13 B.T.A. 62 | B.T.A. | 1928
Lead Opinion
The petitioner is claiming a value for good will in the amount of $44,000, but admits that the limitations contained in section 826 (a) (4) of the Revenue Act of 1918 will operate to reduce the amount which it is entitled to include in invested capital to $17,500 since there was but $70,000 of its capital stock outstanding on March 3, 1917, and during the years in question. The respondent denies that valuable good will was acquired in exchange for petitioner’s stock, and contends that the later charging off of the balancing entry supports his contention.
The record shows that the business acquired by the petitioner had been operated in the same community for a long period of time, but it fails to give us detailed facts from which we can determine the existence of good will and fix a value therefor. The mere fact that a business of the same kind has been operated in the same locality for a long period of time is not conclusive of the existence of good will. We have heretofore said in the Schulz Baking Co., 3 B. T. A. 470, 473, that “ The valuation of good will is a question of fact and must be determined on the evidence in the record.” An examination of the facts herein indicates to our mind that petitioner has confused good will value with leasehold values.
The testimony of Ross, one of the original purchasers, and Hastings who made the sale of the business and assets as administrator of Joseph H. May’s estate, shows that petitioner is not entitled to include any value for good will in its invested capital. Ross testi
In arriving at this decision we have not failed to consider our opinion in the Schulz Baking Co., supra, wherein we determined that good will existed, and then fixed a value therefor based on sales of stock subsequent to incorporation. The distinction between that case and this lies in the fact that we are unable to determine that good will existed in any appreciable quantity. In that case the evidence showed the tremendous increase in production, in this case we are without satisfactory evidence as to production or earnings. The earnings for 1905, 1906, and 1907 and the sale of 165 shares of stock indicate that the business was successfully operated and that earnings were in excess of a fair return on the tangibles acquired, but on the record we are not convinced that petitioner has sustained the burden of proof.
The second issue relates to the correctness of respondent’s adjustments- to petitioner’s inventories for 1918, 1919, and 1920. It is our opinion that such adjustments were erroneous'and petitioner is entitled to reduce its inventories for each of the years in the amount ■of the loss sustained. The respondent evidently proceeded on the
Further proceedings may be had wader Rule 62 (b) and (c).