*2923 Value of petitioner's physical assets determined for purposes of depreciation, and profit or loss on sale.
*106 In this proceeding petitioner seeks a redetermination of deficiencies in income and profits taxes in the amounts of $705.51 for the calendar year 1919, $705.15 for the calendar year 1920, and $627.73 for the calendar year 1921.
Petitioner alleges that respondent erred (1) in his determination of the March 1, 1913, value of depreciable property owned by it on that date; (2) in disallowing deductions for depreciation and obsolescence for each of the said years, and (3) in treating as taxable income the proceeds from the sale of petitioner's property during the said years.
FINDINGS OF FACT.
Petitioner was incorporated in 1910 under the laws of the State of Wisconsin, was dissolved in 1922, and the office of its former secretary is at 1302 Trust Company Building, Milwaukee. During the summer seasons of 1910 to 1921, inclusive, petitioner was engaged in the business of operating an amusement park known as*2924 Pabst Park in the City of Milwaukee. Petitioner owned all the structures, equipment, furniture, fixtures and machinery used in the business except a dance pavilion and two sheds. All of its structures, devices and equipment were portable and were at times moved about in the park. The land upon which the business was conducted was owned by the Pabst Brewing Co. of Milwaukee and leased to John W. Foster for a term of 10 years beginning January 1, 1910, "to be occupied for Public Amusement Park, Saloon and Restaurant and for no other purpose whatever."
The Park Improvement Co., a Wisconsin corporation, was petitioner's predecessor as the operator of the said amusement park. *107 From 1905 until its dissolution John W. Foster owned one-fourth of the stock of the Park Improvement Co., which became insolvent in 1909, at which time it was indebted to Foster in an amount of approximately $20,000. Foster brought suit and obtained a judgment, as a result of which the property of the Park Improvement Co. was offered for sale at public auction by the sheriff of Milwaukee County early in 1910. There were no bidders at that sale except Foster, who paid $2,200 for all the property*2925 of the said company, that being the amount necessary to pay the costs of the auction sale and the Park Improvement Co.'s debts other than its indebtedness to Foster. The property acquired by Foster included 12 or 15 amusement devices such as figure eights, chute the chutes, mystic rill, merry-go-round, laundry, bar and restaurant equipment to serve large crowds, stoves, dishes, glassware, tables, benches, pianos, cash registers, electric motors and pumps for operating the various devices, and doll and cane racks. The park was equipped to accommodate from 10,000 to 20,000 people. Immediately prior to the said sale, all of the buildings and equipment of the Park Improvement Co. were carried on its books at a total value of $22,004.16. The buildings constituted portable stands and wooden inclosures for some of the various devices.
Petitioner was incorporated in 1910 with an authorized capital stock of 40 shares of the par value of $100 each. Foster paid in the property which he acquired at the said sheriff's sale, for 22 shares, the good will of the lease for Pabst Park for 3 shares, and $1,500 cash for 15 shares. Thirty-eight shares were issued to Foster and 1 share was issued*2926 to each of two other persons as qualifying shares. The directors were J. W. Foster, a banker and director of petitioner's predecessor; F. W. Harland, manager of petitioner and its predecessor; and John E. Reilly, certified public accountant and bookkeeper for petitioner's predecessor. Upon petitioner's acquisition of the property paid in by Foster for 22 shares of stock, its board of directors by formal resolution adopted a value of $12,000 for that property, which value was set up on the opening statement of petitioner's books in 1910, the sum of $9,800 being carried to surplus account. In 1910 petitioner's property was insured against fire for $10,000, which amount represented 80 per cent of the value. Liability insurance was carried under a separate policy.
All profits earned by petitioner during the first season in 1910 were paid out as dividends and petitioner owned only such property as had been paid in for stock. In the spring of 1911 Foster turned back to petitioner 7 shares of stock, which it sold to 3 persons, 2 1/2 shares each, at $400 cash per share. That stock was sold to Harland, the manager of the park, and to Carl Blommer and Oscar Husting, manufacturers of*2927 ice cream and soft drinks, respectively. Blommer *108 and Husting were influential in German societies and associations and such affiliations were considered valuable to petitioner's business. Their products were sold at the amusement park, but not to the exclusion of other competitors in the ice cream and soft drink business; that is, they had no special concession. All three of said purchasers were thoroughly familiar with petitioner's assets and business affairs.
In the fall of the year 1911 petitioner expended $15,934.83 for additions to its equipment and in September, 1912, it expended $1,250 for additions, making a total cost of $17,184.83 for additions and betterments prior to March 1, 1913, on which date petitioner still owned the various devices and equipment acquired from Foster in 1910. Subsequent to March 1, 1913, and prior to December 31, 1918, petitioner expended $319.94 for additions to amusement devices and equipment.
From the time the property was acquired by it until subsequent to December 31, 1918, petitioner retained and used all of its devices and equipment except some motors sold in 1917 for $150. The property was kept in good repair and had*2928 an aggregate useful life of 12 years from 1910. Petitioner computed depreciation upon a straight-line basis at a rate of 8 1/3 per cent per annum from date of acquisition. The March 1, 1913, book value was $23,366.54, exclusive of the value of the good will of the lease. Foster was the lessee of Pabst Park and petitioner was his tenant at will.
In 1921 Pabst Park was sold by the Pabst Brewing Co. to the city for a public park and petitioner sold all of its property as follows:
| Date of sale | Property sold | Amount received |
| 1919 | Cash register | $ 50.00 |
| 1921 | Amusement devices and equipment | 2,133.70 |
| 1922 | Miscellaneous equipment | 337.50 |
All of petitioner's property was removed from the park as sold.
For the years 1919, 1920, and 1921, petitioner, on its returns, deducted depreciation at the rate of 8 1/3 per cent per annum.
The Commissioner computed depreciation upon the basis of the cost of the original assets at $2,200 in 1910 plus additions, determined that the property had been completely depreciated on December 31, 1918, disallowed any deduction for depreciation for the years 1919, 1920, and 1921, and included in income the proceeds from the sales*2929 made in each of those years.
The actual cash value of the physical assets acquired by petitioner in 1910 for 22 shares of its capital stock of the par value of $100 each, was $12,000 at the time paid in and the March 1, 1913, value of physical assets owned by petitioner on that date was $23,366.54. *109 Petitioner's physical assets were subject to depreciation at the rate of 8 1/3 per cent per annum.
OPINION.
TRUSSELL: From the record there appears to be no dispute as to the rate of 8 1/3 per cent depreciation used by petitioner. We are of the opinion that the Commissioner was in error in using as a basis for computing depreciation the original cost of $2,200 plus additions. The sheriff's sale of those assets to Foster for $2,200 in no wise determined their value, for it was a forced sale, Foster was the only bidder, and he bid only enough to cover claims against the property other than his own, which amounted to approximately $20,000. It might well be argued that the property in question cost Foster $22,200.
Immediately after petitioner acquired the property from Foster for 22 shares of stock, the board of directors determined that the value thereof was $12,000, *2930 which was entered upon the books in 1910 prior to the advent of Federal income tax. All three of those directors were thoroughly familiar with the property, its cost, the care it had received and its useful life, and they exercised their sound business judgment in arriving at a value of $12,000 in 1910. In view of all the facts and circumstances of record we have found as a fact that the actual cash value of the physical assets owned by petitioner in 1910 was $12,000. Petitioner's 40 shares of capital stock were issued, 15 shares for cash at par, 3 shares for a lease to the premises occupied, and 22 shares for physical assets having an actual cash value of $12,000 at the time paid in. At the time of incorporation, petitioner had a paid-in surplus in the amount of $9,800, representing the actual cash value of the property paid in, in excess of the par value of the stock issued therefor, and petitioner properly included that amount in its capital account as a paid-in surplus. See , and *2931 . The March 1, 1913, value of petitioner's physical assets was at least $23,366.54, the book value on that date computed on the basis of the cash value of $12,000 in 1910 when acquired, plus additions amounting to $17,184.83, depreciated at the rate of 8 1/3 per cent per annum.
Upon all the facts of record, respondent's determination that petitioner's physical assets had been completely depreciated on December 31, 1918, is reversed and we are of the opinion that petitioner is entitled to deductions for depreciation in each of the years 1919, 1920, and 1921, computed upon the straight-line method at the rate of 8 1/3 per cent per annum, upon the basis of the value of the physical assets when acquired in 1910, namely, $12,000, plus capital *110 additions acquired in 1911 at a cost of $15,934.83, and those acquired in 1912 at a cost of $1,250. Capital additions acquired subsequent to 1913 amounted to $319.94.
Judgment will be entered pursuant to Rule 50.