*155 Decision will be entered for the respondent.
Relief under section 722 of the Internal Revenue Code of 1939 denied on failure of proof that petitioner's base period earnings were depressed by reason of drought in its trade area.
*549 This proceeding involves claims for excess profits tax relief under section 722 of the Internal Revenue Code of 1939. Petitioner seeks refunds of all of the excess profits tax paid for the calendar years 1940, 1941, and 1942 in the respective amounts of $ 701.79, $ 1,651.70, and $ 6,122.47.
FINDINGS OF FACT.
The facts are found substantially as set out in the report of the hearing commissioner.
1. The stipulated facts, which comprise the bulk of the evidence in this case, are incorporated*156 herein by this reference.
2. Petitioner was incorporated under the laws of the State of Minnesota, in 1907. Its office and principal place of business is located at St. Paul. Its returns for the taxable years involved, the calendar years 1940, 1941, and 1942, were filed with the collector of internal revenue for the district of Minnesota. Applications for excess profits tax relief under section 722 were timely filed by the petitioner for each of said years. The respondent disallowed the applications for relief.
*550 3. The petitioner is engaged in the photo-engraving business. A large portion of its business is done in St. Paul and Minneapolis, Minnesota. Its total trade area extends, generally, over the states of Minnesota, western Wisconsin, northern Iowa, North and South Dakota, and a portion of Montana.
4. Petitioner's principal customers are printers and advertisers. They include some of the large railroads, such as The Great Northern and Northern Pacific, and various types of publishers and jobbing firms doing business in its trade area.
5. The photo-engraving business does not require a large amount of capital. It is largely a service industry with labor the chief*157 cost. The equipment must be kept up to date and well cared for. Petitioner was handicapped during the base period years by lack of capital with which to acquire modern equipment.
6. In about 1926, petitioner began a program of expansion. During the course of the next several years, it moved into a new building in St. Paul, acquired several concerns engaging in similar or related businesses, and established several new photo-engraving plants, including one at Billings, Montana, and one at Fargo, North Dakota.
7. Most of the acquisitions made in the expansion program were paid for in petitioner's stock or promissory notes, or for a percentage of future profits or sales.
8. Petitioner encountered financial difficulties in meeting its obligations under the expansion program, and its credit became seriously impaired.
9. Petitioner's sales, gross profits, and net income or losses for the years 1922 to 1939, inclusive, were as follows:
| Net income | |||
| Year | Sales | Gross profit | (or losses) |
| 1922 | $ 186,545.84 | $ 85,189.76 | $ 1,611.24 |
| 1923 | 224,782.49 | 95,969.91 | 4,904.86 |
| 1924 | 240,538.55 | 100,877.99 | 12,002.91 |
| 1925 | 262,339.75 | 94,529.83 | 10,624.25 |
| 1926 | 274,086.61 | 128,095.62 | 13,415.23 |
| 1927 | 336,665.83 | 138,651.59 | 5,927.08 |
| 1928 | 368,350.81 | 152,067.76 | 12,657.47 |
| 1929 | 436,758.33 | 187,099.54 | 14,472.85 |
| 1930 | 458,262.69 | 193,626.43 | 15,642.14 |
| 1931 | 358,930.10 | 152,436.26 | (16,416.22) |
| 1932 | 253,397.05 | 99,297.02 | (14,112.92) |
| 1933 | 161,432.24 | 71,803.41 | (2,847.92) |
| 1934 | 199,233.37 | 79,807.01 | (6,293.89) |
| 1935 | 193,352.53 | 81,091.47 | (5,677.09) |
| 1936 | 212,332.32 | 86,703.26 | (1,674.67) |
| 1937 | 280,259.59 | 109,022.35 | 4,832.46 |
| 1938 | 235,797.12 | 89,075.42 | (1,824.92) |
| 1939 | 246,277.00 | 92,214.38 | 1,043.88 |
| Average: | |||
| 1922-1939 | $ 273,852.35 | $ 113,197.72 | $ 2,682.60 |
| 1936-1939 | 243,666.51 | 94,253.85 | 594.19 |
*158 10. Petitioner's total assets, notes payable, other liabilities, capital stock, and surplus or deficit at the close of the years 1925 to 1931, inclusive, were as follows: *551
| Cents omitted | ||||||
| Year | Preferred | Surplus | ||||
| Total | Notes | All other | and | (or | Total | |
| assets | payable | liabilities | common | deficit) | ||
| stock | ||||||
| 1925 | $ 91,520 | $ 8,000 | $ 6,982 | $ 62,400 | $ 14,138 | $ 91,520 |
| 1926 | 110,937 | 13,552 | 12,007 | 65,150 | 20,228 | 110,937 |
| 1927 | 118,090 | 24,503 | 13,252 | 65,150 | 15,185 | 118,090 |
| 1928 | 149,449 | 48,046 | 13,245 | 68,350 | 19,808 | 149,449 |
| 1929 | 222,675 | 61,936 | 13,967 | 135,775 | 10,997 | 222,675 |
| 1930 | 215,922 | 62,838 | 12,919 | 130,040 | 10,125 | 215,922 |
| 1931 | 186,536 | 58,592 | 16,501 | 123,755 | (12,312) | 186,536 |
11. The salaries of petitioner's two principal officers amounted to $ 10,800 in 1936; $ 15,600 in 1937; $ 10,500 in 1938; and $ 12,400 in 1939.
12. Petitioner paid a dividend to its shareholders of $ 916.57 in 1931.
13. Petitioner's excess profits net income, excess profits credits, based on invested capital, and excess profits tax liability, as determined by the Commissioner, for each of the years 1940, 1941, and 1942, were as follows: *159
| Excess profits | Excess profits | Excess profits | |
| Year | net income | credits | tax liability |
| 1940 | $ 10,649.45 | $ 2,842.30 | $ 701.79 |
| 1941 | 13,219.10 | 3,499.95 | 1,651.70 |
| 1942 | 15,641.83 | 3,839.09 | 6,122.47 |
14. During the base period years the rainfall in some sections of petitioner's trade area was below normal, with a resulting decrease in farm production and farm income. (The joint exhibits attached to the stipulated facts, which are incorporated herein by reference, contain various statistical data relating to the rainfall, crop production, etc., as follows:
(Exhibit 4-D. Income payments to individuals and cash receipts from farming in Minnesota, Montana, and the Dakotas for the years 1922-1939.
(Exhibits 5-E to 10-J. Corn, wheat, oats, rye, flax, and barley production in the same states for the same period.
(Exhibit 11-K. Rainfall in the same states during the same period.)
Petitioner has no direct business dealings with farmers, although some of its business is with farm publications and advertisers of farm products.
OPINION.
Petitioner bases its claims for relief under subsections (b) (2) and (5) of section 722 of the Internal Revenue Code of 1939. It has filed no*160 proposed findings of fact or brief as provided under Rule 48 of our Rules of Practice, and we are, therefore, uninformed as to the specific facts and points of law on which petitioner *552 relies. In his opening statement to the Court, petitioner's counsel stated that during the base period years, 1936-1939, petitioner's business was depressed by reason of drought conditions existing in its trade area and, further, that its base period earning capacity was limited by a lack of capital.
Facts relating to the drought question, such as statistics on rainfall, crop production, farm income, etc., in petitioner's trade area, have been stipulated. We may assume that the facts of record show that a serious drought prevailed over much of the midwestern states, including some or all of petitioner's trade area, during the base period which seriously affected farm income and income payments to individuals in that area. We may assume, further, as this Court has previously determined, that these drought conditions may afford grounds for excess profits tax relief under section 722. See S. N. Wolbach Sons, Inc., 22 T.C. 152">22 T. C. 152. However, the taxpayer has the burden*161 of showing how and to what extent its base period earnings were depressed by the drought and of establishing a reasonable basis for reconstructing base period earnings, with proper adjustments for the drought factor. See Sartor Jewelry Co., 22 T.C. 773">22 T. C. 773.
Petitioner has failed to meet its burden of proof. There is nothing in the evidence to show how its business was affected by the drought or to what extent, if any, it was dependent upon farm income. According to petitioner's profit and loss statements, its operating losses began in 1931 and were several times larger in that year and in 1932 (approximately $ 16,000 for 1931 and $ 14,100 for 1932) than in the 2 base period loss years. There was net income of approximately $ 4,800 in 1937 and $ 1,000 in 1939.
There is evidence that petitioner was handicapped by lack of operating capital in the base period years, but, again, we cannot find to what extent this actually diminished earnings. Petitioner has advanced no theory as to which of the provisions of section 722 might afford relief because of inadequate working capital.
On the record before us, the respondent's disallowance of excess profits tax*162 relief under section 722 must be sustained.
Reviewed by the Special Division.
Decision will be entered for the respondent.