made to the property accounts unless it can be clearly shown that they have increased the earning capacity of the plant. A simple, positive rule such as this might be all that is required, if the changes in the plant and the resulting increase in earning capacity were occasioned only by actual extensions or additions of property which had never before existed. But such is not the case. In every progressive manufacturing concern, alterations or additions to the plant are constantly being made for the purpose of simplifying the manufacturing processes and thereby increasing the output with the same expenditure for labor and materials, or in order to decrease those operating charges which are in the nature of overhead expenses required to be taken up in the cost of the product. As no alteration or addition to the plant is probably ever undertaken except for the purpose of increasing the earning capacity thereof, directly or indirectly, the literal application of the rule referred to is not possible, and it will be necessary to consider the nature of the various alterations, improvements, and additions, before an intelligent decision can be made as to their ultimate disposition.

To what extent these views are concurred in by the judiciary is best evidenced by the language of the United States Supreme Court when, in the case of the LaBelle Iron Works v. United States, 256 U. S. 377, after a most exhaustive discussion of the meaning under the law of the term "invested capital," it laid down the following definition:

When speaking of the capital of a business corporation or partnership, such as the act deals with, "to invest imports a laying out of money, or money's worth * * by the concern itself in acquiring something of permanent use in the business; in either case involving a conversion of wealth from one form into another suitable for employment in the making of the hoped-for gains. All accounting authorities will agree that this definition of the court is in harmony with sound accounting principles.

The Commissioner admits that the expenditures which this taxpayer seeks to restore to surplus were made for the purposes hereinbefore stated. That they constitute capital expenditures we have no doubt. They were expended expressly for the purpose of increasing the earning capacity of the enterprise-in acquiring something of permanent use in the business.

That the taxpayer's efforts to accomplish the purposes for which these expenditures were made were successful is evident from a reading of our findings of fact. From a small enterprise whose products in 1895 consisted of a line of a score or so of tools and a limited local market it has grown to be a leader in its industry with a line of 2,000 different tools, all manufactured in its own plant, marketing its products throughout the entire world. It is for these reasons that we are unable to concur in the Commissioner's contention that, notwithstanding this large outlay of capital, the taxpayer acquired nothing of value which may be restored to its surplus account and included in invested capital. The evidence before us and our findings of fact justify no such conclusion.

Taxpayer is entitled to restore to its surplus account and include in its invested capital the sum of $280,513.26, representing capital expenditures previously charged as current expenses on its books and income-tax returns in error.

APPEAL OF P. P. SWEETEN.

Docket No. 4331. Submitted October 6, 1925. Decided November 14, 1925.

P.J. Daly, C. P. A., for the taxpayer.
F. O. Graves, Esq., for the Commissioner.

Before PHILLIPS and TRAMMELL.

This is an appeal from the determination of a deficiency in income tax for the calendar year 1920 in the amount of $146.68. The deficiency arises from the action of the Commissioner in adding to the taxpayer's income $2,000 as representing merchandise withdrawn from stock in trade for personal use.

FINDINGS OF FACT.

The taxpayer is an individual owning a general grocery and merchandise store at Pedricktown, N. J.

During 1920 the taxpayer withdrew from his stock in trade, for the use of himself and his wife, groceries and other goods. The cost of the merchandise was approximately $1,000, and such cost was included by taxpayer in computing his income as a part of the cost of goods sold.

DECISION.

The deficiency should be computed by adding the value of the merchandise withdrawn, $1,000, to the taxpayer's gross income for 1920. Final determination will be settled on 10 days' notice, under Rule 50.

APPEAL OF BARKER, FROST & CHAPMAN CO.

Docket No. 2753. Submitted September 16, 1925. Decided November 14, 1925. Taxpayer held not entitled to classification as a personal-serv

ice corporation for the years 1919 and 1920.

Homer Sullivan, Esq., for the taxpayer.
J. Arthur Adams, Esq., for the Commissioner.

Before GRAUPNER, TRAMMELL, and PHILLIPS.

This is an appeal from the determination of a deficiency in income and profits taxes in the amount of $2,344.78 for the calendar years

1919 and 1920. The only issue involved is whether the taxpayer is entitled to personal-service classification.

FINDINGS OF FACT.

The taxpayer is an Ohio corporation, organized in 1912, with its principal office at Toledo, and is engaged in the business of conducting an insurance agency.

During the years here involved the taxpayer's income consisted of fees and commissions on the writing of insurance policies. It represented and wrote insurance policies for a number of insurance companies. Business was solicited by some of its stockholders, foreign brokers, office brokers, and subagents.

The president of the taxpayer corporation testified that the gross income from commissions for 1919 and 1920 was as follows:

Schedules attached to the income-tax returns for 1919 and 1920, showing income produced by office brokers and agents, are as follows:

The persons listed above were not stockholders.

Office brokers are persons employed on full time by the taxpayer and are paid a salary and commission. They are not stockholders. Foreign brokers or outside brokers are those located in other States but licensed to do business in the State of Ohio. Approximately 90 per cent of the taxpayer's business which was handled through outside brokers had originally been procured and handled by the tax

payer itself, but during the years here involved, for business reasons, had been handled through the offices of the outside brokers and the commissions divided between such brokers and the taxpayer.

The corporation had an authorized capital stock of $75,000, of which only $48,100 was issued. It was held as follows:

Of the above stockholders, L. L. D. Chapman, Calvin Barker, J. D. Nolan, F. J. Rogers, J. J. Lovett, and P. H. Chapman devoted their entire time to the conduct of the business of the taxpayer.

When the corporation was organized in 1912 it took over the business which had been successfully operated since 1878 by a partnership. The partnership in 1912 was composed of L. L. D. Chapman, Calvin Barker, and Andrew Hunker. The corporation issued $34,000 of its capital stock for the good will of the partnership and the balance of the stock for the tangible assets, including the bank

account.

The taxpayer borrowed no money during the years 1919 and 1920. In April and October, 1919 and 1920, the premiums on policies written by the taxpayer and the payments made by it to insurance companies in advance of receipt of the premiums from policy holders were as follows:

At the close of the year 1919, the taxpayer's books showed $102,216.73 due from agents, customers, and brokers, and $93,620.83 due to insurance companies, agents, and brokers.

DECISION.

The determination of the Commissioner is approved.

APPEAL OF EDWARD M. LAWRENCE.

Docket No. 3961. Submitted July 22, 1925. Decided November 14, 1925.

The burden of proof to show that an assessment has been
barred by the statute of limitations is on the taxpayer.

Ernest H. Griswold, C. P. A., for the taxpayer.
B. G. Simpich, Esq., for the Commissioner.

Before MARQUETTE and MORRIS.

This appeal is from the determination of a deficiency in income tax for 1918 in the amount of $3,941.60. The question involved is whether assessment of the deficiency is barred by the statute of limitations.

FINDINGS OF FACT.

The taxpayer is a resident of Rockland, Me. Under date of March 7, 1919, while in Florida, he signed and made oath to a return of his income for the year 1918 on Form 1040, said return showing no net income. On April 29, 1925, the collector at Augusta, Me., acknowledged in writing that the taxpayer's return for 1918 had been located, "which was filed on Form 1040 disclosing no tax liability and is now on file in this office." The return was produced by the Commissioner and submitted in evidence by the taxpayer, but there was nothing on the face thereof to indicate when it was filed. A purported amended return for the year 1918, signed and sworn to June 18, 1924, was forwarded to the Commissioner by the taxpayer's representative on July 14, 1924, showing a tax of $3,941.60, which amount is the deficiency determined by the Commissioner, from which this appeal is taken. The deficiency letter is dated March 11, 1925.

DECISION.

The determination of the Commissioner is approved.

OPINION.

MORRIS: The taxpayer contends that the facts in this appeal raise a presumption that his return for the year 1918 was filed on or before March 15, 1919, which is conclusive, in the absence of proof by the Commissioner that it was not so filed, and that, therefore, the assessment of the deficiency is barred by section 277 (a) (2) of the Revenue Act of 1924, which reads in part as follows:

The amount of income, excess-profits, and war-profits taxes imposed by the Revenue Act of 1918 shall be assessed within five

years after the return was filed,"