*3729 INVESTED CAPITAL. - In January, 1920, Leo Pockwitz transferred to the petitioner corporation all the assets of his individual insurance brokerage business and received therefor practically all of petitioner's capital stock. In 1920, Pockwitz sold aportion of his stock to two of his employees but retained more than 50 per cent thereof during 1920 and 1921. Held, petitioner's invested capital must be computed subject to the limitations of section 331 of the Revenue Acts of 1918 and 1921.
*787 This appeal has been taken from respondent's determination of deficiencies in the amounts of $566.46 for 1920 and $1,194 for 1921, in petitioner's income and profits taxes.
Petitioner alleges that respondent erred in refusing to include in its invested capital for both years the value of intangibles paid in for capital stock.
FINDINGS OF FACT.
Petitioner is a California corporation with its principal office at San Francisco, and, since January 1, 1920, has been engaged in a general insurance brokerage business.
In 1895, Leo Pockwitz engaged in a general*3730 insurance brokerage business as an individual, and from 1905 to 1919, inclusive, he operated and the trade name of Leo Pockwitz Co. Pockwitz established a valuable good will and for several years prior to 1920 his yearly business was in excess of $100,000. Pockwitz maintained a large number of live and active insurance accounts which gave rise to a large number of renewals. Such renewals are a valuable asset in the insurance business.
In 1912, Leo Pockwitz organized the petitioner corporation at which time five shares of stock were issued, but the corporation remained inactive, engaged in no business enterprise and at some date subsequent to 1912 its charter was suspended for failure to pay its franchise taxes. In the latter part of 1919, the corporation's back taxes were paid to the State of California and petitioner was restored to an active status.
On January 1, 1920, Leo Pockwitz transferred to petitioner his entire individual insurance brokerage business, consisting of book accounts, all live and active insurance accounts since 1895, together with the name, good will, renewals, office furniture, an automobile and any and all other assets of the business. In consideration*3731 therefor he received the remainder of the capital stock of eptitioner, comprising 745 shares of a par value of $100 per share.
The amount of business done in 1919 by Pockwitz was in excess of $100,000, with an average profit of about 20 per cent. The live policies transferred to petitioner in 1920, running for periods of one to three or five years, numbered in excess of 24,000 and afforded petitioner that many renewal opportunities.
In 1920, William Kahn purchased from Leo Pockwitz 115 shares of the capital stock of petitioner and he paid Pockwitz $11,500 cash therefor. Kahn had been associated with Pockwitz since 1907 as bookkeeper and cashier. In the same year Nathan Hewson purchased from Pockwitz 150 shares of the capital stock of petitioner, *788 and paid $15,000 cash therefor. Hewson had been associated with Pockwitz since 1915.
During the years 1920 and 1921, Pockwitz owned more than 50 per cent of petitioner's outstanding capital stock.
In auditing petitioner's returns, respondent excluded from invested capital for the years 1920 and 1921 an amount claimed by petitioner to represent intangibles paid in for capital stock.
OPINION.
TRUSSELL: Leo Pockwitz, *3732 who owned all the assets of the insurance business transferred to petitioner in January, 1920, was also the owner of more than 50 per cent of petitioner's outstanding capital stock during the years 1920 and 1921. Accordingly, the computation of petitioner's invested capital for those years is controlled by the provisions of section 331 of the Revenue Acts of 1918 and 1921, as follows:
In the case of the reorganization, consolidation, or change of ownership of a trade or business, or change of ownership of property, after March 3, 1917, if an interest or control in such trade or business or property of 50 per centum or more remains in the same persons, or any of them, then no asset transferred or received from the previous owner shall, for the purpose of determining invested capital, be allowed a greater value than would have been allowed under this title in computing the invested capital of such previous owner if such asset had not been so transferred or received: Provided, That if such previous owner was not a corporation, then the value of any asset so transferred or received shall be taken at its cost of acquisition (at the date when acquired by such previous owner) with*3733 proper allowance for depreciation, impairment, betterment or development, but no addition to the original cost shall be made for any charge or expenditure deducted as expense or otherwise on or after March 1, 1913, in computing the net income of such previous owner for purposes of taxation.
In this proceeding petitioner has adhered to attempting to prove the actual value of certain intangibles at the time they were paid in for its capital stock, but, under the provisions of the above quoted section, it is clear that such value is entirely immaterial for the purpose of computing petitioner's invested capital for the years in question. The only amount which may be properly included in petitioner's invested capital is the cost to Leo Pockwitz in acquiring the assets transferred to petitioner. The record is silent as to that fact, and we are unable to afford this petitioner any relief. The ex parte affidavit attached to the petition and setting forth an alleged cost to Pockwitz in building up his insurance business is not evidence of the facts contained therein and we may not give such affidavit any consideration in reaching our decision in this proceeding.
Judgment will*3734 be entered for the respondent.