1927 BTA LEXIS 3263 | B.T.A. | 1927
Lead Opinion
The petitioner corporation, being the successor to and being controlled by the same stockholders as its predecessor the Grelck-Hovey Co. of Nebraska, and having taken over its predecessor’s assets for stock, can not, under the provisions of sections 326 and 331 of the Revenue Act of 1918, claim a larger invested capital on account of such assets than could have been claimed by the predecessor corporation.
In 1923, when the basic patent still had approximately only 11 years to run and the subsequent related patent had approximately 12 years of life, Hunt undertook to pay $30,000 per year for the rights which he acquired under his license agreement. Applying well known formulae of reducing future payments to present value, it may be found that the capital value of the license agreement acquired by Hunt was approximately $200,000. And, while this agreement covered not only the basic patent in which the petitioner has an interest but also a later related patent, we believe the valuation here suggested for the Hunt license can be taken as furnishing the basis for estimating the value of the license obtained by the petitioner at an earlier date. And, considering all the facts disclosed by the record, especially the fact that when the petitioner obtained its rights the same were unlimited, although not exclusive, and that such rights had a period of more than 15 years of the remaining life of the patent, we have arrived at the conclusion that the license rights acquired by the petitioner and paid for by the issuance of stock had a value on June 28, 1917, of $30,000, and that the petitioner is entitled to have the same included in its invested capital at that value, subject to statutory limitations, and to the right to an annual deduction for the exhaustion of that capital value over the remaining life of the patent.
Concerning the property and plant acquired by the petitioner, it appears that said property cost the predecessor corporation $28,200 in cash disbursements plus the value of the services of Grelck rendered in connection with the construction and equipment of the three plants originally built. It appears from the record that these plants were constructed under the personal supervision of Grelck as an expert in the line of business to which the plants were to be dedicated; that in such construction the predecessor corporation by reason of the em
The $500 paid by petitioner in 1919 was advanced to the owners of the patent here in question to help defray litigation expenses. We regard this as in the nature of a loan and, in view of the fact that it was later repaid, we are of the opinion that it should not have been allowed as an expense deduction in the year 1919.
The deficiency may be redetermined in accordance with the foregoing findings of fact and opinion upon 15 days’ notice, pursuant to Rule 50, and judgment will be entered in due course.