*961OPINION.
James:The taxpayer claims that the Commissioner erred in decreasing its invested capital by $10,885.32, in the manner above set forth in the findings of fact. With this contention we agree. Article 868 correctly states the rule to be applied in the case of subsidiary corporations when their capital stock is owned by, and their assets are incorporated with, the parent company in a consolidated balance sheet. The examining revenue agent correctly applied the rule and the Commissioner erred in departing from the computation of the examiner in this respect.
But it appears from the evidence and from the reports of the examining agent that the taxpayer at its organization took over tangible assets and in some cases, stock of other companies. On the face of the records made by the taxpayer itself there appears to have been an unexplained excess of capital stock issued over value of assets acquired, in the sum of $38,406. The taxpayer’s invested capital for the year 1919 should, therefore, be adjusted by eliminating the said amount.
The second issue raised by the taxpayer relates to a deduction of $2,768.30 for additional compensation paid to officers in the year 1919. The evidence submitted on this point is contradictory and uncertain. The additional compensation claimed was shown on the books of the company as follows:
Salaries_ $2,768.30
Guy Staples & Hildebrand a/c note settlement- $1,000. 00
Guy Staples a/e_ 384.15
J. IT. Sander, See’y_ 692. 08
R. E. Burger, Treas_ 692. 07
Back salary for 1917-18 and 19.
The above allowance for salaries arranged for apart from the records of Board of Directors at the beginning of 1917, but to be credited only when profits would justify and left to the direction of the secretary and treasurer and the above entry made by authority of such secretary and treasurer.
The latter explanation was crossed out by the treasurer at the time of the examination by the revenue agent, with the explanation that the additional salaries were considered not as back salaries but as compensation for 1919. No formal authority for these allowances was recorded on the minutes of any of the meetings. Affidavits of the members of the board of directors were filed with the Commissioner to the effect that the notation that they were for salaries for 1917, 1918, and 1919, was in error, and not authorized, and that the allowances should be for 1919. The treasurer of the taxpayer corporation testified that during the years 1917, 1918, and 1919, the taxpayer was making little money and the officers allowed themselves small salaries, but on account of their increased living expenses and the fact that business prospects for the year 1919 were bright, the allowances were made on the books and the notations were made in December, 1919. He also testified that these allowances were for services as directors for the year 1919. No evidence was adduced to show that these additional allowances were reasonable compensation for services actually rendered.
We are of the opinion, in view of the conflicting and unsatisfactory evidence, that the Commissioner was justified in refusing to allow this item as a deduction for the year 1919.