*579OPINION.
Sternhagen:There are three main subjects of controversy between the parties: (1) Fraud, (2) salary deductions, and (8) depreciation deductions. The fraud penalty is based entirely upon the taxpayer’s salary deduction and most of the evidence was directed to these two related issues. Throughout a prolonged hearing there was much conflicting evidence, from which it is extremely *580difficult to conclude with certainty what the facts in many respects actually were. The recollections of the numerous witnesses were at variance, sometimes as to details and sometimes as to matters of primary significance. Some of the witnesses had long since quar-relled and their testimony was unmistakably affected by their personal feelings. During the early history of this business things were moving rapidly and it was apparently difficult to ascertain clearly what happened or why. But the Board is charged with the duty of making findings of fact as the basis of its decision, and therefore, out of varying and conflicting evidence, wé have sought to find the preponderance and base our findings thereon.
(1) Fraud. — The Commissioner has asserted that there was a fraudulent return with intent to evade tax, and hence he has determined that the normal deficiency should be augmented by a penalty of $37,073.38 for 1917. This is based upon the view that the taxpayer’s deduction in 1917 of $49,100 in officers’ salaries was knowingly false because no such obligation existed during the taxable year and that the officers signing the return knew that there was no such liability, j While there is some substantial conflict in the evidence as to whether and when this liability arose, and while the impression which we gather is not free from doubt, we can not sanction an assessment of a fraud penalty on mere suspicion or because the memories of witnesses may falter or conflict. Upon its face, the transcription of the minutes from one book to another and the disappearance of the old book and of the intervening supporting memoranda, the cutting out of pages of the journal and repasting, the pencil and pen interlineation of dates and substituted words, are unquestionably sufficient to give rise to suspicion of fraud. They justify careful investigation, but such investigation as was made in the present instance is not sufficient to transform suspicion into conviction. The cutting of the journal pages and repasting were satisfactorily explained to remove all doubt. The date of the meeting purporting to fix the salaries is still in great confusion. Circumstantially, it appears to have taken place in August, 1917, although there are witnesses who recall no such meeting whatever. Keene, the principal witness for the Government, a former officer and director, said that no such meeting took place, but we can not resist the impression that Keene’s testimony was largely influenced by what he regarded as the necessity of self-protection from a personal deficiency, as we shall explain.
None of the officers included in his return more than the salary actually received, believing as they did that, upon the cash basis, this was a correct return. They were thereafter poorly advised, by both an outside accountant and a Government employee in the collector’s office, that they were required, although on the cash basis, *581to return and pay tax upon the full amount credited to them on the books of the corporation and deducted by the corporation upon its return on the accrual basis. Several of the officers acted upon this advice, filed amended returns, and paid additional tax. The Government then officially called upon Keene to do likewise. Keene refused to make an additional payment and stated that the alleged salary credited on the books and deducted by the corporation was unauthorized and did not represent a liability. Thus the Government’s suspicions were aroused, which resulted in the penalty.
It is, however, not without significance that an internal revenue agent twice investigated the affairs of the corporation, once before Keene’s alleged disclosure and again thereafter, and in neither of his reports did he suggest fraud or recommend a penalty as he regarded it his duty to do had he believed that fraud existed. It may be, of course, that this revenue agent was fooled, but he adhered to his position up to the time he left the witness stand at the hearing before the Board.
Four members of the Board heard all the persons who were familiar with the facts and observed them on the witness stand testifying either for the taxpayer or the Government, and after considering all the evidence we can not conclude that there was fraud. The penalty therefore is disallowed.
(2) Salaries. — The returns of the taxpayer were made upon the accrual basis, and for 1911 it included in its deductions for expenses the amount of $49,100, which was entered in the journal for 1917 as a closing entry. This amount was arrived at by applying the salaries set forth in the resolution of August 5 to the period back to January 1, 1916. We must examine this deduction and determine from the evidence whether it represents an accrued ordinary and necessary expense consisting of a reasonable allowance for salaries. In this connection much has been said as to whether the meeting took place August 5, 1916, or August 5, 1917 — assuming that it took place at all. This latter assumption we think is warranted. We are inclined to give credence to the several witnesses who testified that the meeting took place and that this was a correct record of the proceedings. It seems to us, however, from the circumstances, that the meeting probably occurred in 1917. Affairs in 1916 were too uncertain to make it probable that salaries at that time were fixed so greatly in excess of the amounts actually paid. The omission of salary to McGaffic is also some indication that the resolution was not made in 1916; for McGraffic was with the company in August, 1916, and quit in December. Furthermore, the resolution fixes salary for Considine as vice president, although there is no record of his election to this office until February 10, 1917. In an audit of April, 1917, by outside accountants, no mention is made of ac*582crued salaries or of any obligation then outstanding or possible claims. And, moreover, the other minutes of 1917 lead one quite naturally to place this meeting in August, 1917. It was not until May, 1917, that the partnership property was transferred to the corporation, and it is not likely that this would be neglected by officers who were foresighted enough to determine a schedule of salaries for the distant future. We are therefore of the opinion that the meeting took place on August 5, 1917, when for the first time the obligation for salaries arose.
Thus we have the recognition in August, 1917, of the monthly value of the services and an entry at the close of that year applying this rate. But this entry included not only the application of the rate to 1917 but also to 1916, and it is contended by the taxpayer that this was an accrued obligation of 1917 and therefore properly deductible from gross income in that year. We are of opinion, however, that the argument goes too far. The statute permits the deduction of ordinary and necessary expenses, including a reasonable allowance for salaries, and, to the extent that an accrued expenditure goes beyond these statutory qualifications, it may not be deducted. By the resolution the parties have agreed upon the compensation for services rendered, and thus they have fixed what we may properly regard as the ordinary and necessary expense and the reasonable allowance for salaries. While it may be proper, and in this proceeding can not be questioned, that the corporation should recognize past services by making the new salaries retroactive and thus incurring a fixed obligation therefor, this is not conclusive that such an obligation represents a reasonable allowance for salaries for the taxable year or in other respects an ordinary and necessary expense for the taxable year. In view of the necessity of reaching a fair and practical disposition of these issues from a confused record, we are of opinion that the salary deduction for the years 1917 and 1918 should not exceed the amounts, heretofore set forth, aggregating $33,600 for 1917 and $32,311.68 for 1918.
(3) Depreciation. — The issue with respect to the deduction of a reasonable allowance for the exhaustion, wear and tear and obsolescence of the taxpayer’s property during the taxable years 1918 and 1920 is so much a question of detailed fact that discussion of our findings would serve no useful purpose. We have considered all of the evidence, including the exhibits. The taxpayer’s deductions have not been uniform, because the circumstances during the years in question were not uniform, and we can not therefore approve entirely the Commissioner’s computations. Nor, on the other hand, would we be justified in approving the deductions taken by the taxpayer; for in some instances they seem to involve duplications — depreciation being deducted upon property abandoned as *583obsolete during the year. We have therefore reached our independent conclusions, all of which are set forth in our findings of fact.