Montgomery Bros. & Co. v. Commissioner

1926 BTA LEXIS 2902 | B.T.A. | 1926

Lead Opinion

OPINION.

Trammell:

The facts may be briefly summarized. In 1899 the taxpayer acquired for stock the assets of a business conducted by a partnership. In 1907, for the first time, a detailed appraisal of the taxpayer’s plant and equipment was made by an appraisal company. This appraisal placed a value on the assets which was $84,-062.85 more than the value at which they were carried on the books of the taxpayer. Early in 1909 the taxpayer added to its property and surplus accounts the excess of the appraised value of its assets over the book value, less the amount spent for equipment in 1907 and 1908. This amount, $67,364.90, the taxpayer claims the right to include in invested capital as paid-in surplus.

The only evidence introduced by the taxpayer with respect to the values of assets acquired for stock, or with respect to the books showing assets at less than cost or value, was an appraisal report made by an appraisal company. The appraisal was made by an appraisal company in 1907. The taxpayer offered the report in evidence for the purpose of establishing as a fact that the assets acquired in 1899 were worth more than the values at which they were placed on the books. The appraisal purported to show the replacement cost new in 1907 of all assets then owned, less depreciation actually sustained as shown by the appearance and condition thereof. It was made by two persons, one of whom made an inspection of the property, determined the amount and quality of materials, the estimated hours of labor used in the erection or construction of the assets, and other data, upon the basis of which another person in the office of the appraisal company could make calculations based on the current price of materials and labor and arrive at an estimated cost of the property if it had been constructed at that time. The person who prepared the estimates of the quantity and quality of materials required and the condition of the buildings when examined did not appear as a witness, nor was any tvitness able to testify as to the identity of such person. The testimony of the witness who made the estimates of the replacement costs was based entirely upon the assumption of the correctness and accuracy of the data furnished him by the person who made the inspection of the assets.

While the above report was offered in evidence at the time of the hearing, the question of its admissibility was taken into consideration.

We are of the opinion that the appraisal report, made as above stated, in the absence of the testimony of the person who prepared an essential part thereof, is not admissible in evidence. In so far as certain material facts are concerned, the report is merely an ex parte statement by a person who was unidentified and who was not subject to cross examination by opposing counsel. Even if the appraisal were admitted in evidence, we are of the opinion that it would be of little value for the purpose for which it was offered. There was no other material evidence offered by the taxpayer and we must, therefore, approve the determination of the Commissioner.

Judgment will be entered for the Commissioner.