The above amounts represent the taxpayer's portion of the commissions and not the total premiums. DECISION. The determination of the Commissioner is approved. Appeal of Joseph Emsheimer Insurance Agency, 1 B. T. A. 649. APPEAL OF ALLEN-EATON PANEL CO. Docket No. 1639. Submitted September 24, 1925. Decided November 16, 1925. Before GRAUPNER and TRAMMELL. This is an appeal from the determination of a deficiency of $2,573.94, income and profits taxes for 1918, 1919, and 1920. The error alleged is the refusal of the Commissioner to permit the taxpayer to value tangible property at an amount in excess of cash or stock paid for the property, for the purpose of determining the invested capital and the amount deductible for depreciation. FINDINGS OF FACT. The taxpayer is a Tennessee corporation, organized in 1917, with its principal place of business at Memphis. In 1922 it changed its corporate name to the Waterproof Plywood Co., and in 1924 again changed to the Gause-Beard Plywood Co., under which name it is now operating. In April, 1917, Chester B. Allen took an option on certain land and buildings, known as Fenn Bros. plant, located in South Memphis, paying there for the sum of $600. He had in mind at that time the formation of a corporation for the purpose of manufacturing plywood. About May, 1917, the Allen-Eaton Panel Co. was organized with an authorized capital stock of $125,000. Allen subscribed for $20,000 of the stock, which he paid in cash. The corporation took over the option which Allen held on the above-mentioned property and reimbursed him therefor in the amount of $600, representing the cost to him. It later paid the balance due on the property, amounting to $11,900 and $8.40 exchange. In 1918 an appraisement of the taxpayer's property was made and the report submitted therewith showed the replacement cost of the buildings and equipment, with allowances for depreciation as of August 31, 1918, to be $135,628.75. DECISION. The determination of the Commissioner is approved. OPINION. GRAUPNER: To establish the value of the taxpayer's tangible property as of the date of acquisition, counsel relied on depositions of certain stockholders of the taxpayer company, an appraisal report, and the deposition of an officer of the appraisal company. The depositions of the stockholders merely relate the circumstances surrounding the organization of the taxpayer corporation and, in one instance, the approximate rental value of near-by land. No attempt was made to show the area of land, the number, size, condition of the buildings acquired, or their market value. The officer of the appraisal company in his deposition explained that in preparing appraisal reports the notes of field engineers are sent to the home office with pricing information taken from local sources and the notes are priced in the home office. The officer frankly admitted that he had never made an examination of the taxpayer's property and that the report was not even made under his direction. Such evidence is insufficient. Appeal of Stokes Milling Co., 2 B. T. A. 1284. APPEAL OF THE BAKER & TAYLOR CO. Docket No. 3849. Submitted July 8, 1925. Decided November 18, 1925. Upon organization, the taxpayer issued its entire capital stock of $40,000 and $400,000 income bonds and assumed the liabilities of a going business for the assets less $61,976.21 undivided profits of such business. The income bonds were redeemed before maturity. The books of account never showed the bonds as a liability or an asset to balance such liability. When the bonds were redeemed the surplus was charged with the amount paid in redemption. Held, that the taxpayer is not entitled to restore to surplus any part of the $400,000 paid for bond redemption in computing invested capital. Joseph B. Miller and William E. Russell, Esqs., for the taxpayer. Ellis W. Manning, 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 fiscal year ended March 31, 1921, in the amount of $292.72. The point in issue is the right of the taxpayer to restore to surplus and include in invested capital any part of $400,000 paid out in redemption of income bonds and charged off to surplus at the time the payments were made. FINDINGS OF FACT. The taxpayer is a Connecticut corporation with its principal office in New York City. It is a wholesale dealer in books. It was organized on February 22, 1906, for the purpose of taking over the assets and business theretofore owned and conducted by a corporation of the same name, the charter of which had expired by limitation on February 16, 1906. At a special meeting of the board of directors of the taxpayer corporation, held on June 22, 1906, the following resolutions were adopted: Whereas, Nelson Taylor of So. Norwalk, Conn., has agreed to assign and transfer, and has assigned and transferred to this corporation an undivided 9/10 interest or share in the business and assets of Baker & Taylor Company, a corporation dissolved pursuant to the laws of Connecticut on the 16th day of February, 1906, in exchange for 360 shares of the capital stock of this corporation, of the par value of $100 each, and 36 of its income bonds, part of the proposed issue of 40 such bonds of $10,000 each in the form annexed hereto, bearing date April 1st, 1906, and drawing interest from said date at the rate of 6% per annum, and upon the agreement of this corporation to pay over to him, the said Nelson Taylor, 9/10 of the net profits of said business for the year ended March 31, 1906, at the close of business on said March 31, 1906, or as soon thereafter as said net profits shall be determined, and to assume and pay the indebtedness incurred in connection with said assets and business and remaining unpaid and outstanding, and Whereas, the said undivided 9/10 share in said business and assets is worth in excess of $40,000.00 and is reasonably worth the said stock, bonds and the said 9/10 shares of the profits of said business for the year ending March 31st, 1906; Now, therefore, be it resolved, that the proper officers of this corporation be, and they hereby are authorized to issue to said Nelson Taylor, or such person as he may designate, 360 shares of the capital stock of this corporation of the par value of $100 each, and 36 of its said income bonds, and to pay over to the said Nelson Taylor 9/10 of the net profit of said business for the year ending March 31st, 1906, at the close of business or as soon thereafter as the amount of said profits shall be determined; and Whereas, Herbert S. Baker of East Orange, N. J., has agreed to assign and transfer, and has assigned and transferred to this corporation an undivided 1/10 interest or share in the business and assets of Baker & Taylor Company, a corporation dissolved pursuant to the laws of Connecticut on the 16th day of February, 1906, in exchange for 40 shares of the capital stock of the corporation of the par value of $100 each, and 4 of its income bonds, part of the proposed issue of 40 such bonds of $10,000.00 each in the form annexed hereto, bearing date April 1st, 1906, and drawing interest from said date at the rate of 6% per annum, and upon the agreement of this corporation to pay over to him, the said Herbert S. Baker, 1/10 of the net profits of said business for the year ended March 31, 1906, at the close of business on said March 31, 1906, or as soon thereafter as said net profits shall be determined, and to assume and pay the indebtedness incurred in connection with said assets and business and remaining unpaid and outstanding. Now, therefore, be it resolved, that the proper officers of this corporation be, and they hereby are authorized to issue to said Herbert S. Baker, or such person as he may designate, 40 shares of the capital stock of this corporation of par value of $100 each, and 4 of its said income bonds, and to pay over to the said Herbert S. Baker 1/10 of the net profit of said business for the year ending March 31st, 1906, at the close of business or as soon thereafter as the amount of said profits shall be determined; and Be it further resolved that this corporation assume and pay all indebtedness incurred in connection with said business and assets remaining unpaid and outstanding. Capital stock of an aggregate par value of $40,000 and bonds of an aggregate par value of $400,000 were issued by the taxpayer, in accordance with the terms of the foregoing resolutions, to the stockholders of the predecessor company. The assets and business were taken over as of April 1, 1906. The following balance sheet reflects the condition of the business at April 1, 1906, and shows the value at that date of all the assets, exclusive of good will, taken over by this taxpayer: The assets and liabilities listed above were entered on the taxpayer's books at the amounts shown. The undivided profits which, under the provisions of the resolutions quoted above, the taxpayer was obliged to distribute to the stockholders of the predecessor company were included among the liabilities. The bonds of an aggregate par value of $400,000, which the taxpayer issued in part payment for the assets and business, were not set up as a liability of the corporation on the books. Neither was the good will set up as an &sset. The bonds were what are commonly known as "income bonds." All of them matured April 1, 1916. The material portions of the bonds were as follows: Know all men by these presents, That The Baker & Taylor Company, a corporation organized under the laws of Connecticut, in the year 1906, is indebted to Nelson Taylor or assigns, in the sum of Ten thousand ($10,000.00) dollars, and for value received promises to pay the same at its office in the City of New York on the 1st day of April in the year 1916, with interest thereon from the date hereof at the rate of six per cent. (6%) per annum, payable annually on the first day of April in each and every year. Said principal sum and said interest thereon are to be paid only from the net earnings of the said The Baker & Taylor Company, ascertained and declared by its Board of Directors to be applicable to such payments of principal and interest after appropriating to the capital account of said corporation such portion of said net earnings as the said Board of Directors may deem advisable. In the event that the accumulated net earnings of the said The Baker & Taylor Company are insufficient to pay the principal hereof at maturity or any unpaid interest due thereon, then this obligation shall be paid from said net earnings as when and as soon as said net earnings are ascertained and declared by its Board of Directors. This bond may be redeemed in whole or in part by The Baker & Taylor Company at its option at any time before the maturity hereof, by the payment to the holder hereof of the full principal sum or such portion thereof as may be required to pay the part or portion of said bond redeemed, together with interest due thereon, or by depositing with the Treasurer of the said The Baker & Taylor Company to the credit of the holder hereof, the said sum required to redeem said bonds in whole or in part as hereinbefore provided, and by mail. ing written notice of such deposit to the last known post office address of the registered holder hereof, and upon and after such payment or deposit, payment of interest hereon or such portion hereof as shall have been redeemed, shall cease and determine. It is further expressly provided that any redemption by The Baker & Taylor Company of the series of bonds or any part thereof, of which series this bond is one, shall be apportioned among the several registered holders of said series of bonds in the proportion which the amount of the bonds registered in the name of each registered bondholder bears to the amount of the entire series of said bonds issued and outstanding. This bond is one of a series numbered from one to forty, each for Ten thousand '($10,000.00) dollars, and is transferable only on the books of the said The Baker & Taylor Company by the registered owner in person or by attorney upon the surrender and due assignment thereof. The whole issue of bonds was redeemed at par prior to the maturity date as follows: |