*2628 Respondent's action in not allowing any value for good will sustained in the absence of proof of any value for good will acquired.
*215 The respondent has determined a deficiency of $37,060.99 in income and excess-profits taxes for the fiscal year ended July 31, 1919, about one-half of which is in controversy. The issue is whether there should be included in invested capital an amount for good will paid in for stock.
FINDINGS OF FACT.
The Pioneer Pole & Shaft Co., predecessor of the petitioner, hereinafter referred to as the corporation, was organized under the laws of New Jersey in 1902 with an authorized capital stock of $3,000,000, divided into 15,000 shares of common stock and 15,000 shares of 7 per cent cumulative preferred stock, each of the par value of $100, for the purpose of acquiring certain property of the following 14 companies, then actively engaged in the manufacture and sale of vehicle poles, shafts and kindred products:
Anderson Pole & Shaft Co., Anderson, Ind.
Buckeye Manufacturing Co., Anderson, Ind.
Bradley Manufacturing*2629 Co., Ashtabula, Ohio.
Canton Pole & Shaft Co., Canton, Ohio.
Kile & Ford Co., Akron, Ohio.
Memphis Bending Co., Memphis, Tenn.
Sidney Pole & Shaft Co., Sidney, Ohio.
Sidney Pole & Shaft Co., St. Louis, Mo.
J. H. Smith Co., Muncie, Ind.Snyder & Son Co., Piqua, Ohio.
roy Bending Co., Troy, Ohio.
Troy Carriage Pole Co., Troy, Ohio.
Warner Pole & Top Co., Cincinnati, Ohio.
Wellington Bending Co., Wellington, Ohio.
*216 On January 7, 1903, a committee, appointed by the organizers of the corporation to make an appraisal of the properties to be acquired, submitted the following report to the directors of the corporation:
Your Committee, appointed to investigate the properties mentioned and described in the offer of Frank M. Atterholt, submit the following report:
Your Committee have talked personally with the majority of the present owners of the properties proposed to be transferred to this Company, and have obtained the opinion of men familiar with said properties, and after considering the estimate put upon the various properties, not only by the owners of said properties, but owners of properties of similar nature; and after having made*2630 careful inquiry into the title of said properties, and as to the earning capacity of the same, are of the opinion that said properties are worth the sum of $2,883.450.00.
Therefore, recommend and advise that your Board accept the offer of Frank M. Atterholt. All of which is respectfully submitted.
(Signed) W. A. SNYDER,
F. E. D. KEPLINGER,HUGH FORD,
Committee.
On January.8, 1903, the corporation made the following entries in its journal to reflect the issuance of capital stock for property transferred to it by the 14 companies, F. M. Atterholt, referred to in the bookkeeping entries, being the chief promoter of the corporation:
| Plant Account | $ 2,883,450.00 | |
| F. M. Atterholt | $2,883,450.00 |
Including the entire business and good will, including real and personal property, machinery, fixtures, outstanding contracts, patents and trade marks, now owned or belonging to the following concerns, excepting only stock on hand, cash on hand, bills and accounts receivable and supplies.
| F. M. Atterholt | $ 2,883,450.00 | |
| Preferred Stock | $1,416,600.00 | |
| Common Stock | 1,466,850.00 |
The preferred stock was issued for plant assets and*2631 the common stock was issued for alleged good will of the 14 companies, computed on the basis of their average annual net earnings for the years 1901 and 1902, amounting to $316,582.49. In addition to the stock, the corporation issued an undisclosed amount of 6 per cent bonds for quick assets transferred to it by the 14 companies.
One of the objects sought to be accomplished by the organization of the corporation was to effect savings in connection with the purchase, distribution and use of wook and other material used by the various companies in the manufacture of their product. After the corporation was organized it operated the plants of the 14 companies as branches of its business, manufactured the same products the 14 companies had theretofore produced, and sold its goods to the former customers of its predecessors.
*217 The net earnings of Snyder & Sons Co. for each of the years 1901 and 1902 were from $30,000 to $40,000, and the average annual net earnings of the Buckeye Manufacturing Co. and J. H. Smith Co. for the same years were approximately $30,000 and $36,000, respectively. The accounting records kept by the predecessors of the corporation can not be located, *2632 some of them having been destroyed after 1902.
The corporation earned a profit every year prior to its dissolution. Its profits for the period from January 1, 1903, to July 31, 1903, were $77,609.78, and its profits for the years ended July 31 in 1906, 1907, and 1908 were $289,255.14, $302,778.12, and $247,289.61, respectively.
The petitioner was organized under the laws of Ohio on December 11, 1911, with a capitalization of $3,000,000, divided equally between common stock and 7 per cent cumulative preferred stock. After the organization of the petitioner the stockholders of the corporation transferred their stock to the petitioner in exchange for the latter's stock, share for share. Shortly thereafter the corporation was dissolved and the petitioner, is its sole stockholder, acquired all of its property. The petitioner in 1915 reduced the par value of its common stock from $100 to $25 per share. The petitioner earned a profit every year prior to the taxable year.
In determining petitioner's invested capital for the taxable year, respondent did not allow any amount for good will acquired for stock.
OPINION.
ARUNDELL: The petitioner claims that its invested capital*2633 should be increased in the amount of $366,712.50 for good will alleged to have been acquired for stock issued by its predecessor, the New Jersey corporation, in December, 1902, to the 14 companies referred to in our findings of fact.
Counsel for the petitioner frankly admits that while the only object sought to be accomplished by incorporating the petitioner under the laws of Ohio was to change its legal domicile, the effect of the change was to create a new entity, separate and distinct from the New Jersey corporation bearing the same name. We have heretofore held that when a corporation acquires property for stock, excluding the cases which call for an application of the provisions of section 331 of the Revenue Act of 1918, its invested capital is to be measured not by the actual cash value of property paid in to a predecessor corporation for stock, as the petitioner contends, but by the property paid in for stock of the taxpayer. ; ; *2634 , and . The change of ownership here occurred prior to the year 1917 *218 and section 331 of the Revenue Act of 1918 has no bearing upon the case.
Such evidence as the petitioner presented to prove a value for good will was offered in proof of good will acquired by its predecessor in 1902 in exchange for its stock. None was offered to show the value of the good will acquired by petitioner on the dissolution of its predecessor. There being no evidence before us from which to determine the value of good will acquired by the petitioner as of the date it took over the assets of the New Jersey corporation, we have no alternative but to affirm the respondent's action.
Judgment will be entered for the respondent.