*1074OPINION.
Marquette:It appears from the evidence in this appeal that when the Commissioner reversed the action of the examining revenue agent in accumulating depreciation, and thereby increased the de*1075preciation reserve and reduced surplus, he restored the amount of such accumulated depreciation as of January 1, 1918, and first applied it against an alleged operating deficit. The excess of the accumulated depreciation over the alleged operating deficit was then applied to reduce an impairment of capital caused by the payment of dividends in the amount of $62,000 during the period January 1, 1913, to December 31, 1917, leaving, according to the deficiency letter, an impairment of capital in the amount of $52,-345.13 on January 1, 1918. That there was on January 1, 1918, an impairment of capital is established by the evidence in this appeal, as hereinafter set forth, but it is not clear that the amount was as set forth in the deficiency letter. In fact, the Commissioner so conceded at the hearing. The adjustment on account of the accumulated depreciation should be made over the period of January 1, 1913, to December 31,1917, taking into consideration the dividends paid and the earnings or operating losses for that period as the case may be, in order to determine the true amount by which the capital was impaired as of January 1, 1918.
The Commissioner conceded at the hearing that the taxpayer is entitled to a deduction for depreciation in the amount of $8,800 for the year 1918. This leaves for consideration only the question as to the exclusion from the taxpayer’s invested capital for the year 1918 of the amounts set up on its books as credits to profit and loss on account of the earnings of the Eobe Company and the Buffalo Company, the items of alleged expense disallowed by the Commissioner and added to its income for the year 1918, and whether or not the payment of dividends during the period January 1, 1913, to December 31,1917, constituted an impairment of capital.
We are satisfied from the evidence that the Commissioner’s action in excluding from the taxpayer’s invested capital the amounts carried on its books as profits of the Eobe Company and the Buffalo Company was correct and should be approved. These profits were represented on the taxpayer’s books by mere bookkeeping entries and the taxpayer never at any time received the money they were alleged to represent. Neither the Eobe Company nor the Buffealo Company ever paid dividends during the time the taxpayer owned stock therein. Therefore, the entries did not represent actual assets belonging to the taxpayer. They represented nothing, in fact, and were properly excluded by the Commissioner from the taxpayer’s capital.
With reference to the items of alleged expense for the year 1919 which the Commissioner has disallowed, the taxpayer has introduced no evidence to support its claim that they were proper deductions *1076from income, and therefore the Commissioner’s action with respect thereto is approved.
The record in this appeal discloses, relative to the impairment of capital, that on January 1, 1913, the taxpayer’s books of account showed apparent undivided profits and surplus of $66,126.65. These undivided profits and surplus, however, included $55,318.07, representing the amounts carried by the taxpayer on its books as profits accruing to it on account of its ownership of stock in the Robe Company and the Buffalo Company. Excluding that amount from the apparent book surplus and undivided profits, there would be left,, as of January 1, 1913, undivided profits and surplus in the amount of $10,808.58. In February, 1913, the taxpayer paid dividends of $34,000. The payment of these dividends, therefore, constituted an impairment of capital in the amount of $23,191.42. So far as the record discloses, this deficit in capital was not subsequently wiped out. In February, 1916, dividends were paid in the amount of $14,000, and in November, 1917, dividends were again paid in the amount of $14,000. It is clear, therefore, that capital was impaired by the. payment of these dividends. However, the exact amount by which, capital was impaired on January 1, 1913, and by which amount the taxpayer’s original invested capital must be reduced as of that date, can not be accurately determined from the evidence before the Board. It should, however, be adjusted as here-inbefore set forth.