General Lead Batteries Co. v. Commissioner

1925 BTA LEXIS 2388 | B.T.A. | 1925

Lead Opinion

OPINION.

Ivins:

This appeal primarily involves the question of the value of intangible assets paid in for stock upon the organization of the taxpayer. Value is always a question of fact and not of speculation. It is only provable by relevant, competent, and material evidence.

During the course of the introduction of the evidence there were references to several different companies, all of which existed prior to the organization of the taxpayer — the Baltimore Electric Storage Battery Co., the Titan Storage Battery Co., and the General Industries Co. No evidence was adduced showing the earnings of any of these companies or of the book value of their assets, tangible or intangible, prior to 1914. There was no evidence of the extent of prior use by any of them of the patents which were transferred by the General Industries Co. to the taxpayer and no evidence as to the nature of the products made by those companies or of the use of patents in connection therewith. We have before us only the following facts: $2,000,000 par value of stock was issued for four actual patents, all of which had then expired by the running of the 17-year limitation period, one patent that had been applied for but not then issued and “researches, records and other property and scientific data and development,” and good will. The taxpayer had a net loss in 1914 of $24,584.52, in 1915 a net loss of $6,680.55, in 1916 a net loss of $2,293.45, and in 1917 a net income of $27,581.44. On December 15, 1917, the taxpayer reduced its common stock from $2,000,000 to $500,000 because (to quote from the testimony) “ we did not want to have any more shares outstanding than the actual value of the assets, and we felt that in view of the experience of our first four years that the original capitalization was somewhat excessive.”

This evidence clearly indicates the absence of any good-will value or other intangible- value in the business acquired. Subsequent earnings may corroborate an a friori valuation under proper circumstances. Equally, subsequent losses may carry probative force in rebuttal of a valuation which is at the best nothing but an estimate and speculation.

We must approve the determination of the Commissioner disallowing the inclusion in invested capital of any value for intangibles paid in for the common stock upon the organization of- the taxpayer in 1914.

At the time of the first hearing of this appeal, January 21, 1925, the taxpayer was allowed to file an amended petition wherein it set up error by the Commissioner in improperly including in 1919 income the amount of $3,697.97. The answer thereto was filed on March 6, 1925. It was therein admitted that the taxpayer’s contention as to the $3,697.97 item was correct, but it was alleged:

The Commissioner says, however, that the net reduction of the taxpayer’s net income for the year 1919 should be only $727.53 inasmuch as the taxpayer has claimed among its deductions from gross income an amount of excessive depreciation in the sum of $2,970.44.

No evidence whatsoever was introduced by the Commissioner in support of this allegation, and, obviously, the burden of proof thereof is upon him. The taxpayer’s income for the year 1919 as determined by the Commissioner in arriving at the deficiency should be reduced by the amount of $3,697.97.

On reference to the Board, ARundell took no part in the consideration.