*3675 Respondent's exclusion of notes from invested capital approved because of failure to prove bona fides of payment or value of notes.
*998 This is a proceeding for the redetermination of a deficiency in income and profits tax for the year 1920, in the sum of $837.14, resulting from the exclusion of $20,601.09 from invested capital of the petitioner for that year.
FINDINGS OF FACT.
On May 14, 1920, the petitioner, a Tennessee corporation which had an authorized capital stock of $50,000 par, of which $12,500 had been issued and paid, increased its stock to $100,000 and paid a stock dividend of $55,000. The remainder, amounting to $32,500 par, was subscribed for by the petitioner's stockholders in proportion to their then holdings, each stockholder giving a note, noninterest bearing until maturity a year from May 14, 1920, for the full par value of the stock as follows:
| W. P. McBroom | $23,140 |
| F. L. Underwood | 6,500 |
| Fred Schiedegger | 1,300 |
| W. S. Milne | 1,300 |
| A. Hall Johnston | 260 |
When the notes matured nothing was paid but similar*3676 notes were substituted. Nothing was paid on any of the notes until 1923. Since that time all the notes have been paid with the exception of a small balance due on one note.
The stock of Fred Schiedegger was sold to W. O. Whitaker in 1921, and the Schiedegger note was replaced with one by Whitaker. All of the notes were held in the files of the petitioner and were never assigned, pledged as collateral, or otherwise negotiated.
*999 The petitioner included the sum of $32,500 in its invested capital from May 14, 1920, resulting in the inclusion of $20,601.09 for the year. The respondent eliminated that amount and the deficiency of $837.14 resulted.
OPINION.
SIEFKIN: In order to include notes given for stock in its invested capital it is necessary for the petitioner to show not only that they were bona fide paid in for stock or shares, but the value of such notes must also be proved. Section 326(a) of the Revenue Act of 1918 provides:
That as used in this title the term "invested capital" for any year means * * *:
(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares * * *
*3677 The petitioner neither alleged nor proved anything with respect to the bona fides of the transaction and we might hold against the petitioner upon that ground alone. See ; . The evidence introduced, however, to prove the value of the notes to be the same as their face value is unsatisfactory and unconvincing, and on that aspect of the case was also affirm the action of the respondent.
Judgment will be entered for the respondent.