taxpayer’s books of account shall-be made for each taxable year unless the taxpayer requests otherwise or unless - the Commissioner, after investigation, notifies the taxpayer in writing that an additional inspection is necessary. (Revenue Act of 1Q21, section 1309.)

Such recognition on the part of Congress is still further evidenced by this enactment:

That if after a determination and assessment in any case the taxpayer - has without protest paid in whole any tax or penalty, or accepted any abatement, credit, or refund based on such determination and assessment, and an-agreement is made in writing detween the taxpayer and the Commissioner,. with the approval of the Secretary, that such determination and assessment shall he final and conclusive, then (except upon a showing of fraud or mal- ■ feasance or misrepresentation of fact materially affecting the determination-, or assessment thus made) (1) the case shall not be reopened or the determination and assessment modified by any officer, employee, or agent of the ■ United States, and (2) no suit, action, or proceeding to annul, modify, or-set aside such determination or assessment shall be entertained by any court, of the United States. (Revenue Act of 1921, section 1312.).

Similar provisions were reenacted in sections 1005 and 1006 of the ."Revenue Act of 1924.

The Revenue Act of 1921, containing section 1312, above quoted, was in force at the time the adjustment of'this taxpayer’s case was made in September, 1922, and the taxpayer then had the opportunity of applying to the Commissioner for an agreement making .such adjustment a final settlement, which could not be thereafter ■disturbed, but no such agreement appears to have been either asked for or made. We are, therefore, of the opinion that on June 12 and 13, 1924, the law fully authorized the Commissioner, at • his ■discretion, to reopen the consideration of the taxpayer’s liability for taxes for the year 1918, and that his action in so doing can not •be either set aside or disregarded by this Board.

The third assignment of error in the taxpayer’s petition is as Hollows:

That improper and unfair comparatives were used in the redetermination, •with the result that the deficiency is excessive, unjust and unequitable, and imposes upon this taxpayer a rate of tax greatly in excess of that paid by •others similarly situated in the same industry.

In the allegations of facts the petition recites—

* * ⅜ This taxpayer, however, while standing upon its legal position that the Commissioner had no power to reopen the case, adopts as its own and elects to stand upon the comparatives used by the Commissioner in his determination made in 1922, and asserts and alleges that such comparatives are fair, just, •equitable, and in accordance with the special relief provision of the statute, ■and that the tax computed with such comparatives as a basis was just, fair, equitable and in proportion to the taxes paid by other concerns similarly ■situated in the same industry.

These allegations are denied by the Commissioner’s answer, and •there is thus presented the only controverted issue of fact involved in this appeal.

Prior to the date of hearing the taxpayer had procured and served ■upon the Commissioner a subpoena, requiring him to appear before the Board to testify and furnish the data upon which he based his assertion of the deficiency complained of. In pursuance of the regular policy in such matters, the Commissioner declined to respond to the subpoena, and the taxpayer was thus left unprepared to ¡support the allegations of fact contained in its petition. The Division hearing this appeal announced that, in the event the Board decided the questions of law argued adversely to the taxpayer, the taxpayer anight, within thirty days after such decision, move for such further proceedings in this appeal as shall be deemed appropriate.

The taxpayer will, therefore, be accorded the period of thirty days Hollowing the promulgation of this opinion within which to move for such further appropriate proceedings as are deemed necessary Ho the determination of whether the deficiency determined by the Commissioner is in accord with the provisions of section 328 of the Revenue Act of 1918.

If, however, the taxpayer fails to move within a period of thirty days for further proceedings in the matter of this appeal, the appeal; may, upon motion and due notice, be dismissed.

On reference to the Board, Geeen did not participate.


text:
    Appeal of TITUSVILLE TRUST CO., as Coexecutor of the Estate of CHARLES F. ROTH.
    Docket No. 1508.
    Submitted June 9, 1925.
    Decided February 18, 1926.
    The last will and testament of a decedent who died between August 22, 1918, and January 1, 1919, directed that the executors named therein pay his debts and retain all of the personal and' real estate then remaining; that the interest and income received therefrom be appropriated to the upkeep of the decedent’s property in such proportions as they should deem expedient; that all interest, dividends, and annual proceeds, less the cost of the upkeep of the property, should be paid over to his widow for life; and, upon her death or remarriage, that the entire property be distributed to his five children, share and share alike. Reid,, in the absence of evidence that the administration of the estate had been completed and that the property was being held under the trust provisions of the will, that the Commissioner’s determination of a deficiency against the estate as one in process of administration should be approved.

      William B. Griff en for the taxpayer.

      Benjamin H. Saunders, Esq., for the Commissioner.
    Before James, Littleton, Smith, and Teussell.
    This is an appeal from the determination of deficiencies in income, tax for the years 1919 and 1920 in the amounts of $28.89 and $661.31,. respectively, arising from the computation by the Commissioner of income under section 219 (a) (1) of the Revenue Act of 1918, and the disallowance by him of deductions in each of the years for depletion and depreciation of oil properties and equipment, upon, the ground that the executors had failed to submit sufficient information to support the deductions claimed. Prior to the hearing,, the Commissioner raised the issue that the will of Charles F. Roth created a taxable trust and that his determination of deficiencies against the estate was upon an erroneous basis. The executors deny that the will created a trust, within the meaning of section 219 of the Revenue Act of 1918.

      FINDINGS OF FACT.
    Charles F. Roth, a citizen of the Township of Oil Creek, Pa., died between August 22, 1918, and January 1, 1919, leaving a will dated August 22, 1918, in which he appointed the Titusville Trust Co. and his wife, Mary F. Roth, as executors. The Titusville Trust Co. filed income-tax returns for the estate for the calendar years 1919 and 1920. In the return for 1919, it claimed a deduction of $500 for exhaustion of an oil lease. In the return for 1920, it claimed a deduction of $4,000 for depletion of oil property and $732.72 for depletion of gasoline property. At the hearing it. was stipulated that the value placed by the Commissioner upon the properties in respect of which deductions for depletion and depreciation are claimed should be accepted. These values are not disclosed by the record. It was further stipulated that the amount of depletion and exhaustion, wear and tear sustained was $2,330.13 for the year 1919 and $3,154.62 for the year 1920; and that, if it should be held by the Board that the deficiencies were correctly determined upon the basis that the income reported in the returns was income of an estate during the period of administration or settlement, they should be computed in accordance with that stipulation.
    The will of Charles F. Roth was as follows:
    First. It is my will and I do order that all of my just debts and funeral expenses be paid and. discharged by Executors, hereinafter named and appointed out of my estate as soon as conveniently may be, after my decease.
    Item. I give, devise and bequeath unto my beloved wife, Mary F. Roth, all of my estate both real and personal of what nature or bind whatsoever, of which I shall die, seized and possessed or to which I shall be entitled at the time of my decease, during the term of her natural life and so long as she shall remain a widow.
    After her decease or remarriage, I give, devise and bequeath all of the property, hereby devised and bequeathed to her as aforesaid, or so much thereof, as may then remain unexpended, I give unto my three sons and two daughters and to their heirs and assigns forever, share and share alike; Charles Albert, William F., Ernest E., Mrs. F. L. Reed and Mrs. Cora L. Baum.
    And my will is that my said wife shall and may reside in the house wherein I now dwell, situate at Shamberg, in case she shall think it proper so to do. That the garden thereto belonging and also one acre of land adjoining thereto he enjoyed by her so long as she shall continue my widow and unmarried hut not otherwise.
    Also, I do authorize, empower and direct my Executors, hereinafter named, after payments of my just debts and incidental charges by course of administrations, to retain and keep in their own hands all of my personal and real estate then remaining and the interest and income received therefrom in such proportions as they shall judge expedient, be appropriated to the upkeep of my oil property and household.
    Should it be the desire of either one of my sons to superintend and to supervise in general the production of my oil properties, and in case it should be judged expedient by my Executors, it is my wish that this shall be done and that he be paid a reasonable compensation for his services, commensurate with the prevailing salaries paid to men in the same occupations.
    If my daughter, Cora L. Baum, shall die leaving lawful issue, such issue is to receive the parent share but if there be no issue, then such share is to fall into the general fund, to be divided among the survivors in the manner before directed.
    And I hereby give to my said Executors, full power and authority to sell any or all of my real or personal estate at private or public sale and invest or to lease the same as they may deem best for the interest of my family.
    And my will is and I hereby direct that of the interest, dividends and •annual proceeds of my personal and real estate, after an amount, judged sufficient has been laid aside toward the upkeep, of my oil properties and household, shall belong' and be paid and payable to such person or persons as would ■for the time being and under the conditions hereof be entitled to the profits and income arising from my property.
    And lastly, I hereby nominate and appoint my said wife, Mary E. Both and the Titusville Trust Co., to be Executrix and Executors of this my last will and testament, revoking all former wills by me made and ratifying and confirming this and no other to be my last will and testament
    DECISION.
    The deficiencies should be computed in accordance with the following opinion. Final determination will be made on 10 days’ notice, under Rule 50.
   OPINION.

Littleton:-

At the time of his determination the Commissioner did not have before him the will of the decedent. He accordingly computed the deficiencies appealed from on the basis of the income of an estate during the period of administration or settlement. Prior to the hearing, however, he obtained the will of the decedent and raised therefrom the issue that the will created a trust, within the meaning of section 219 of the Revenue Act of 1918, and that, therefore, his determination of the deficiencies upon the basis that the income was the income of an estate during the period of administration or settlement was erroneous. The question of the amount of depletion and depreciation sustained during the taxable year has been disposed of by stipulation, leaving for the Board’s determination only the question whether the decedent’s will created a trust, within the meaning of section 219 of the Revenue Act of 1918, which provides:

(a) Tbat tbe tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including—
(1) Income received by estates of deceased persons during the period of administration or settlement of the estate;
(2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests;
(5) Income held for future distribution under the terms of the will or trust; and
(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.
⅝ ⅜ ⅝ # ⅜ ⅝ ⅜

The provisions of the will relevant to this appeal impose upon the executors the duty of holding, managing, and operating the entire property, after the payments of the decedent’s debts and funeral expenses, and of paying the entire dividends and annual proceeds from the property to the life beneficiary, at least annually during her life for the period during which she may remain unmarried, after setting aside an amount deemed by them to be sufficient for the upkeep of properties, and of distributing the properties, both real and personal, upon the death or remarriage of the life beneficiary, to the decedent’s three sons and two daughters, share and share alike. These provisions of the will in our opinion clearly created a trust within the meaning of section 219 of the Revenue Act of 1918.

Under the statutes of Pennsylvania, executors are required to make an inventory of all properties of a decedent within thirty days from the time administration is granted, and to make a just account and settlement of the estate in one year, or when thereunto legally required. And, further, whenever, by the provisions of any last will and testament admitted to probate, a trust has been or shall be declared of and concerning any real or personal estate to be executed by the executor or executors of said last will- — • whether by virtue of their office or otherwise — and any of the executors shall die, or shall renounce, resign, be dismissed from, or refuse to act in said trust, it shall be lawful, upon application of parties in interest, to appoint trustees in place of executors.

The Commissioner contends that during the years 1919 and 1920 the executors named in the will of the decedent were trustees, and that his determination should have been made upon the basis of a trust under the provisions of section 219 of the Revenue Act of 1918 and not upon the basis of an estate in process of administration. As to whether he is correct in this determination, the Board is unable to form an opinion under the evidence before it. We have only the will and the fact that the Titusville Trust Co. and Mary F. Roth were appointed executors. We have no evidence as to when letters testamentary were issued or when, if at all, the executors rendered an accounting in settlement of the estate. The Board finds no reason for holding that, merely because a will creates a trust, the tax should be computed upon the basis that the income is that of a trust instead of the income of an estate during the period of administration or settlement. Where the executors, who may also be trustees, are required to perform acts in the administration and settlement of an estate, any income received between the date of the decedent’s death and the performance by the executors of their duties, as such, and the rendering of their account in settlement thereof, should be treated as the income of an estate in processs of administration or settlement. The estate of this decedent was subject to administration and the duties common to and necessary in the administration of estates were imposed upon the executors, and, until this duty has been performed and the property is taken over by the executors, or such other person as the court might appoint-as trustee, the provisions of section 219 applicable to estates in the process of administration or settlement should be applied.

In the case of Jones v. Atchison, T. & S. F. Ry. Co., 150 Mass. 304; 23 N. E. 43, the will of the decedent provided :

I order andMireet that my wife, Sophronia P. Goss, shall be supported •and maintained in a proper and suitable manner, during her life-time, out of my estate. * * * The residue of my estate, after the payment of the debts, legacies, and expenditures before stated, I devise to remain and accumulate until the decease of my said wife; and, upon her decease, it is my will that whatever estate shall then remain, whether of the original amount or of its aecutííulations, if any, shall be equally divided between my two daughters aforesaid, to hold, to them and their heirs, forever. * * * I appoint Jeremiah P. Jones, of Georgetown, executor of my last will and testament.

The question involved was whether the executor had the right, five years after the proving of the will, to sell certain stock belonging to the estate for the purpose of making a change of investment. The court said:

No trustee has been appointed under the will; but it was necessary that at least the personal property of the estate should be held by some person, who should act as trustee during the life of the widow of the testator, because by. the'terms of the will she is to be supported out of the estate, and on her death the residue of the estate, with its accumulations, after the payment of the debts, legacies, and the expenses of administration, is to be divided between the two daughters of the testator. Regularly, the executor, after the expiration of two years from his appointment, and after paying the debts, legacies, and expenses of administration, should have settled his accounts as executor, and paid over the money in his hands to a trustee appointed by the probate court. Daggett v. White, 128 Mass. 398; White v. Ditson, 140 Mass. 351, 4 N. E. Rep. 606.
After the debts and legacies and expenses of administration were paid, the executor must be considered as in fact holding the estate, as a trustee, for the benefit of whomsoever was entitled to it under the will.

In the case of Rixey's Executors v. Commonwealth, 125 Va. 337; 99 S. E. 573, the court said:

If an executor is directed to invest funds belonging to the estate which come into his hands as executor, no trust is superadded, but that is a part of his duties as executor. If an executor is also appointed as a trustee under a will, he cannot be considered as holding any part of the assets in his capac;ity as trustee until lie lias closed his accounts as executor with reference ■ to this particular fund and has been charged with these funds as trustee. Hall v. Cushing, 9 Pick. (Mass.) 395 ; Perkins v. Moore, 16 Ala. 9 ; 18 Cyc. 1258.

The basis of the Commissioner’s determination is approved, and the executors should be allowed a deduction for depletion, and ^exhaustion, wear and tear, as set forth in the findings of fact.


author: Lansdon:

text:
    Appeal of EDWIN SCHIELE DISTILLING CO.
    Docket No. 3521.
    Submitted November 23, 1925.
    Decided February 18, 1926.
    To be included in statutory invested capital, intangible assets paid in for stock must have actual cash value when so paid in.

      .A. M. Frumberg, Fsg., for the taxpayer.

      Friggs G. Simpich, Fsg., for the Commissioner.
    Before Sternhagen, Lansdon, and Artjndell.
    This appeal is from the determination of a deficiency in income and profits taxes for the years 1918 and 1919, in the amount of '$37,858.54. The taxpayer alleges that the Commissioner erred in ■disallowing value of intangibles in the computation of invested capital and as a basis for determining loss resulting from national prohibition legislation.
    FINDINGS OF FACT.
    The taxpayer is a Missouri corporation, with its principal office ¡in St. Louis. It was incorporated on June 28, 1907, with an authorized capital of $250,000, divided into 2,500 shares of the par value •of $100 each. Fifty per cent of the authorized capital was common •stock, and 50 per cent was preferred stock, with provisions for cumulative dividends at the rate of 7 per cent per annum, and with no voting power. At the date of incorporation, taxpayer acquired all ■the tangible and intangible assets of Edwin Schiele & Co., a partnership, and paid therefor to the partners of such company its common and preferred stock in the amount of 1,925 shares. Of this payment, 1,460 shares were for tangibles and 465 shares were for ■intangibles. A small number of shares were subscribed for by •others than the partners, at the date of incorporation, at $100 a ■share.
    Edwin Schiele & Co., hereinafter referred to as the partnership, was established in 1892, for the purpose of dealing in whisky at •wholesale. It was its practice to buy whisky in large quantities, in barrels, and to then bottle portions of such bulk whisky for sale to the liquor trade under its own trade-marks, brands, and labels. -Prior to June 20, 1907, it had established eight such trade-marks- or brands and registered the same in Mida’s Trademark Bureau. It had also registered one of its brands, “ Autocrat,” in the United States Patent Office.
    The partnership expended large sums of money in -advertising its-trade-marked whisky. For the years 1903, 1904, 1905, and 1906, such expenditures were made in the amount of $38,578.02. Prior to 1903,. approximately $100,000 had been so spent. The effect of such advertising was to create a demand for the trade-marked whisky at prices that averaged at least 25 per cent higher than could be-obtained for the same goods when sold in barrels without any distinguishing trade names or labels. At June 28, 1907, the partnership enjoyed a large patronage and its business was profitable.
    From 1903 to 1906, inclusive, the financial statements of the partnership, as of January 1 of each of such years, show the following::

    Salaries for services rendered in the operation of the business were paid in equal amounts to the two partners, Edwin Schiele and David Kriegshaber, for the years 1903, 1904, 1905 and 1906, or in the total amount of $29,400 for the four years. During the same years the partnership used tangible assets in its business operations in the total annual average amount of $236,251.64, of which $125,759.33 was borrowed. capital, for which interest was paid in the average annual1 . amount of $6,757.83, at the rate of approximately 5 per cent.
    In its income and profits tax returns for the year 1917, the taxpayer included in its invested capital the amount of $65,462.32',. alleged to represent value of intangible assets acquired by it from the partnership at June 28, 1907, in exchange for 460 shares of its preferred stock, but in, its appeal it asks that only $46,500 of the value of such intangibles be included in its invested capital. In its returns for 1918 and 1919, the taxpayer deducted certain amounts, not disclosed by the record, from its gross income for such years, as losses due to obsolescence of its intangible property resulting from national prohibition legislation. Upon audit of such returns, the Commissioner advised the taxpayer, “That no good-will value can be computed either as at the date of incorporation, for invested capital purposes, or as of March 1, 1913, for obsolescence,” and determined the deficiences for 1918 and 1919 that are in controversy in this •appeal.
    DECISION.
    'The determination of the Commissioner is approved.
   OPINION.

Lansdon:

The issues of this appeal grow out of the taxpayer’s -contentions that, when incorporated at June 30, 1907, it acquired intangible assets from a predecessor partnership, which, at that date, had a value of not less than $16,500; and that it had intangible •assets of substantial value at March 1, 1913, which should be made •the basis for computing deductions from gross income of the years 1918 and 1919, on account of obsolescence resulting from prohibition legislation. The evidence is conclusive that stock of the par value ■claimed was issued for intangibles at the date of incorporation. The taxpayer asserts that, if intangible property of the value alleged was paid in for capital stock, such value must thereafter be included in its invested capital for the purpose of determining its liability for profits taxes and as a basis for obsolescence of intangibles resulting from national prohibition legislation. Intangibles of the nature involved in this appeal are property, and, if the value of such property at the date it was paid in for stock is established by competent evidence, the taxpayer’s theory is sound as to the first point asserted, without in any way affecting the basis for the computation of obsolescence of intangibles resulting from prohibition legislation, which must depend on proved value as of March 1, 1913. Invested capital for excess-profits tax purposes is a creature of statutory definition. •Obsolescence relates to matters of fact that must be established by competent evidence.

The taxpayer, to sustain its contention, must prove that the specified intangibles were bona -ficle paid in for stock at June 28, 1907, that, on that date, they had an actual value of not less than $46,500, the par value of the stock received therefor, and that no statutory provisions can be applied to reduce such value as an element of invested capital. In support of its contention of value, it relies (1) on the fact that shares of stock of the par value of $46,500 were issued in exchange for such intangibles and that some sales of such stock were made at par; (2) on proof that large sums of money, aggregating something like $150,000, were spent in advertising for the purpose of creating a commercial demand for the merchandise bearing its labels, trade-marks and trade names; and (3) that the application of A. ft. M. 34 to the tangible assets and the net earnings of the partnership for the years 1903, 1904, 1905, and 1906, proves that the intangible assets had value in the amount of' $50,056.35 at January 1, 1906.

The Board does not agree with the taxpayer’s contention that the-value of the intangibles paid in for stock may be determined by the few sales of shares made at par on or about the date of incorporation. It is true that some shares were so sold, but for the most part-such sales were to the partners, to persons closely associated with, them, or to persons from whom the partnership had borrowed, money and were, in fact, original subscriptions for stock of the-corporation then in process of organization rather than sales to. the public. None of the sales was on an open market or of such a. nature as to establish a market value of the stock at $100 per share;

The taxpayer proved that the partnership expended large-amounts for advertising, but there is nothing in the evidence to-indicate that such expenditures produced results that may be reduced to terms of dollars and cents for inclusion, even in part,, in the capital structure of the partnership. The only proved effect of' the advertising is the testimony of one of the partners that the partnership sold trade-marked brands of whisky in bottles for prices about 25 per cent higher than those obtained for the same-merchandise marketed in bulk. During the entire life of the partnership, the cost of all advertising was charged to expense;. Whether such expenditures resulted in the development of intangible values is a matter of fact that is best determined by a scrutiny of the financial statements which reflect the income of the partnership for the years involved.

The parties agree on the amounts representing tangible assets- and total earnings for the years 1903 to 1906, inclusive, but differ-widely on the results obtained by the application of the formula! suggested in A. it. M. 34 to such amounts for the purpose of ascertaining value of good will. The taxpayer contends that, for any given period, all the net earnings of a partnership, including any amounts paid to partners as salaries, must be regarded as profits, and that such profits must be attributed in their- entirety to the earning power (1) of the net worth of the tangible assets, and (2) of the intangible assets. Counsel for the Commissioner contends that reasonable salaries paid to partners for services rendered in the operation of the business must be deducted from earnings before the formula can be applied, and that the total value of 'the tangible assets, regardless of the debts of the partnership, must be considered. The application of the formula, as interpreted by the taxpayer, indicates that intangible property of the value of' $50;056:35-at January 1, 1907, was paid in for stock at June 28, 1907. The-Commissioner’s interpretation and application of' the formula to the same amounts indicates that such intangibles had no value afe. either of such dates.

The taxpayer’s assumption that ail the earnings are attributable either to tangible or intangible property invested in, at risk, and* used in the business is not sound. If any intangible property is= employed in the business operations of a partnership, the net earn--ings must be attributed to at least three factors — tangible assets,, intangible assets, and the services of the partners who devote- their-time and minds to the business. To determine the earning value- 0⅛ the intangibles, a proper portion of the net returns must first be-attributed and allocated to the other two income-producing elements. In the instant appeal, there is no controversy over the value-of the services rendered by the partners. By agreement between, themselves they fixed their own salaries, and, in the absence of controversy, the amounts so determined and paid must be accepted as* the measure of their personal contributions to the income of the partnership and deducted from earnings before any- allocation of profits can be made either to tangibles or intangibles.

Even after reducing the earnings by the amounts attributable to the personal services of the partners, we are still unable- to make any proper allocation of the remaining profits, without considering the additional element of borrowed capital. The record discloses that all borrowed capital involved in this issue is tangible property. It must be presumed, therefore, that, equally with- tangible assets representing paid-in capital, it is entitled to a reasonable- annual return for its services. In the case of breweries and distilleries, the Commissioner has suggested that 10 per cent is such a return.. In the instant appeal, the cost of borrowed capital was. 5 per cent per annum, which, if 10 per cent is allocated to tangibles, indicates, a net gain of 5 per cent as the result of its use. The average amount of borrowed capital employed by the partnership for each- of the-years 1903 to 1906 was $125,759.33, and its average annual net earnings at 5 per cent was $6,287.46, or a total for the four years involved of $25,149.84.

If the taxpayer’s contention that 10 per cent shall be attributed, only to the net worth of the tangibles, without considering the net income resulting from the use of borrowed capital-, is sustained;, the earnings attributable to intangibles will be increased in- the annual average amount of $6,287.46. On the other hand, if 10 per cent per annum is first attributed to the gross annual* average value-of the tangibles, without any adjustment for bills payable, the result so obtained will be too large by the exact net amount earned by the-tangibles that represent borrowed capital. The taxpayer’s calculation increases the amount of earnings attributable-to.-intangibles,, and the Commissioner increases the amount attributable to .tangibles.

The correct amount of earnings attributable to intangibles, in the conditions of this appeal, can be found only by subtracting from the-total net earnings (1) salaries paid to the partners, (2) the net earnings of borrowed capital, and (3) a reasonable return on owned assets. Using the amounts set forth in our findings of fact, the following computation determines the value of intangibles paid in fox-stock when this taxpayer was incorporated, if such value can be ascertained by the use of the suggested formula:

Pin dings (1) Total earnings 1903 to 1906, inclusive_$83,949.95
.Findings (2) Salaries paid partners same period- 29,400. 00
(l)-(2) =(3) Earnings of all assets- 54,549,95
Findings (4) Net earnings of borrowed assets_ 25,149. 84
(3)-(4) =(5) Earnings of net worth of all assets_ 29,405.31
¾ of (5) =(6) Average yearly earnings of all assets- 7,351.33
Findings (7) Average net worth of tangibles- 110,492.31
10%'of (7) = (8) Annual earnings attributable to tangibles- 11,004.92
(6)-(8) = (9) Attributable to intangibles- Nothing.

Inasmuch as the basis for the computation of obsolescence for any year subsequent to March 1, 1913, is value at that date, the Commissioner suggested that careful consideration should be given to the question of the value, if any, of the taxpayer’s intangible assets at March 1, 1913. As we have found that the intangibles acquired by the taxpayer at the date of incorporation were without value as property paid in for stock or shares, it is obvious that any good will or other intangibles owned by it at March 1, 1913, must have been paid in or otherwise acquired subsequent to incorporation, and should appear on the balance sheets of the taxpayer either as earned or paid-in surplus. During the last five years of this period the taxpayer’s business operations resulted in net losses that aggregated $46,591.55 at December 31, 1912. The evidence adduced is conclusive that no good will or other intangibles of value were developed or acquired between June 28, 1907, and March 1, 1913.

The Board is of the opinion that the taxpayer has failed to establish any value for intangibles alleged to have been paid in for stock in the amount of $46,500 at June 28, 1907, and that at March 1, 1913, it owned no good will or other intangibles that could be used as a basis for obsolescence. It follows, therefore, that the Commissioner’s refusal to include any value of intangibles in the taxpayer’s invested capital for 1917 and subsequent years, either for profits-tax purposes, or as basis for computing obsolescence due to national prohibition legislation, must be approved.


text:
    Appeal of JOHN A. WARD, Executor, Estate of GEORGE DRUMMET.
    Docket No. 5202.
    Submitted December 11, 1925.
    Decided February 18, 1926.

      Leon F. Cooper, Esq., for the taxpayer.J. Sterling Halstead, Esq., for the Commissioner.
    Before James, Littleton, Smith, and Trussell.
    This is an appeal from the determination of a deficiency in estate tax in the amount of $4,576.63, arising from the inclusion by the Commissioner in the gross estate of' the value of certain real estate transferred by the decedent to his children in May, 1922, one year prior to his death, upon the ground that the transfer was made in contemplation of death.
    FINDINGS OF FACT.
    John A. Ward is the duly qualified and acting executor of the estate of George Drummet, who died of cancer on April 30, 1923, at . the age of 61 years. For several years prior to his death the decedent was the owner of approximately 1,500 acres of farm land at Prophetstown, Ill. At the age of about 23 years he was affected by a slight lameness in his left leg which increased, necessitating the use of a cane, and for several years prior to his death he was compelled to use a crutch. About 1917 he suffered considerable pain in his knee and hip, and sought medical treatment through local physicians. Instead, however, of obtaining relief, the pain grew more severe, as a result of which he went to the Presbyterian Hospital, at Chicago, on April 23, 1918, where X-ray pictures were taken and a diagnosis made showing a peculiar tumor of the pelvic bone, or ilium, and a peculiar destructive cystic disease of the bone. The attending surgeon at the hospital made an exploratory operation. The tumor was so extremely vascular and contained so many blood vessels that a hemorrhage followed the incision. No portion of the tumor, therefore, could be obtained for microscopic examination. Although it was the opinion of the surgeon that, the decedent was suffering from cancer, this fact was not proved to his entire satisfaction, due to his inability to obtain a portion of the tumor for microscopic examination. As a result, the decedent was informed that he had a bloody tumor and a ‘cystic disease of the bone, and that he might recover through X-ray treatments and injections of Coley’s toxin. Accordingly, he was treated with X-ray and given injections until about September of that year. Upon his return home, the attending surgeon arranged with the decedent’s local physician to administer the X-ray treatments and the injections of toxin regularly, and this was continued until the decedent’s death.
    During 1919 the decedent considered the matter of transferring his property to his children, on condition that he might at any time cancel the transfer and take back the property, and consulted an attorney relative thereto. However, nothing further was done in regard to the matter until during or shortly prior to November, 1921.
    He returned to the hospital from time to time until November, 1921, for further examinations, advice, and treatments, remaining there each time approximately two or three weeks. Although the X-ray photographs showed a continued destruction of the hip bone, there was an indication at times that the destructive process was being retarded, causing the hospital physician to entertain hope that the decedent was affected with a cystic disease of the bone instead of a cancer. This hope, however, was slight, and the opinion that the decedent was suffering with cancer was not abandoned.
    On his last visit to the hospital, in November, 1921, the decedent was suffering considerable pain and had difficulty in moving his left leg. He was kept advised that X-ray plates showed a continued destruction of the bones of the hip. The X-ray plate made about the 1st of November, 1921, showed “marked destruction of half of ilium, all of ischium, and particular portions of both shanin of pubis.” The report of the physician on this plate was that the destructive process was far more extensive than on the previous, plates and that there was considerable atrophy from disuse, particularly of the left femur. Upon his return home, the decedent, in conversations with friends who called to see him, discussed his condition, informing his brother-in-law, in particular, of what the last X-ray photograph showed and of what he had been informed by those who had attended him at the hospital. On cross examination this witness stated that the decedent informed him that the X-ray showed that half of his hip bone had been eaten away. Decedent made other statements, also, concerning his condition and the nature of his trouble, the details of which, however, the witness could not remember.
    About the time of, or shortly after, his first visit to the hospital in Chicago, the decedent went to Mayo Bros.’ Hospital, at ‘Rochester, Minn., for examination and treatment. On that visit his trouble Was found to be in the hip. Upon his return home he informed those about him that the physicians who examined him at Mayo Bros.’ Hospital had advised him that he might just as well go home, as his local physician could doctor him just as well. On his Various visits to the hospitals the decedent was accompanied by his wife.

      It had been the decedent’s custom for about five or six years prior to his death to spend his winters in Florida or California. On such trips he was treated by local physicians.
    During or shortly prior to November, 1921, the decedent consulted an attorney relative to the preparation of deeds for the transfer of his property to his children, reserving to himself and his wife, and to the survivor, an annuity of $8,000, and informed the attorney that he was unable longer to look after the property and that it was his desire to spend the entire winter months in Florida, or such other place as he might desire to go. About this time, or just prior to his conference with the attorney relative to the deeds of transfer, the decedent selected five of his neighbors to go with him over his farm lands for the purpose of allocating the same to his children. Thereafter, he went to Florida, where he remained until about May, 1922. During his stay in Florida, he consulted a local physician who had not theretofore treated him. This physician informed him that he was suffering from sarcoma and tuberculosis of the bone. Upon his return home, the decedent formally executed and acknowledged the deeds of transfer of property to his children on June 3, 1922. Seven parcels of real estate were transferred, and an annuity of $2,000 each, as to four of the parcels, was reserved to himself and wife jointly during their lives. The executor included as a part of the gross estate the capitalized value of the annuity of $8,000 at $160,000, as to which there is no controversy.
    The decedent’s condition grew steadily worse until his death on April 30, 1923.
    The transfers in question were made in contemplation of death.
   DECISION.

The determination of the Commissioner is approved.