Minden Lumber Co. v. Commissioner

*237OPINION.

Lansdon:

In this appeal two questions are presented for the consideration of the Board: (1) The Commissioner has moved to dismiss the appeal on the ground that he has not, since June 2, 1924, asserted any deficiency in tax of this taxpayer within the meaning of section 274 (a) of the Revenue Act of 1924; and (2) if the motion of the Commissioner is denied, whether this taxpayer is entitled to have its income and profits-tax liability for the year 1917 determined under the provisions of section 210 of the Revenue Act of 1917.

In support of his motion to dismiss, the Commissioner urges that the letter in which a deficiency of $23,945.53 in tax for 1917 is asserted, and which also contains notice of an overassessment of $30,924.41 for 1918, does not, as a matter of fact and of law, constitute a deficiency letter within the meaning of section 274 (a) of the Revenue Act of 1924, and, therefore, the Board is without jurisdiction to hear and determine the issues raised by the taxpayer in its petition. For answer to the motion to dismiss the taxpayer contends that it takes its appeal solely from the determination of the Commissioner of a deficiency of $23,945.53 for the year 1917, and that it should not be deprived of its right to have such appeal heard and decided by the Board by reason of an overassessment for the following year; that it is appealing from the deficiency asserted for 1917, and not from the overassessment conceded for 1918, even though notices of both the deficiency and overassessment were included in the same letter, and notwithstanding the fact that the overassessment is greater in amount than the asserted deficiency.

The effect of granting the motion to dismiss would be to clothe the Commissioner with large discretionary powers, which would enable him to deprive many taxpayers of the relief provided in section 274 (a) of the Revenue Act of 1924. By including deficiency and overassessment notices in the same letter, the Commissioner could prevent any taxpayer from appealing from any deficiency exceeded in amount by notice of an overassessment included in the same letter without any regard whatever to the errors of the Commissioner in determining the deficiency.

For the reasons herein stated, and also on authority of the Appeal of E. J. Barry, 1 B. T. A. 156; Appeal of Hickory Spinning Co., 1 B. T. A. 409; and Appeal of Tel-Electric Co., 1 B. T. A. 434, the Commissioner’s motion to dismiss is denied.

*238In support of its contention that its tax liability for the year in question should be computed under the provisions of section 210 of the Kevenue Act of 1911, the taxpayer pleads that its conditions are abnormal, because it paid only nominal salaries to its officers, and its invested capital can not be ascertained with any reasonable degree of accuracy. The unknown quantities in the problems of computing the invested capital of the appellant are (1) the value of timberland and timber rights acquired by the exchange with the Bodcaw Lumber Co., and (2) the value, if any, of the cut-over lands owned by the taxpayer.

The timberlands and timber rights originally owned by the taxpayer were acquired by purchase for a cash consideration of $700,171.40. Subsequently large capital expenditures were made for sawmills, planing mills, logging equipment, and other facilities for use in business operations. All such additions were capital investments, which were definite in amount and of record on the taxpayer’s books of account.

In the exchange of lands and timber rights with the Bodcaw Lumber Co. the taxpayer alleges that it received 1,882.62 acres more of timberlands and timber rights than it relinquished and in this appeal maintains that the value of such land can not be ascertained for invested-capital purposes. The evidence in support of this contention is not persuasive. There are undivided interests both in the lands relinquished and in the lands received. It is impossible, therefore, to reduce the results of such an exchange to definite figures representing any specific number of acres of timberlands or rights in standing timber. The taxpayer and the Bodcaw Lumber Co. are separate operating units of the Buchanan interests. It is a reasonable presumption that the properties exchanged were of approximately equal value, and it is in evidence that the reason for the exchange was not in the value of the properties, but in the greater ease, efficiency, and economy of operation that resulted. It was not additional property values but convenience and advan-' tages in logging and other operations that were acquired.

The taxpayer offers no convincing evidence that the value of its standing timber is greater than the amounts ascertained by the Commissioner. It admits that no survey of its "standing timber has ever been made by a competent timber cruiser, and that it has followed no uniform rule in taking credit for depletion of its stumpage, either in its own accounting or for the purpose of determining its invested capital for income and profits-tax purposes. It is, therefore, without data to prove its allegation that the Commissioner is in error in his computation of its invested capital in respect to the value of its timberlands and timber rights. At the hearing some*239thing was said about the values of cut-over lands omitted or disregarded in the Commissioner’s estimate of invested capital. The record does not disclose the values set up for such lands on the books of the taxpayer or that it, in fact, now owns any cut-over acreage.

The companies cited by the taxpayer as comparatives that should be used by the Commissioner in computing the tax liability of the appellant under the provisions of section 210 of the Revenue Act of 1917 are engaged in similar operations in substantially similar conditions. The invested capital, gross and net incomes, the profits-tax credit and the profits tax paid of such companies, as far as they are disclosed by the evidence, are set forth in the findings of fact, but the Board does not believe that such facts, considered in connection with the other evidence offered at the hearing, prove that the Commissioner erred in refusing to compute the excess-profits-tax liability of the taxpayer for 1917 under the provisions of section 210 of the Revenue Act of 1917.

The evidence as to abnormally low salaries is so vague and indefinite that the Board is unable to give it any weight in determining the issues of this appeal. .

In the light of all the evidence adduced, the Board discovers no abnormalities in connection with the taxpayer’s invested capital or operations that justify a computation of its tax liability under the provisions of section 210 of the Revenue Act of 1917.