In State v. Pabst, 139 Wis. 561, the court said:

It is manifest that they [the words] were intended to cover transfers by parties who were prompted to make them by reason of the expectation of death, and which, in view of that event, accomplished transfers of the property of decedents in the nature of a testamentary disposition. It is therefore obvious that they are not used as referring to that expectation of death generally entertained by every person. The words are evidently intended to refer to an expectation of death which arises from such a bodily or mental condition as prompts persons to dispose of their property and bestow it on those whom they regard as entitled to their bounty.

In the case of Rea v. Heiner, 6 Fed. (2d) 389, the District Court for the Western District of Pennsylvania stated:

There is a common agreement that the words "contemplation of death," mean not the general knowledge of all men that they must die; that it must be a present apprehension, from some existing bodily or mental condition or impending peril, creating a reasonable fear that death is near at hand; and that, so arising, it must be the direct and animating cause, and the only cause, of the transfer. If this apprehension, so arising, is absent, there is not that contemplation of death intended by the statute, especially when another adequate motive actuating the gift is shown.

Applying these legal principles to the case in hand, I reach without difficulty the conclusion that the gifts in question made by Mrs. Oliver were not made in contemplation of death. Her sound condition, mentally and physically; her active participation in important affairs; her expressed belief that she would live to a very old age; the preparation she was making for extensive improvements on her farm and at her home in Canada-all these, in connection with the animating motives for the transfer hereinbefore found to exist, conclusively rebut and overcome the presumption of the statute.

See, also, Conway's Estate, 72 Ind. App. 303; Rosenthal v. People, 211 Ill. 306; State Street Trust Co. v. Stevens, 209 Mass. 373; Commonwealth v. Fenley, 189 Ky. 480; In re Spaulding's Estate, 63 N. Y. S. 694; In re Palmer's Estate, 102 N. Y. S. 236, 240; Vaughan v. Riordan, 280 Fed. 742.

In our opinion the evidence in this appeal does not justify the conclusion that the transfers of the stock were made in contemplation of death, within the meaning of the statute. On the contrary it appears from the evidence that the decedent was strong and active until the date of his death, and that he regarded his ailments inconsequential, and, with the exception of about three weeks' treatment in a hospital in 1918, he was never under the regular care of a physician. The decedent's motive in making the transfers appears to have been for the purpose of rewarding the son for his services, of providing for the independence of his daughters during his lifetime, and of reducing the Federal income tax, rather than in the expectation of death within the reasonably near future.

APPEAL OF THE TOPEKA TENT & AWNING CO. Docket No. 3440. Submitted July 17, 1925. Decided January 30, 1926.

1. One of four partners purchased the nineteen-thirtieths interest held by two partners, paying therefor an amount in excess of nineteen-thirtieths of the book value of the tangible assets of the partnership. Held, that the amount paid in excess of nineteenthirtieths of the book value does not accurately measure nineteenthirtieths of the value of certain rights in a patent owned by the partnership plus a one-half interest in certain rights in a Canadian patent owned by one of the vendor partners.

2. A stockholder of a corporation owning 1,435 out of 1,500 shares of stock outstanding and entitled to receive royalties from the corporation upon a certain patent owned by him, waived in 1918 his rights to receive further royalties. Held, that the value of the right so waived may not be included in the computation of invested capital.

Harry W. Colmery and George Elliott, Esqs., for the taxpayer. Benjamin H. Saunders, Esq., for the Commissioner.

Before JAMES, LITTLETON, SMITH, and TRUSSELL.

This is an appeal from the determination of a deficiency in income and profits tax for the year 1919 in the amount of $2,976.69. The appeal is based upon seven allegations of error on the part of the Commissioner in determining the deficiency.

FINDINGS OF FACT.

The Topeka Tent & Awning Co. was originally organized as a partnership in 1901. It first had three partners; later four. On November 1, 1917, the members of the partnership were William Schick, owning a nine-thirtieths interest; B. W. Carter, owning a ten-thirtieths interest; F. A. Anton, owning a ten-thirtieths interest, and J. G. Stoneback, owning a one-thirtieth interest.

On March 7, 1911, a patent was issued to F. A. Anton on a lateral arm for awnings and, on November 30, 1912, Anton entered into a contract with the partnership reading in part as follows:

For a valuable consideration and $1.00 in hand paid by the party of the second part [The Topeka Tent & Awning Company] to the party of the first part [F. A. Anton], the receipt of which is hereby acknowledged, and for the consideration mentioned in other paragraphs herein, the party of the first part hereby grants and sells to the party of the second part, their heirs and assigns, the rights and privileges pertaining to said patent as named hereafter, namely, the exclusive right to manufacture and market said articles in the United States and territories thereof, said article being covered under patent No. 986,120, and known as Anton's Lateral Arm.

The party of the second part agrees to pay to the party of the first part, his heirs and assigns, a royalty of fifty cents for each arm manufactured and sold previous to this time and during the life of said patent, except as hereinafter provided.

The party of the second part shall have the privilege to manufacture, use and sell Anton's Lateral Arms to the extent of equipping awnings which may be manufactured and sold by them without paying any royalty for arms so used and sold, it being also understood that all Anton's Lateral Arms so manufactured, used and sold previous to this time to come under this provision. A royalty of fifty cents per arm is to be paid in each and every case when only the arms are sold, the party of the first part, however, agrees herewith to refund such royalties received from the party of the second part on any accounts of sales of Anton's Lateral Arms terminating in lost accounts.

On November 8, 1917, the partnership was dissolved. F. A. Anton purchased the nine-thirtieths interest of William Schick in the partnership for $31,500 and the ten-thirtieths interest of B. W. Carter in the partnership and his one-half interest in certain rights in Canadian patent No. 142,263, dated August 13, 1912 (the Canadian. patent on Anton lateral arms), for $40,000. As a part of the consideration for the payment of $31,500 to him, Schick agreed "not to engage in the manufacture and sale of tents and awnings, or other articles which are usually manufactured and sold by tent and awning companies (except such articles and lines of business as the undersigned is now engaged in) in Shawnee County, Kansas, for the period of five years from this date." As a part of the consideration of $40,000 paid to Carter, he agreed "not to engage in the manufacture and sale of tents and awnings, or other articles which are usually manufactured and sold by tent and awning companies, in Shawnee County, Kansas, for a period of five years from this date." These transactions resulted in a new partnership with F. A. Anton owning a twenty-nine-thirtieths interest and J. G. Stoneback a one-thirtieth interest. In addition, Anton agreed to assume all liabilities of the partnership, including the 1917 excess-profits tax, which amounted to $7,746. This partnership acquired the rights of the predecessor partnership in respect of the United States patent on Anton lateral arms and also acquired the one-half interest in the rights in the Canadian patent theretofore owned by B. W. Carter as an individual. The taxpayer was incorporated on March 15, 1918, retaining the same name, The Topeka Tent & Awning Co., which had been used by the partnership prior to 1918. It was agreed that the corporate organization was to begin as of January 1, 1918. The taxpayer has elected to be taxed as a corporation for the entire calendar year 1918. At January 1, 1918, the partnership books showed tangible assets of $58,553.92. The opening balance sheet of the corporation was as follows:

The intangible assets included good will and the rights of the predecessor partnership (composed of Anton and Stoneback) in the United States and Canadian patents on Anton lateral arms.

The capital stock of the corporation was divided into $50,000 par value common stock and $100,000 par value preferred stock. Of this amount $143,500 was issued to F. A. Anton, $5,000 to J. G. Stoneback, and the remainder, $1,500, in equal shares to three other persons to conform with the State laws, which required at least five incorporators and directors.

On the organization of the corporation the stockholders desired to retire the preferred stock at the rate of $10,000 per year. In order that the corporation might have earnings sufficient to accomplish such purpose, Anton, who was the principal stockholder, decided to relieve the taxpayer from payment to him of the 50 cents royalty on each Anton lateral arm sold. At a meeting of the board of directors of the corporation held April 8, 1918, the following resolution was adopted:

On call of the president, F. A. Anton, the Board of Directors of the Topeka Tent and Awning Company met at the office of the company, 304 Kansas Avenue, Topeka, Kansas, on the above date. Directors present were: F. A. Anton, Fred. L. Ackerman, Jr., John G. Stoneback and Earl Akers.

President Anton reported that he met Revenue Officer H. M. Breidenthal of the Wichita Internal Revenue Department who so kindly assisted us and advised us in the reorganization and incorporation, and that he had quite a visit with him in the bank. The conversation had with Mr. Breidenthal convinced President Anton that apparently it was an impossibility to find anybody that could give positive information pertaining to the late laws passed affecting reorganization, and the laws passed were such puzzles that no one could give a positive interpretation of the laws, since the interpretation of some of these laws might seriously interfere with the plans made previously und decided upon. President Anton explained at length some of the problems that might confront us in the future, and to assist the corporation in carrying out the plans agreed on at and before the incorporation and recorded in minutes of the stockholders meeting March 20th, 1918. We made some generous offers.

Directors Aker's move which was seconded by Director Ackerman, Jr., and carried unanimously.

"Be it resolved that whereas it appears that it may not be permissible by law to set up invested capital for the intangible for the purpose of depreciation of the intangible in keeping with the value and depreciation of the intangible thus providing the means of retirement of the preferred stock as planned and. Whereas it is advisable to carry out the original plans of providing means for the retirement of the preferred stock and,

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"Whereas laws with which no one seems to be familiar might prevent the setting up of invested capital or sufficient invested capital for the purpose of depreciation it is hereby,

"Resolved that the Directors of the Topeka Tent and Awning Company accept the offer of F. A. Anton to waive his Royalty Rights on United States Anton Lateral Patents, and his half interest in Royalty Rights on Canada Anton Lateral Patents, and on account of reorganization and incorporation being made March 15 as of January 1, 1918 refund to the Topeka Tent and Awning Company the Royalty received by him from them for the months of January, February, March and April amounting to $1,054.50, providing, however, that this waiver and refund shall not be construed as a transfer for profit to him, and further providing that this waiver is granted and this refund is made for the sole purpose of enabling the Topeka Tent and Awning Company to set up a valuation in harmony with the value of this intangible of the waiver and the refund made by him in cash for the purpose mentioned heretofore and for the further purpose of the depreciation to provide means for the retirement of the preferred stock and futher providing that if it should be found later impossible to carry out this provision because it is not permissible by law, then this waiver and this refund shall be null and void for the reason that the consideration has failed, and further providing that in case of such failure all Royalty paid to F. A. Anton for the months of January, February, March and April 1918 amounting to $1,054.50 and refunded to Topeka Tent and Awning Company as well as all Royalty that would be due F. A. Anton from the Topeka Tent and Awning Company, had no Waiver of paying royalty been granted and no refund been made shall at once become due and owing to him together with interest at 6 per cent per annum until paid and be it further provided that the Topeka Tent and Awning Company shall keep accurate accounts of all Arms manufactured and sold as provided in the original Royalty Contract by the Topeka Tent and Awning Company, a co-partnership and F. A. Anton for the purpose of assisting to establish a value of the intangible of the Royalty Contract for depreciation purposes, or in case the waiver of the Royalty Contract and the refunding heretofore mentioned for the reason stated has become inoperative, then the Records kept by Topeka Tent and Awning Company on all Arms manufactured and sold under the old Royalty Contract can be easily ascertained and settlement for moneys owing F. A. Anton together with interests be made and paid in full." (Italics ours).

Pursuant to this resolution, Anton refunded to the corporation. $1,054.50 royalties which had been paid him upon Anton lateral arms sold by the taxpayer during the months of January, February, March, and April. On and after April 8, 1918, the taxpayer became possessed of the rights of the predecessor partnership in the United States and Canadian patents on Anton lateral arms and was also relieved from the payment of any royalties to Anton in respect of them. However, Anton still owned a one-half interest in the socalled shop rights of the Canadian patent. For this interest Anton