INVESTED CAPITAL-Continued. 10. Id. Patents, Processes, Machinery, etc. The deduction, concurrently, as operating expenses, of expenditures made in development of patents, processes, methods of manufacture, special machinery, new tools, and foreign markets, does not bar their restoration to surplus upon clear showing that they were in fact capital expenditures. GoodellPratt Co.. 11. Id. Held, upon evidence, that such expenditures were in fact capital expenditures. Id. 12. Id. Patterns. Claimed value of patterns which have not been capitalized not accepted, where taxpayer produced no books or other evidence to show how it arrived at value claimed; testimony that values were an allocated portion of salaries paid employees who had spent much time in developing them over period of years is insufficient. Webb Press Co--- (2) Earned Surplus. See XII, 3-12, supra. 13. Definition. Earned surplus is that portion of surplus which comes in through earnings; it is not necessarily what books show as such, for books may be in error. New Ottawa County Tel. Co... 14. Id. Earned surplus and undivided profits consist of profits realized and accumulated in business, and, if determinable, they should be included in invested capital. Automatic Fire Protection Co-- 15. Appreciation in value of fixed assets may not be included in invested capital. New Ottawa County Tel. Co-- 16. Id. Unrealized appreciation may not be included in invested capital. Alexandria Paper Co-- 17. Depreciation. If depreciation sustained is not charged off against operating profits, book earned surplus is not true earned surplus. New Ottawa County Tel. Co.. 18. Id. Reserves for depreciation set up out of earned surplus may not be included in invested capital. Id. 19. Id. Evidence. Claim that book earned surplus should not be reduced on account of depreciation sustained in amount determined by Commissioner denied for want of evidence. Walnut Creek Milling Co---20. Bonded Debt; Repayment. Since repayment of borrowed capital out of earnings results in inclusion in earned surplus of assets represented by borrowed capital, if books clearly reflect transaction, amount paid on bonded debt out of operating income may not be added to invested capital. Columbia Theatre Co-- 21. Lease or Sale of Business. Contract whereby corporation took over and agreed to operate for specified period taxpayer's business of installing and maintaining automatic fire-alarm service, to bear all expenses and assume all obligations, and to pay taxpayer specified percentage of gross rentals, held not a sale of taxpayer's business resulting in realization of determinable profits, and claimed value of contract not included in invested capital as earned surplus and undivided profits. Automatic Fire Protection Co--- 22. Railroad Facilities. Difference between market price and reduced price at which taxpayer sold coal to railroad over period of years in consideration of construction of branch line to taxpayer's mine, not included in earned surplus, since branch line was a service and not a capital asset of taxpayer, and benefit resulting to taxpayer was reflected in increase in value of mine, which increase could not be included in invested capital. Gauley Mountain Coal Co... Page 30 247 753 1267 753 239 753 558 622 1267 655 (3) Paid-in Surplus. 23. Lease acquired without capital outlay but merely in consideration of covenant to pay royalties may not be included in paid-in surplus, notwithstanding it may have had cash value. Kirk Coal Co---- 755 24. Id. Improvements. Cost of building erected by lessee on land held under 99-year lease may not be included in paid-in surplus of lessor. Julia Building Assn- 25. Notes Payable; Cancellation. Notes evidencing loans by stockholders to corporation, voluntarily surrendered and canceled by them without any payments having been made thereon, held to represent capital at risk in business and, not being specifically excluded as inadmissibles by Act 1918, amount of notes constitutes paid-in surplus from date of surrender and cancellation. Columbia Theatre Co.... 333 622 INVESTED CAPITAL-Continued. 26. Stock Assessments paid in by stockholders held to have been at risk in business and, not being specifically excluded as inadmissibles under Act 1918, amount of assessments constitutes addition to paid-in surplus. Id. ISSUES. See JUDGMENTS. JOINT TENANCY. See ESTATE TAX, I (4). JUDGMENTS. See INTEREST, III, 6, 7; LOSSES, III, 1. Evidence of Facts Adjudicated. Where court of competent jurisdiction in civil action determines issue of fact, its judgment affirmed on appeal accepted as establishing facts in controversy, notwithstanding verdict of guilty under indictment for perjury growing out of civil action was reversed for incompetency of evidence and bias of trial court. Jesse E. La Dow....- JUDICIAL NOTICE: State Law. Board will notice judicially State statutes under which statutory consolidation of corporations was effected. Page 219 Tonawanda Power 1195 JUDICIAL OFFICERS. See EXEMPTIONS, 2, 3; OFFICERS. I. Generally, p. 1461. II. Determination, Notice, and Assessment: (1) Generally, p. 1461. (2) Correct Deficiency, p. 1462. (3) Determinations Made Subsequent to Act of 1924, p. 1462. III. Abatement Claims, p. 1462. IV. Credit Claims, p. 1462. V. Refund Claims, p. 1462. Appeal; extension of limitation period for assessment of tax. See LIMI- Administrative Policy. Acceptance or rejection by Commissioner of amended returns is a matter of internal administration in Bureau of Internal Revenue; Board will not decide questions of policy in that bureau. Kunkel & Co.. II. DETERMINATION, NOTICE, AND ASSESSMENT. (1) Generally. 1. Determination of Deficiency. Where taxpayer shows amount of tax upon return but does not admit that that amount is due, amount which he admits to be due, rather than amount shown upon return, is starting point in computation of deficiency. John Moir___ 2. Id. Determination from which taxpayer may appeal is one which fixes amount of deficiency in tax-the final decision by which controversy as to deficiency is settled and terminated and by which final conclusion is reached relative thereto and extent and measure of deficiency is defined. New York Trust Co.____ 3. Id. If determination by Commissioner is not the determination of a deficiency as defined by statute, Board has no jurisdiction. Id. 4. Id. Where taxpayer files a return and shows thereon an amount as the tax, and such amount is not increased by Commissioner, there is no deficiency, as defined by sec. 273, Act 1924, notwithstanding part of such amount remains unpaid and claim for its abatement has been rejected by Commissioner. Id. 5. Id. Explanatory Letter. Appeal does not lie from letter explaining Commissioner's position respecting assessment theretofore made and which does not indicate that he reconsidered former action or determined any tax liability. Spencer Penrose.. 133 21 583 329 JURISDICTION-Continued. Board has no jurisdic 6. Year For Which No Determination is Made. tion to determine tax liability for years as to which Commissioner has found neither an overassessment nor a deficiency. (2) Correct Deficiency. Peninsular State Bank. Where Com 7. Deficiency and Overassessment; All Years Considered. missioner determines deficiency for certain years and finds overassessments for others, and taxpayer appeals, the Board has jurisdiction to determine tax liability for the years in which overassessments have been found. Chapin Construction Co.. Thatcher Medicine Co.. Camden & Burlington County Ry. Co.... (3) Determinations Made Subsequent to Act of 1924. See III, 1, 2, 8. Assessment Before, Final Determination After, Act 1924. Where assessment was proposed prior to Act 1924 and taxpayer filed protest and appeal which were accepted by Commissioner, and Commissioner notified taxpayer of final determination subsequent to Act 1924, Board has jurisdiction. Viscose Co---- 1. Determination Subsequent to Act 1924. Board has jurisdiction of appeal from determination, made subsequent to Act 1924, denying claim for abatement of taxes assessed prior to date of that act. J. Š. Hoskins Lumber Co... 2. Limitations; 60-Day Period. Where Commissioner, after June 2, 1924, notifies taxpayer of final rejection of abatement claim, and thereafter notifies taxpayer, in reply to protest, of his adherence to conclusions set forth in original notice, making no reference to abatement claim, Board has no jurisdiction of appeal filed more than 60 days after date of original notice and within 60 days from date of reply to taxpayer's protest. Louisville Seed Co....... 3. Premature Appeal. Where tax has been assessed and abatement claim has been filed, Board has no jurisdiction in absence of final action by Commissioner on abatement claim. Jackson K. Dering.... National Tank & Export Co. IV. CREDIT CLAIMS. Years Not Before Board. Board may not consider whether an overpayment of tax has been made for any year not considered in deficiency letter for purpose of determining whether there was a refund to be applied as credit against deficiency determined by Commissioner. Gress Manufacturing Co. V. REFUND CLAIMS. Partial Payment of Tax. Board has no jurisdiction over taxes which LABOR. See INVESTED CAPITAL, VI, 3, 23; X1, 6, 11. LAND. See CAPITAL EXPENDITURES, II, 8, 20, 22; CONSTITUTIONAL LANDLORD AND TENANT. See LEASES and cross references. Page 399 25 154 602 604 444 846 1208 1312 1217 977 602 604 LEASES. See AMORTIZATION, 1; CAPITAL EXPENDITURES, II, 11-15, 2. Oil and Gas. Lease for 5 years and as much longer as oil or gas is LEGAL EXPENSES. See CAPITAL EXPENDITURES, II, 11, 22, 35; LEGATEES. See AFFILIATIONS, III, 4, 7; ESTATE TAX, II (2); ESTATES LICENSES. See CAPITAL EXPENDITURES, II, 9, 10; III; LoSSES, II, 6. LIFE ESTATE. I; II, 4. See DEPRECIATION, II, 4; V, 1; ESTATES AND TRUSTS, LIFE INSURANCE. See GAIN OR Loss, II, 14. LIFE INSURANCE ASSOCIATIONS. LIMITATIONS. See EXEMPTIONS, 4. See ADMINISTRATIVE DECISIONS, 4; CREDIT OR RE- FUND, 1; JURISDICTION, III, 2. Value of assets. See INVESTED CAPITAL, VI, 24, 27; X; XI, 12. 1. Burden of Proof. Burden of proving that assessment of tax is barred 3. Extension of Time; Appeal. Under sec. 277 (b), Act 1924, period 4. Statutory Return. Limitation period contained in sec. 277 (a) (2), 5. Id. Tentative Return, filed in accordance with regulations of Com- 6. Id. Affiliated Corporations. Consolidated return setting forth facts 7. Id. Fact that separate return was not filed for part of year during LIQUIDATION. See CORPORATIONS, I; DIVIDENDS, IV; GAIN OR Loss, 104881-27-96 Page 1259 315 40 254 950 856 1172 1217 1172 Page LOANS. See BAD DEBTS, III, 5; CAPITAL, 1, 2; COMPENSATION, 11, 23; LOCAL ASSESSMENT. See CONSTITUTIONAL LAW, 1; GAIN OR Loss, LOSSES: I. Generally, p. 1464. II. Losses Sustained by Corporations, p. 1464. III. Losses Sustained by Individuals: (1) Generally, p. 1465. (2) Trade, p. 1465. (3) Transactions for Profit, p. 1465. See BAD DEBTS; GAIN OR Loss; INSURANCE, 2-7; INVENTories; In- I. GENERALLY. 1. Accrual of Liability; Contracts. Amount paid after tax year, by tax- Id. 3. Id. Reserves; Anticipated Losses. Where goods are ordered for future II. LOSSES SUSTAINED BY CORPORATIONS. 1. Abandoned Property. Deduction for abandonment of property used 2. Id. Buildings; Demolition. Unextinguished cost of part of building 3. Id. Depreciated cost of portion of building demolished in order to 4. Id. Land and Improvements. Title to real property can not be lost 5. Id. Machinery. Where machinery is abandoned due to changed 6. Id. Patent License. Cost of acquisition held deductible in year in 8. Id. Closed Transactions. Where taxpayer retired from distilling 9. Compromise. Where taxpayer and solvent debtor asserted claims 1339 113 467 348 20 535 505 1124 1346 1168 |