The opinion
UNDERWRITER PRINTING & PUBLISHING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Underwriter Printing & Publishing Co. v. Commissioner
Docket No. 5753.
United States Board of Tax Appeals
9 B.T.A. 1191 ; 1928 BTA LEXIS 4275 ;
January 12, 1928 , Promulgated
*4275 Petitioner adduced no evidence of the actual cash value of the publications alleged to have been paid in for stock; therefore, the action of the respondent in disallowing the amount of that stock as invested capital is sustained.
Fred S. Knight, Esq., for the petitioner.
L. C. Mitchell, Esq., for the respondent.
MORRIS
*1191 This is a proceeding for the redetermination of a deficiency in income and profits tax for the calendar year 1921 amounting to $1,501.04. While the petitioner includes the year 1920 in its petition, we find that there is no deficiency asserted by the respondent for 1920 and consequently the Board is without jurisdiction as to that year.
The sole question presented for our consideration is whether the respondent correctly disallowed the sum of $7,300 in invested capital.
FINDINGS OF FACT.
The petitioner is a corporation organized and incorporated under the laws of the State of New York.
The outstanding capital stock of the petitioner was $22,700 in the year 1913, all of which, with exception of certain qualifying shares, was owned by Lawrence A. Mack. In 1913 the petitioner published the Weekly Underwriter, *4276 the Legislative Information Bureau and Record of Fire Insurance by States, periodicals devoted to insurance.
Between 1913 and 1920, Mach, the sole owner of and president of the petitioner, developed 10 additional publications similar to those already published, all of which he turned over to the petitioner, and it issued to him capital stock in the amount of $7,300, and cash in the amount of $200. The expense of developing these periodicals was borne by the petitioner and charged to operating expenses in its books of account, and the income derived therefrom was received by the petitioner and also included in its books of account.
*1192 At or about the time of issuance of the above capital stock by the petitioner to Mack in 1920, the following resolution was adopted at a stockholders' meeting:
ANNUAL MEETING OF THE STOCKHOLDERS.
The following resolution was offered, duly seconded and adopted, 454 votes being cast in its favor.
Whereas through the addition of several new "Bureaus" and "Publications" which were not in existence prior to November 1, 1913, the date of acquisition of the control of the company by its present stockholders, the value of the plant has *4277 materially increased, and is at present inadequately represented on the books of the company.
Resolved, that the following be and hereby are adopted as the correct valuations of the "Goodwill" of the several departments of the company, and that suitable entries be authorized, and hereby are authorized to be made upon the books of the company to adjust the "Goodwill" account to the following valuations: The Weekly Underwriter, Advtg $10,000.
Subscriptions 2,000.
Fire Ins. by States 2,000.
Ins. Almanac 5,000.
Live Articles on Special Hazards 1,000.
Live Articles on Acc. Prev 100.
Live Articles on Suretyship 200.
Live Articles on Life Insurance 200.
Live Articles on Marine Ins 500.
Telephone Tickler 100.
Legislative Bureau 5,000.
Ins. Dept. Service 2,500.
Compensation Bureau 1,000.
Surety Bureau 400.
30,000.
And whereas, the new valuation of "Goodwill" of the company is $30,000. The President of the company be and hereby is authorized to liquidate certain debts of the company, by issuing against such goodwill the unissued stock from the treasury of the Company at Par whenever in his opinion such action is necessary.
To record the *4278 issuance of this stock the petitioner credited its capital stock account with $7,300, making the total issued capital stock in 1920, $30,000, and it debited its good will account with an equal amount.
Mack devoted his entire time to the business of the petitioner and he received a salary as president thereof.
The petitioner included $40,493.02 as its invested capital in its return for the year 1921, consisting of capital stock $30,000 and surplus and undivided profits of $10,493.02.
The respondent allowed $33,193.02 as invested capital for 1921 and disallowed $7,300.
*1193 OPINION.
MORRIS: While all of the facts and circumstances surrounding the issuance of the stock in question by the petitioner tend to establish that the publications alleged to have been turned over to the petitioner for that stock were developed by Mack in his capacity as president of the petitioner and were at all times its property, we are not compelled to consider that question in view of the state of the evidence.
Section 326 of the Revenue Act of 1921 provides in part as follows:
(a) That as used in this title the term "invested capital" for any year means (except as provided in subdivisions *4279 (b) and (c) of this section):
(1) Actual cash bona fide paid in for stock or shares;
(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such payment, but in no case to exceed the par value of the original stock or shares specifically issued therefor,
* * *
(5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year, whichever is lowest: * * *
The $7,300 of capital stock not having been paid for in cash it was, under section 326 above, incumbent upon the petitioner to prove "the actual cash value" of those periodicals alleged to have been turned over to the company in consideration for the stock issued to Mack, and no evidence having been adduced as to that value the finding of the respondent is sustained.
Judgment will be entered for the respondent.