The executors or trustees of the parties hereunder or of any stockholder bound by the terms of this agreement may sell the shares of stock of the Jordan Marsh Company held by them to the sons of their testator or testatrix, who are engaged in the business, without first offering the same to the other stockholders, but otherwise subject to the terms of this agreement.

This agreement shall be binding during the lives of all the parties hereto and shall bind their executors, administrators, legatees and distributees.

The Avon Street Trust is a common-law. trust, taxable as a corporation under the Revenue Acts of 1918 and 1921. It is the owner of certain land and buildings thereon which were constructed for the uses of Jordan Marsh Co. Its property adjoins the main store of that company and is connected therewith by subterranean passages. The property is so situated as to location and ownership that it constitutes a part of a single business consisting of the two companies. Its shares were originally subscribed for by E. D. Jordan and E. J. Mitton and, in the taxable year, they were owned by their estates or their descendants.

At the beginning and throughout the fiscal year ended January 31, 1921, except for the change hereinafter referred to, the record holders of the stock of the corporation and of the trust, together with a description of the parties holding, were in the percentages indicated in the following table:

The change which occurred during the taxable year was occasioned by the death, on November 4, 1920, of May S. Jordan, beneficiary of one-half of the trust estate of E. D. Jordan for life and owner of 4.73 per cent of the stock of the trust, at which time one-half of the stock of both the company and the trust held in trust for her became distributable absolutely to Robert Jordan, as remainderman, and the other half continued in the trustees to be held for the benefit of Dorothy Jordan Robinson, the other beneficiary of the trust estate, and her ownership of 4.73 per cent of the stock of Avon Street Trust passed to her daughter, Dorothy Jordan Robinson, outright.

During the taxable year the trustee of the estates of E. D. Jordan were Robert Jordan (also a stockholder in his own name), Charles K. Cobb, and William C. Taylor, and the trustees of the estate of E. J. Mitton were George W. Mitton (also a stockholder in his own right and beneficiary under the will of his father), Robert G. Mitton (also a beneficiary under the will), and Charles E. Barnes.

George W. Mitton has at all times, in voting the stock owned by the estate of E. J. Mitton, voted it in the same manner as he has voted the stock owned in his own right. The records of a stockholders' adjourned annual meeting held May 5, 1922, show that those present

were:

George W. Mitton, representing himself and the estate of E. J. Mitton, Robert Jordan, representing himself and the estate of E. D. Jordan, and Walter F. Watters, the full capital stock being those represented.

The records of Jordan Marsh Co. show that there has never been a dissenting vote cast, either at a meeting of the stockholders or at a meeting of the board of directors of Jordan Marsh Co.

DECISION.

The deficiency should be computed in accordance with the following opinion. Final determination will be settled on 10 days' notice, in accordance with Rule 50.

OPINION.

SMITH: The only question raised by these appeals is whether the taxpayers were affiliated for the fiscal year ended January 31, 1921. They were affiliated if substantially all of the stock of both was "owned or controlled by the same interests." Section 240 (c) of the Revenue Act of 1921.

It may be deduced from the findings of fact that the shares of stock of the two taxpayers were owned at the beginning of the taxable year as follows:

The estate of E. D. Jordan was administered by three trustees, one of whom was Robert Jordan, who also was a remainderman of the estate and who came into absolute ownership of his interests in November, 1920. The estate of E. J. Mitton was likewise administered by three trustees, one of whom was George W. Mitton, a son of E. J. Mitton. He was one of five children of E. J. Mitton and had a one-fifth beneficial interest in the estate of his father. The 10 per cent minority interest in Jordan Marsh Co. was owned by W. F. Watters. He had, in 1920, long been in the employ of that company and his stock was held under the provisions of the agreement of May 17, 1910, the material portions of which are set forth in the findings of fact. The minority interest in the Avon Street Trust from February 1, to November 4, 1920, was owned one-half by May S. Jordan, the widow of E. D. Jordan, and mother of Robert Jordan, and D. Jordan Robinson. The other one-half was owned by D. Jordan Robinson. Upon the death of May S. Jordan, her one-half of the minority interest passed to her executor for the benefit of D. Jordan Robinson.

The record is not satisfactory as to whether Robert Jordan had any actual control over the stock held by the estate of E. D. Jordan or by his mother or sister. It is in evidence, however, that at an adjourned meeting of the stockholders of Jordan Marsh Co. held on May 5, 1922, Robert Jordan represented himself and the estate of E. D. Jordan; at the same meeting George W. Mitton represented and voted the stock held by the estate of E. J. Mitton and, from his affidavit admitted in evidence, it appears that he habitually voted the stock held by the estate. It is further in evidence that the records of Jordan Marsh Co. show that no dissenting vote has ever been cast by any stockholder, either at an annual meeting or a meeting of the board of directors.

What constitutes ownership or control "by the same interests " was discussed in Appeal of Rishell Phonograph Co., 2 B. T. A. 229. We have held that blood relationship is a factor to be taken into consideration in determining whether the shares of stock in different corporations are owned or controlled by the same interests. Appeal of Wright Cake Co., 2 B. T. A. 58; Appeal of Midland Refining Co., 2 B. T. A. 292; Appeal of Edward Rose Co., 2 B. T. A. 341. In the instant appeal, 90 per cent of the stock of Jordan Marsh Co. and 100 per cent of the stock of the Avon Street Trust was owned by the Jordans and Mittons.

APPEAL OF WALNUT CREEK MILLING CO.

Docket No. 2834. Submitted July 15, 1925. Decided February 3, 1926.

The claim of the taxpayer that, in the computation of invested capital, its earned surplus, as shown by its books of account, should not be reduced for depreciation sustained in the amount determined by the Commissioner, denied for lack of evidence.

P. J. Barnes, C. P. A., for the taxpayer.

F. O. Graves, Esq., for the Commissioner.

Before JAMES, LITTLETON, SMITH, and TRUSSELL.

This appeal is from the determination of a deficiency in income and profits tax for the year 1919 in the amount of $2,751.10. The Commissioner disallowed $3,262.19 of a total deduction of $14,417.39 for depreciation taken in the tax return, and reduced the earned surplus for invested capital purposes by the amount of $30,896.69, on account of insufficient depreciation charged off in prior years.

FINDINGS OF FACT.

1. The taxpayer is a Kansas corporation, with its principal place of business at Great Bend. It was organized in 1877. It is engaged in the grain and flour milling business.

2. In 1915, a tornado or windstorm destroyed a large part of the company's then existing plant and many of its records. Its mill proper was complete in 1916. At the time little adjustment was made upon its books to reflect the proper cost of the new plant.

3. The physical assets employed in the taxpayer's business, which are subjected to wear and tear arising out of such employment, are as follows:

12 elevators, frame.

1 elevator, concrete.

1 office building, brick stucco.

1 power plant building, stone and concrete.

1 mill building.

1 power plant, boilers and engine.

4. The taxpayer claimed a deduction in its return for 1919 in the amount of $14,417.39, on account of wear and tear with respect to the above assets. The Commissioner allowed a deduction in the sum of $11,155.20 and disallowed the remainder, or $3,262.19.

5. In years prior to 1917, the taxpayer accrued no depreciation on its books of account. It figured that the expenses of maintaining the plant covered the depreciation.

6. For 1917 and subsequent years, the taxpayer has annually accrued on its books a depreciation reserve at uniform rates, and addi

tions, renewals and replacements have been charged against such

reserve.

7. The schedule of depreciation for 1919, taken from the deficiency letter, reads as follows:

8. In lieu of the depreciation reserve shown by the taxpayer's books at January 1, 1919, the Commissioner has substituted a reserve of a greater amount, which he has computed by going back to the date of original acquisition of each asset and computing the reserve with respect thereto on a straight-line basis.

9. The Commissioner has reduced the earned surplus at January 1, 1919, as shown by the books, for invested capital purposes, by the exeess of the depreciation reserve as computed by him over the reserve as shown by taxpayer's books.

DECISION.

The determination of the Commissioner is approved.

OPINION.

SMITH: The questions presented by this appeal are indicated in the preliminary statement. The taxpayer has furnished little information for the determination of the amount of depreciation sustained during the years prior to 1917, or for the determination of the depreciation sustained during the year 1919. The evidence is to the effect that, prior to 1917, no reserve was set up for depreciation. The cost of repairs was charged to expense, but it is impossible to state the amount spent for repairs or to state whether depreciation was sustained in excess of the amount spent. In its original tax return for 1919, the taxpayer claimed the deduction from gross income of $14,417.39 for wear and tear of property, and in its brief claims a deduction of $18,431.49. The Commissioner has determined deductible depreciation of $11,155.20. furnished no information as to when its assets, building proper at Great Bend, were acquired.

104881-27-39

The taxpayer has other than its mill From the meager