*2222 The omission from invested capital of a bank of a leasehold interest, the value of which has not been proven, the existence of depositors' accounts the ratio of which to capital and surplus is higher than the average ratio of other banks, and the omission from invested capital of any amount as value of accounts acquired from a predecessor, held not to constitute an abnormal condition of capital or income under section 327(d), Revenue Act of 1918.
*870 The first issue in this proceeding was disposed of under Rule 62 in , in conjunction with Docket No. 29615, which has been completely decided thereby. The present issue is confined to Docket No. 12313, and is whether for 1918, 1919, and 1920 petitioner comes within section 327(d) to entitle it to the special assessment provided by section 328.
FINDINGS OF FACT.
Petitioner is a corporation existing under the laws of the State of New York, with principal place of business at 527 Fifth Avenue, New York City, *2223 and is engaged in the banking business. It was organized March 20, 1911, as a national bank, taking over the assets and liabilities of the Night and Day National Bank, a state bank. Among the assets acquired from the predecessor bank was a lease on its place of business, the basement and first floor of an eleven story limestone building at 527 Fifth Avenue, New York. The lease ran, with renewals, from 1906 to 1953, at an annual rent of $25,000 for the first year, $30,000 for the second, and $40,000 from May, 1908, to May, 1932; thereafter, if renewed, the annual rent was to be fixed at not less than $50,000. This lease was never entered on the corporate books as an asset. It was surrendered in 1927, when the Harriman Realty Co. purchased the premises.
*871 The report of the Comptroller of the Currency, page 597, showed the petitioner's capital, as of August 31, 1918, to be $1,000,000, surplus and undivided profits $1,041,783, demand deposits $21,072,510, and time deposits $703,038. This page of the report contained information as to forty-two banks, of which the total capital was $125,350,000, total surplus and undivided profits $270,883,131, total demand deposits $1,810,036,997, *2224 and total time deposits $96,415,293.
The report of the Comptroller of the Currency, pages 609 and 611, showed petitioner's capital, as of September 12, 1919, to be $1,000,000, surplus and undivided profits $1,268,824, demand deposits $26,857,566, and time deposits $540,156. These pages of the report contained information as to one hundred eighteen banks, of which the total capital was $142,780,000, total surplus and undivided profits $280,674,068, total demand deposits $2,138,643,007, and total time deposits $183,983,205.
The report of the Comptroller of the Currency, page 621, showed petitioner's capital, as of September 8, 1920, to be $1,000,000, surplus and undivided profits $1,767,421, demand deposits $23,914,993, and time deposits $678,832. This page of the report contained information as to fifty-two banks, of which the total capital was $231,000,000, total surplus and undivided profits $305,465,341, total demand deposits $1,936,101,536, and total time deposits $169,355,701.
Petitioner's stock on various dates was quoted as follows:
| Bid | Asked | |
| March 20, 1911 | 265 | |
| March 1, 1913 | 290 | 350 |
| December 31, 1917 | 240 | 250 |
| December 31, 1918 | 250 | |
| December 31, 1919 | 380 | 400 |
*2225 The estimated book value of a share was:
| March 20, 1911 | $210 |
| March 1, 1913 | 240 |
| December 31, 1917 | 178 |
| December 31, 1918 | 197 |
| December 31, 1919 | 261 |
At the time of its dissolution in 1911, the Night and Day Bank and 3,852 accounts; at the end of 1911 petitioner had 4,214, and at the end of 1912, 4,455. For securing new accounts petitioner established a New Account Bureau, which was shown by the books to have spent between March 20 and December 31, 1911, $5,869.71. During the same period $6,287.22 was shown by the books to have been spent in advertising, and $865.11 to solicitors. For the calendar year 1912 the books show expenditures by the New Account Bureau, for advertising *872 and for solicitors, of the sum of $37,078.84, $12,439.89, and $1,306.62, respectively.
OPINION.
STERNHAGEN: The petitioner seeks, by its petition, to bring itself within section 327(d), Revenue Act of 1918. In our opinion, however, the evidence fails to establish any such abnormal condition of capital or income as the statute prescribes.
Three factors are relied upon. First, that the leasehold interest acquired by petitioner in 1911 was a valuable asset, the omission*2226 of which from invested capital is evidence of abnormality. But the evidence consists only of the opinions of two witnesses whose hypotheses were so inadequate as to leave their valuation utterly unconvincing. But even assuming that the value were satisfactorily established, it would not demonstrate the necessary applicability of section 327, but perhaps only that invested capital under section 326 may have been inadequately computed. Second, that the ratio of deposits to capital and surplus was higher than the average ratio of certain other banks. We see no reason to suppose that Congress intended to treat such average as a standard of normality, even if it were to be confined to banks of approximately the same reported capital and surplus. With differences in degree, every bank uses depositors' accounts in its business. Under no circumstances is it conceivable that they should be treated as invested capital; being rather an indication of successful current banking. Leaving aside the weakness of purely mathematical computations with no evidence of the deeper substance, we think such a computation, even if more elaborate, is not sufficient evidence of such an abnormality as is*2227 contemplated by the statute. Third, that the acquisition of $3,852 accounts from the predecessor without any asset value on account thereof being included in invested capital brings it within section 327. The proof of asset value is again unsatisfactory. It is predicated upon a statistical average of the subsequent cost of a new account department, without showing that such average cost should reasonably be applied to the accounts of its predecessor, or that if so, such cost is equivalent to value when so acquired. Had actual value of such acquired accounts been shown, it would serve rather to affect invested capital under section 326 than to prove an abnormal condition.
Judgment will be entered under Rule 50.