*2284 Special assessment denied.
*1001 The respondent has determined a deficiency of $5,025.73 in income and profits taxes against the petitioner for the fiscal year ended September 30, 1920, as to which it is claimed he erred in refusing to computed the profits tax under the provisions of sections 327 and 328 of the taxing act.
*1002 FINDINGS OF FACT.
In 1883 John B. Wise and Arthur H. Cooper formed a partnership under the name of Wise & Cooper, to engage in the manufacture and sale of ladies' shoes. The partnership started business operations in one room located in Roak Block, Auburn, Me. In 1883 it had 18 employees, including one salesman, and manufactured 40 pairs of shoes per day. As business increased it rented additional adjoining space, and in 1902 it acquired a larger factory on Railroad Street, having a capacity of about 1,000 pairs of shoes per day. The gross sales of the partnership increased from about $10,000 the first year of its existence to about $275,000 in 1902. By 1906 the gross sales had increased to $325,000 per year. *2285 The employees of the partnership in 1902 numbered about 150, including eight or nine salesmen.
From 1901 to 1906 the partnership sold its product to jobbers and retailers located in New England, New York, New Jersey, Pennsylvania, and States in the Middle West, under its own trade name and the special trade names of "Siesta," "Regina," "Dr. Cooper," and "Dr. Jarvis Cushion Sole Welt." Each trade name represented a type of shoe.
The partnership and the petitioner spent "quite a substantial amount" for advertising in trade papers and for calendars which they distributed to the trade. The sums so expended were charged to expense.
The petitioner was organized in 1906 to take over the business of the partnership. It issued $85,000 par value of its capital stock to Wise and Cooper in equal amounts for the partnership business, the par value of the stock so issued being in an amount equal to the appraised value of the partnership's tangible assets at the time of exchange. The appraisal did not include any amount of good will or other intangibles of the partnership. Additional stock of the par value of $10,000 was issued for cash to John G. McMurray, an experienced shoemaker, *2286 who became an employee of the petitioner at the time of its organization. Subsequently $5,000 par value of stock was issued to George H. Cooper, a then employee of petitioner, in exchange for his note to be paid out of future dividends. None of the stock was issued specifically for any good will or other intangibles the partnership may have had at the time its business was taken over by the petitioner.
A short time after 1906 the petitioner purchased a factory adjoining its plant at a cost of $8,000. Several years later it constructed two additions to the factory purchased at a cost of from $8,000 to $9,000, and thereafter it purchased two adjoining unimproved lots for $5,000. The cost of the factory, additions thereto, and vacant lots, was charged to expense. None of it has ever been capitalized on petitioner's books.
*1003 The gross sales of the petitioner from 1907 to 1925, inclusive, were:
| Year | Gross sales |
| 1907 | $351,708 |
| 1908 | 323,684 |
| 1909 | 410,415 |
| 1910 | 404,990 |
| 1911 | 415,195 |
| 1912 | 504,693 |
| 1913 | 550,494 |
| 1914 | $447,366 |
| 1915 | 397,680 |
| 1916 | 592,493 |
| 1917 | 726,853 |
| 1918 | 934,785 |
| 1919 | 1,170,559 |
| 1920 | 1,749,238 |
| 1921 | $1,141,603 |
| 1922 | 810,821 |
| 1923 | 811,955 |
| 1924 | 581,225 |
| 1925 | 419,892 |
*2287 The petitioner's net income for the years 1912 to 1920, inclusive, and for the years 1917 to 1920, inclusive, as computed by the Bureau of Internal Revenue, was as follows:
| Year | Net income | Adjusted net income |
| 1912 | $34,321 | |
| 1913 | 43,053 | |
| 1914 | 34,658 | |
| 1915 | 18,417 | |
| 1916 | 46,711 | |
| 1917 | 73,793 | $79,620.57 |
| 1918 | 90,990 | 95,179.36 |
| 1919 | 176,724 | 178,669.43 |
| 1920 | 300,955 | 310,199.79 |
The return filed by the petitioner for the taxable year shows invested capital of $440,934.05.
The books of account of the partnership and of the petitioner for the years prior to 1912 are not in existence. In 1912 the petitioner opened a new set of double entry books.
In 1926 the petitioner discontinued business and thereafter liquidated its affairs. The minutes of the petitioner show that on March 23, 1926, its president and treasurer were authorized to lease its plant to the Wise & Cooper Shoe Co. They also show that on December 22, 1927, authority was granted to sell petitioner's plant and fixtures to the same concern for $25,000.
In determining the deficiency in dispute the respondent denied petitioner's application to have its profits tax computed under the provisions*2288 of section 328 of the Revenue Acts of 1918.
OPINION.
ARUNDELL: The petitioner is claiming the benefits of section 328 of the Revenue Act of 1918 on the ground that the established facts are within the provisions of subdivisions (a), (c), and (d) of section 327 of the Act.
It is contended that sums expended before 1906 by the partnership in advertising, and thereafter by the petitioner for buildings, land, and advertising, were charged to expense instead of being capitalized, and since the records reflecting the expenditures are not available, invested capital can not be determined.
*1004 Proof was made that between the time of its incorporation and the taxable period, petitioner expended an aggregate of not to exceed $22,000 for the acquisition of a factory, additions thereto, and adjoining vacant lots, all of which was charged to expense and has never been capitalized. These are clearly capital items, but as we are not aware of the amount of invested capital computed by the respondent or the items he included and excluded, save for his exclusion of any amount for good will, we do not know as a fact whether these costs have or have not been taken into consideration*2289 in computing invested capital. Some of the items are exhaustible assets, yet we have not been informed as to their life and therefore do not know whether any of such assets had any value in the taxable period for invested capital purposes. As we said in :
The special relief given by sections 327 and 328 of the Act was not intended for those taxpayers whose invested capital is small in amount merely because they have not taken the trouble to establish the larger amount to which they are really entitled.
As to the remaining contention under subdivision (a), all we know is that "quite a substantial amount" of money was expended by the partnership and the petitioner for advertising. No attempt was made to show what proportion of the whole amount spent was expended to create future sales. It may be that some part of the unknown sum expended did result in establishing petitioner's produce in the minds of the public and thus create a capital asset, but it is also apparent that a portion was used to bring about current sales. Without more facts than those before us we can not say that any part of the amount spent should be*2290 capitalized, and, therefore, be considered in computing invested capital.
In our opinion the petitioner has failed to show that its invested capital can not be determined.
The evidence here is that upon the organization of the petitioner in 1906 it received in exchange for $85,000 par value of its stock, the partnership business of Wise & Cooper, the appraised value of whose tangible assets at the time of exchange was $85,000. No evidence was offered as to the value of the partnership's good will or other intangible assets, but we are called upon to find a valuable good will on the scant evidence that "quite a substantial amount" was expended for advertising and the salesmen were instructed to talk up the name of Wise & Cooper. The value of the tangibles taken over by petitioner is known. Before subdivision (c) of section 327 may be availed of there must be at least some showing that intangibles of a substantial value were taken over by petitioner. The evidence does not convince us that such is the case.
*1005 Neither do we find any evidence in the record to justify the allowance of special assessment because of the existence of abnormalities affecting the petitioner's*2291 capital or income in the taxable year. Petitioner's income apparently comes solely from an increase in the volume of its sales. Nor do we find an abnormality in petitioner's capital. Proof of the fact that about $22,000 expended for capital assets was charged to expense instead of being capitalized tends to establish petitioner's correct invested capital rather than to prove the existence of an abnormality affecting capital or income, and, as we have already pointed out, we do not know as a fact whether or not this amount was included by the respondent in his determination of petitioner's invested capital. It may well be that some part of the amount petitioner spent for advertising resulted in the creation of a good will asset. But there is nothing before us from which to conclude that any good will so established was such as to bring about an abnormal condition. . So far as the record discloses, such good will as may have been created did not amount to more than that which would naturally result from consistent advertising by an ordinary well managed concern.
*2292 The case of , so much relied on by petitioner, is not controlling. That case, like all so-called special assessment cases, stands on its own peculiar facts. There the evidence was clearer and more compelling. The value of the good will in the Woodbury case was established by competent evidence, considerable sums of borrowed money were used in the business, and various factors appeared which all taken together induced the conclusion.
Decision will be entered for the respondent.