*3647 1. The petitioner contends that the respondent erred in excluding from invested capital of the partnership for 1917 the cost of inactive timber lands in the amount of $224,430.04, and proved that $150,000 of the alleged $224,430.04 represented an account receivable which the respondent had erroneously excluded but failed to prove that the balance of $74,430.04 representing inactive timber lands had in fact been excluded from invested capital. Held, that the account receivable in the amount of $150,000 should be restored to the partnership's invested capital for 1917.
2. Invested capital of a partnership for 1917 may not be reduced in determining the extent to which partnership distributions are paid from current earnings of a year, by a "tentative tax" theoretically set aside out of such earnings.
3. Commissioner's determination of the value of timber lands at March 1, 1913, as a basis for depletion approved.
4. Value of cut over lands at March 1, 1913, determined as a basis for profit or loss on subsequent sale.
5. Reduction of partnership income for 1918, by an alleged amount of $1,000 due to fire loss, denied for lack of evidence.
6. Cost of land and timber*3648 acquired upon liquidation of a corporation determined as a basis for depletion and profit or loss on subsequent sale.
7. Duplication of profit on sales of land by the partnership in 1919 corrected.
*1257 In this proceeding the petitioners seek a redetermination of the income and profits taxes for the years 1917, 1918 and 1919, for which the Commissioner has determined deficiencies as follows:
| Petitioner | Docket No. | Year | Deficiency |
| Jackson & Tindle, a partnership | 9000 | 1917 | $2,225.98 |
| Frank T. Tindle, individual | 8999 | 1918 | 15,430.94 |
| George A. Jackson, individual | 9002 | 1918 | 7,342.25 |
| Willis K. Jackson, individual | 9003 | 1918 | 41,396.35 |
| Annette T. Jackson, individual | 9001 | 1918 | 4,207.33 |
| Annette T. Jackson, individual | 9001 | 1919 | 1,560.24 |
*1258 The petitioners allege error on the part of the Commissioner, (1) in the allocation of the partnership income in 1917, to the various partners; (2) in failing to include in invested capital for 1917, the sum of $224,430.04 representing an alleged cost of inactive*3649 timber lands; (3) in reducing invested capital for 1917, due to the use of a tentative tax in computing earnings available for withdrawals made during the year; (4) in allowing inadequate amounts to the partnership in 1917, 1918 and 1919, for depletion of standing timber on the ground that the partnership's timber on March 1, 1913, was worth $10.77 per thousand feet instead of $8 per thousand as determined by the Commissioner; (5) in his determination of the profit on the sale of cut over lands by the partnership in 1917 and 1919, on the ground that such lands on March 1, 1913, were worth $7.50 per acre instead of $5 as determined by the Commissioner; (6) in including in the partnership income for 1918 a sum of $1,000; (7) in valuing the Munising Timber lands acquired by the partnership in 1919 on the basis of $4 per foot for timber instead of $6, and $2 per acre for land instead of $3 and ; (8) in twice including the amount of $5,232.25 as profit to the partnership in 1919 from the sale of cut over lands.
The pleadings were amended to include the seventh allegation which, together with the last allegation, applies only to Docket No. 9001, as Annette T. Jackson is the only petitioner*3650 against whom the Commissioner has determined a deficiency for 1919. Although each of the petitioners allege error on the part of the Commissioner in the allocation of partnership income for 1917 to the various partners, this issue is not before us for the reason that we do not have jurisdiction over any of the partners for 1917, since the Commissioner has not determined a deficiency against any of the partners for that year and the allocation is not material to the correct redetermination of the partnership's deficiency for 1917. The cases were consolidated for trial.
FINDINGS OF FACT.
The petitioner, Jackson & Tindle, was during 1917, 1918, and 1919, a partnership of which each of the other petitioners were partners. The residences of the partners are in Buffalo, N.Y., as is the principal office of the partnership.
The partnership of Jackson & Tindle was formed on April 5, 1910, as an outgrowth of a predecessor partnership known as Tindle & Jackson, and was engaged in cutting timber and manufacturing lumber. A large proportion of the product was hardwood.
In determining the partnership's invested capital for 1917, the respondent reduced the invested capital as reported*3651 by the partnership *1259 in the amount of $166,870.51, and in his deficiency letter directed to the partnership made the following explanation therefor:
Explanation of Items Changed.
(A) Overvaluation of land, timber and physical property.
The invested capital as at the beginning of the taxable year has been reduced on account of the overstated values of the depreciable and depletable assets as at that date, due to failure to make proper deduction for depreciation and depletion for prior years. Article 42, Regulations 41. Your statement shows the cost value of land and timber on hand March 1, 1913, as $305,235.33. On this basis the remaining value of these assets and your physical property as of January 1, 1917, is as follows:
| Timber | $171,814.00 | |
| Land | 41,437.00 | |
| Physical property | 123,629.00 | |
| Total value | $336,880.00 |
These assets are shown on balance sheet as follows:
| Mill property, railroad and equipment, store building, real estate, logging equipment, farms, etc. in Michigan | $157,019.76 | |
| Timber, lands, Michigan and Canada | 804,500.78 | |
| Office fixtures | 2,718.10 | |
| Total | 964,238.64 | |
| Less surplus from appreciation as shown on balance sheet | 460,488.15 | |
| Net value shown on balance sheet | 503,750.51 | |
| Overvaluation | 166,870.51 |
*3652 The above item of $804,500.78 appearing on the balance sheet as Michigan and Canada Land and Timber was made up as follows:
| Pellston land and timber | $119,582.61 |
| Tarentorus Township, Ontario | 2,524.11 |
| Peterboro, Ontario | 71,905.93 |
| Superior Lumber & Cedar Co | 150,000.00 |
| Entered as appreciation | 460,488.13 |
| Total | 804,500.78 |
The depleted cost determined by the Commissioner of timber, $171,814.00, and land, $41,437.00, was based on a depleted book cost at March 1, 1913, of $305,235.33 for land and timber.
The Tarentorus Township item of $2,524.11 represented a purchase of land and timber and consisted of $1,800 payment on purchase price in July, 1911, and $724.11 made up of various payments from August, 1911, to December, 1916, for taxes, interest and fees. The Peterboro item representing the investment in Canadian Timber Limits, consists of payments on purchase price of timber and fees connected with *1260 such purchases of about $43,260. The balance consisted of various salaries, taxes, interest, legal fees, expenses, rentals and other charges paid from September, 1911, to December 31, 1916.
The item of $150,000 designated Superior Lumber & Cedar*3653 Co. represented the balance of moneys advanced by the partnership for the purchase of timber lands by the Superior Lumber & Cedar Co. The timber lands were purchased by the Superior Lumber & Cedar Co. in its own name and for its own use and were included in the statement of its assets. The item of $150,000 was erroneously included in the timber land account by the partnership and was erroneously designated inactive timber lands. It was properly an account receivable and was recognized as such by the partnership when it was transferred to the open account with the Superior Lumber & Cedar Co. in 1917. This item was included in the $576,108.70 accounts and notes payable appearing among the liabilities of the Superior Lumber & Cedar Co. in its balance sheet for December 31, 1918.
The Commissioner made an adjustment of invested capital for the year 1917, for withdrawals in excess of earnings in the amount of $21,747.25. This adjustment was determined by the use of a tentative tax of $3,883.93, in the computation of current earnings available for distribution amounting to $87,313.85.
The business of Tindle & Jackson (a predecessor partnership) originated about 1891, when the first*3654 mill was started at Saginaw, Mich. At that time no timber holdings were acquired but the mill was supplied with logs which were purchased from others. Some were transported to the mill by rail, while others came by water. Later, mills were purchased and operated at St. Charles and Freeland, Mich. As the supply there became depleted the company moved its operations to the west and north to Bellaire, Mich., where some timber was purchased and a stave and hoop mill erected. While still operating at Bellaire, mills were erected at Thompsonville, Mich., at which is a junction of the West Michigan & Ann Arbor Railroad. Still later a saw mill was purchased at Nessen City, Mich. The three mills at Bellaire, Thompsonville, and Nessen were then in operation.
While the company was still operating at Bellaire, a mill was purchased at Alba, a point on the G.R. & I.R.R., and was operated until about 1904. About 1900, Jackson & Tindle, believing it advisable to acquire further timber, examined a considerable portion of the Ward lands. None of these lands were purchased, however, because they had found other timber lands situated in Emmet County held by Thomas Foreman & Co. which could*3655 be purchased more advantageously. Thomas Foreman & Co. ceased operating there about that time due to the destruction of their mill by fire. It was necessary for them to sell the timber land owing to the lack of funds for erection of new *1261 mill. Jackson & Tindle purchased the land and timber of Foreman & Co. and followed up that purchase by acquiring other land and timber in the vicinity belonging to the Borgardus Lumber Co. and others. Efforts were made to induce Jackson & Tindle to erect mills at Petoskey and Saginaw, but after a careful survey of the entire situation Jackson & Tindle erected their mills at Pellston in 1902. These mills were diversified in type and consisted principally of a double band saw mill, a cooperage plant for manufacturing staves, hoops and heading, a handle and dimension mill, and a shingle and pile mill, and the necessary dry kilns, sheds and warehouses. Because of the available methods of logging, the facilities for transporting and storing logs, and the diversified nature of the manufacturing equipment, the company was able to keep its plant in continuous operation.
Subsequently, further holdings were acquired in the vicinity until*3656 Jackson & Tindle had purchased practically all of the timber then for sale in the locality. Very little timber land was purchased after March 1, 1913, and the products and methods of operation were virtually the same throughout all years. The timber thus acquired was designated the Pellston Block.
The Pellston Block contained a high quality of timber and a large percentage of hardwoods. The actual measure log scale of timber on the property at March 1, 1913, as indicated by the cut from this block from 1913 to 1926, inclusive, was as follows:
| Species | Percentage | Feet |
| Elm | 5.8 | 6,626,186 |
| Basswood | 2.8 | 3,185,706 |
| Maple | 54.5 | 62,575,421 |
| Birch | 3.1 | 3,562,271 |
| Beech | 13.9 | 15,958,004 |
| Ash | .2 | 227,535 |
| Hemlock | 16.2 | 18,641,340 |
| Pine | 1.5 | 1,772,668 |
| Tamarack | 0.5 | 635,886 |
| Spruce | .9 | 1,041,187 |
| Miscellaneous | .6 | 690,693 |
| 114,916,897 | ||
| Sold | 1,436,000 | |
| 116,352,897 |
The elm was the gray elm and the trees were large, straight and sound, which assured width and quality in the lumber produced therefrom. The basswood was also of the highest quality. The maple was of very high quality and in 1913 was in large demand for the manufacture of bowling*3657 alleys, billiard cues, flooring, etc. The elm was largely used in the manufacture of refrigerators, the basswood for pianos, and the birch for cabinet work.
From the standpoint of accessibility, logging conditions and facilities, the Pellston Block ranked among the best. The mills were located at Pellston which was on the main line of the G.R. & I. Railroad. The timber lay to the west of Pellston and the haulage *1262 grades sloped toward the mill. Prior to 1913, about 30 miles of standard gauge logging roads had been built in the block and extended to its limits. Camps and other facilities had also been installed for the purpose of logging the hemlock which had been damaged by fire in 1908. The snow fall at Pellston was less than on the plateau around Alba and other points where hardwood forests grew and the partnership was enabled to log twelve months in the year without interruption. The mill also operated the year round as a result of having a "hot pond" for receiving the logs.
The partnership attached to its tax return for 1917 the following statement:
Net result of estimates of timber holdings in Emmet, Antrim, Wexford, Charlevoix and Sheboygan, in Michigan, *3658 made during the summer and fall of 1912, less amount cut between date of estimate and February 28, 1913.
| 80,407,500 feet standing timber at $8.00 per M | $643,260.00 |
| Cordwood, 115,446 cords at 10 cents per cord | 11,544.60 |
| Telegraph & telephone poles, 31,995 at 20 cents each | 6,399.00 |
| Fence Posts, 210,259 at 1/2 cent each | 1,051.30 |
| Railroad ties, 120,000 at 5 cents each | 6,000.00 |
| Shingle cuts, 29,184 at 2 cents each | 583.68 |
| Spruce Pulpwood, 2,815 cords at 50 cents per cord | 1,407.50 |
| Tamarack Spiles, 1,600 at 20 cents each | 320.00 |
* * *
| 24,650 acres of land located in Emmet, Antrim, Wexford, Charlevoix and Sheboygan, in Michigan, at $4.00 per acre | $98,600.00 |
The partnership submitted a Form T, General Forest Industries Questionnaire, for years prior to 1919, in which it made the following statement:
In 1912 and 1913, the Ward lands in Antrim County and that vicinity were being sold on private sale and at auction. We endeavored to secure certain tracts of these lands but were unable to. As these sales covered large quantities of timber and extensive areas, prices the land brought should establish values as of 1913. As we operated prior*3659 to 1913 in Antrim County and know the quality and class of timber on the Ward lands, we have no hesitancy in stating that our Emmet County lands which we have set up as of 1913, were full up in value with the best of the Ward lands.
The Ward timber lands were among the very best hardwood lands in Michigan. Large tracts of these lands were sold from 1910 to 1914. These sales were made under conditions where the fair market values of the lands were realized.
Parcel O of the Ward lands was sold by its purchaser to the Antrim Iron Co. of 1912 for $138,000. This tract was conservatively estimated by the purchaser to contain 14,000,000 feet of timber which would result in a price of $9.85 per thousand feet. It had an exceptionally fine stand of timber containing 95 per cent hardwoods and a negligible amount of hemlock. This tract was estimated by *1263 a valuation engineer, a witness for the respondent, to have contained 23,000,000 feet of timber based on a 100 per cent estimate which results in a unit rate of $6 per thousand feet. The same witness estimated the timber on the other Ward tracts.
Sales of other Ward tracts in 1914, and the prices per thousand, based on*3660 the estimate of the valuation engineer, were as follows:
| Tract | Acres | Log scale - board feet | Consideration | Rate - M feet |
| A | 320 | 5,200,000 | $39,000.00 | $7.50 |
| B | 1,477 | 20,000,000 | 100,000.00 | 5.00 |
| C | 480 | 6,000,000 | 36,000.00 | 6.00 |
| D | 1,000 | 14,500,000 | 95,000.00 | 6.55 |
| E | 1,080 | 15,500,000 | 104,000.00 | 6.71 |
| F | 1,060 | 16,000,000 | 95,000.00 | 5.93 |
| G | 962 | 13,400,000 | 95,000.00 | 7.09 |
| J | 5,320 | 37,650,000 | 86,500.00 | 2.29 |
| K | 3,430 | 12,765,000 | 43,000.00 | 3.58 |
Purchases were made as additions to the Pellston Block by the partnership about March 1, 1913, as follows:
| Year | Original estimate - board feet | Acres | Consideration | Price - M feet |
| 1912 | 1,675,000 | 1,200 | $9,000.00 | $5.37 |
| 1913 | 770,000 | 5,000.00 | 6.49 | |
| 1914 | 1,044,000 | 80 | 7,225.00 | 6.92 |
No deduction was made for land value in computing the price per thousand feet of timber in the three purchases shown above.
In addition to cutting its own timber the partnership at times purchased logs cut from other properties. During the years 1912 to 1914, inclusive, it made purchases as follows:
| Year | Quantity purchased log scale - M feet | Purchase price | Cost - M feet |
| 1912 | 2,896 | $35,034.77 | $12.10 |
| 1913 | 1,599 | 7,809.01 | 4.88 |
| 1914 | 1,798 | 16,866.12 | 9.38 |
| Total | 6,293 | 59,709.90 | |
| Average | 9.49 |
*3661 In the fall of 1912, C. Louis Hinkley and F. Hinkley Moore purchased 300,000 feet of standing timber about four miles from Pellston at the rate of $10 per thousand feet, being all of the hardwood on a certain tract measuring 18 inches and over at the stump. During the winter of 1912-1913, McManus purchased timber estimated at *1264 250,000 feet, all hardwood, for $10 per thousand feet. About the same time McManus purchased 300,000 feet in the same locality for $3,000. This purchase covered merchantable saw timber 12 inches at the stump. In 1912, McManus sold 160 acres of land containing 800,000 feet of timber for $12,000.
The following schedule shows the net operating profit on the Pellston Block after eliminating items of interest, losses, capital gains and losses, extraneous income and expense:
| Year | Net income, corrected books | Depletion deducted | Depreciation deducted | Total | Lumber sales - M feet | Income - M feet |
| 1907 | $122,174.93 | $77,097.51 | $22,830.08 | $222,102.52 | 14,382 | $15.44 |
| 1908 | 67,589.92 | 63,427.63 | 26,350.00 | 157,367.55 | 10,444 | 15.07 |
| 1909 | 91,977.10 | 118,271.14 | 23,932.51 | 234,180.75 | 19,758 | 11.85 |
| 1910 | 20,981.80 | 43,947.99 | 13,778.34 | 78,708.13 | 14,363 | 5.48 |
| 1911 | 94,569.44 | 85,761.76 | 23,853.91 | 204,185.11 | 17,076 | 11.96 |
| 1912 | 128,436.93 | 91,754.71 | 28,778.55 | 248,970.19 | 20,745 | 12.00 |
| 1913 | 144,373.65 | 100,831.69 | 14,901.78 | 260,107.12 | 24,292 | 10.71 |
| 1914 | 13,712.71 | 39,329.34 | 18,725.14 | 71,767.19 | 12,625 | 5.68 |
*3662 The plant and equipment at March 1, 1913, was valued at approximately $300,000 and the inventories and working capital employed in the business in excess of $200,000.
The fair market value of the Pellston Block of timber at March 1, 1913, was $930,823.18. This value divided by 116,352,897 feet gives a unit rate of depletion on the March 1, 1913, value of the Pellston Block of $8 per thousand feet.
On March 1, 1913, the partnership owned 26,220 acres of land of which 9,240 acres were cut-over lands, and the balance timbered or partially timbered.
From 1908 to 1913, inclusive, the partnerships had sold 1,700 acres at an average price of $10.42 an acre. The prices received in 1908 varied from $6.25 an acre to $15.63 an acre; in 1909, $7.37 an acre; in 1910, from $8 to $12.50 an acre; in 1911, from $8 to $18 an acre; in 1912, from $8 to $9 an acre; in 1913, from $8 to $15 an acre.
The value of the 9,240 acres of cut-over lands at March 1, 1913, was $7.50 an acre.
At the close of 1918, the partnership owned 100 shares or 10 per cent of the capital stock of the Superior Lumber & Cedar Co. At that time the partnership had advanced to the Superior Lumber & Cedar Co. various*3663 amounts aggregating $539,123.92. The affairs of the Superior Lumber & Cedar Co. were in bad shape and the partnership considered it necessary to purchase the remaining 900 shares of the capital stock for the purpose of liquidating the company. Pursuant to this purpose the partnership purchased the 900 shares in January and February, 1919. The net cost of the 1,000 shares to the partnership was $23,623.79.
*1265 The corporation was thereupon liquidated and the partnership took over the assets and assumed the liabilities. On the date of liquidation the balance sheet of the corporation was summarized as follows:
| Superior Lumber & Cedar Co., December 31, 1918 | ||
| Assets: | ||
| Accounts receivable | $10,599.40 | |
| Inventories | 181,047.80 | |
| Buildings | 38,170.55 | |
| Advances | 12,234.72 | |
| Timber lands | 232,708.42 | |
| Investments | 91,941.78 | |
| Tools and fixtures | 6,428.05 | |
| Teams and wagons | 11,525.00 | |
| Cash | 222.61 | |
| Total | 584,878.33 | |
| Liabilities: | ||
| Accounts and notes payable | 576,108.70 | |
| Capital stock | $100,000.00 | |
| Deficit | 91,230.37 | |
| 8,769.63 | ||
| Total | 584,878.33 |
The partnership purchased 830 of the 900 shares on the basis of the net worth of $8,769.63, *3664 which resulted in a value of $8.77 a share.
For the year 1919, the Commissioner allowed the partnership a loss, due to the liquidation of the Superior Lumber & Cedar Co., amounting to $14,854.16, which represents the difference between the cost to the partnership of the stock of the company and its net worth on the date of liquidation.
The value at which the Superior Company's timber lands (known as the Munising Block) were carried in the balance sheet was $232,708.42, and this value was used in computing the loss just referred to.
The partnership revalued the land and timber on the basis of $6 per thousand for 30,839,785 feet of timber and $3 per acre for 16,090 acres, a total of $233,308.71. This amount was entered in the Land and Timber Account. The Commissioner, for the year 1919, allowed depletion at $4 per thousand feet of timber cut from the Block.
The cost of the Munising Block of timber land to the partnership was $232,708.42, which should be allocated as follows: cost of 30,839,785 feet of timber $184,561.05, and cost of 16,090 acres of land $48,147.37.
*1266 During the year 1919, 400 acres of land from the Munising Block were sold for $3,620 and of*3665 this amount $2,420 was included in net income of the partnership as representing profit on the sales. During the year 1919, 1,920 acres of land from the Pellston Block were also sold for $17,212.25, and of this amount $2,812.25 was included in net income of the partnership as representing profit on the sales. Both of these amounts were included in the amount of $216,099.05 reported as income for 1919.
The respondent added to net income an amount of $6,692.25, representing the profit determined by him on the sale of 1,160 acres of land in 1919, thereby causing to be included in net income as profit on sales of land a total of $11,924.50.
OPINION.
GREEN: In the petition it is alleged that the respondent has failed to include in invested capital for 1917 the value of inactive timber lands in the amount of $224,430.04. The evidence presented proved that there was included in the amount so claimed an item of $150,000, which did not represent an investment in timber land but was, in fact, money advanced to the Superior Lumber & Cedar Co. and which should have been classed as an account receivable in 1917. The respondent determined the residual cost of land and timber as of December 31, 1916, to*3666 be $213,251 instead of $804,500.78, the amount shown by the books. There is nothing in the record to show that he did not include in this figure some amount as representing the value of these timber lands. The amount allowed exceeds the book value, after deducting therefrom the advance of $150,000 to the Superior Lumber & Cedar Co. and the admitted appreciation of $460,488.13, by $194,012.65, which may be regarded as the residual cost of land and timber. It is apparent that the amounts entered as cost of Tarentorus Township timber and Peterboro timber, contain many items such as interest, taxes, salaries, and other expenditures some of which are obviously business expenses.
The petitioner alleges that the depleted cost determined by the respondent was based upon the cost at March 1, 1913, of the Pellston Block only. The record does not prove that such is the case. It is apparent that the respondent based his computation on a cost of land and timber at March 1, 1913, of $305,235.33, but it has not been shown that this represented the cost of the Pellston Block only or that the respondent knew that such was the case. Nor is there submitted any proof by which we can determine*3667 the actual residual cost of the Pellston Block at December 31, 1916.
In view of these conditions we can not hold that the respondent has excluded from his determination of depleted cost the cost of *1267 timber lands. However, it does appear that the accounts receivable in the amount of $150,000, have been excluded in the computation of invested capital. In redetermining the deficiency of the partnership for 1917 under Rule 50, the invested capital as determined by the respondent should be increased by the amount of $150,000 erroneously excluded therefrom in the deficiency letter.
Invested capital of a partnership for 1917, should not be reduced by the use of a tentative tax in the computation of earnings available for withdrawal by the partners. The same principle passed upon in the case of , applies with equal force to this case, since withdrawals made by partners in 1917 are similar to dividends paid by corporations.
In determining the value of the timber property at March 1, 1913, there have been presented, as a basis for comparison, numerous sales of timber properties in Michigan having similar species of timber*3668 in approximately the same proportion. The principal group of these is known as the Ward sales. The partnership stated in its Form T submitted to the respondent, that the best of the Ward lands were on a par with his own. The testimony of Haire also confirmed this statement. Computed as set out in the findings of fact, the maximum price per thousand feet paid for the Ward tracts A to K, inclusive, was $7.50. This would indicate a value per thousand feet, based on a 100 per cent estimate, in excess of the $8 allowed by the respondent.
The evidence discloses a few purchases of very small timber stands at $10 per thousand feet. It is noted, however, that the three purchases were of timber only and were not similar to the petitioner's timber, two being of timber in excess of 18 inches and 12 inches at the stump and the third being a purchase of hardwoods only. It has been clearly brought out by the testimony of the witnesses for both parties that the smaller sized trees are not as valuable per thousand feet as the larger trees, due to the smaller percentage of high grade lumber recoverable and the greater cost of manufacture due to waste.
Much more indicative of value are the*3669 purchases, aggregating 3,000,000 feet, made by the partnership in 1912, 1913, and 1914, at an average price of less than $7 per thousand feet based on the original estimate.
The purchase of logs by the partnership in 1912, 1913, and 1914, at an average price of $9.49, would not indicate a value in excess of $8 per thousand feet, since such price must cover stumpage, cutting cost, and possibly transportation.
The earnings of the partnership as shown by operations up to March 1, 1913, would indicate a reasonable expectation of about $12 *1268 per thousand feet, lumber measure, operating profit. This profit realizable over a period of seven or eight years would indicate a value per thousand feet at March 1, 1913, of not over $7, after making due allowance for interest and carrying charges and for the return of the investment in plant and equipment.
Various witnesses for the petitioners testified to values per thousand feet of timber on the Pellston Tract ranging from $10.77 to $14, but did not indicate whether such values should be applied to 80,407,500 feet as shown by the estimate in 1912, or 116,352,897 feet as realized from the cutting of the timber. If we apply*3670 $12 per thousand to the estimate of 80,407,500 feet, the value of the tract would be about $965,000, as compared with $930,000 allowed by the respondent, which shows a smaller variance than there was in the testimony of the various witnesses.
After a careful analysis of all of the evidence we are of the opinion that the fair market value at March 1, 1913, of the petitioner's block of timber known as the Pellston Block was not in excess of $930,823.18 for the 116,352,897 feet of timber thereon.
After examining the record of land sales from 1908 to 1913, and taking into consideration the fact that lands are variable in value and that most desirable lands are the easiest to sell, and that time and carrying charges are important factors, we are of the opinion that the cut over lands at March 1, 1913, had a fair market value of $7.50 an acre, the value claimed by the petitioners.
We are unable to find in the record any evidence showing that the respondent erroneously included $1,000 in the partnership income for 1918.
Upon liquidation of the Superior Lumber and Cedar Co. in 1919, the respondent allowed a loss of $14,854.16, which represented the difference between the cost of*3671 capital stock to the partnership and the net worth of the assets acquired. In so doing the respondent must have accepted the values set forth in the assets of the company, one item of which was "Timber Lands, $232,708.42." Having accepted such value in determining profit or loss on liquidation, it was inconsistent to revalue the timber lands for depletion and for profit or loss on the subsequent sale of lands. Since the respondent does not contend that his determination of loss on liquidation is erroneous, the values assigned to the assets should be the basis for subsequent computations of income. Accordingly, we hold that the $232,708.42 should be treated as the cost to the partnership of the Munising timber land divided into $184,561.05 for timber and $48,147.37 for lands.
Regarding the last issue we have found that the partnership in determining its net income for 1919 included therein profit from the sale of lands in the amount of $5,232.25. The respondent redetermined *1269 this profit to be $6,692.25 and added the latter amount to the net income already determined by the partnership, thereby duplicating income to the extent of $5,232.25. This error should be corrected*3672 and the profit on such lands redetermined on the basis that the Pellston cut-over lands had a March 1, 1913, fair market value of $7.50 an acre and that the cost of the Munising lands was $3 an acre.
The determination of the correct income of the partnership for 1917 is applicable to Docket No. 9000 only. The determination of the correct income of the partnership for 1918 is applicable to Docket Nos. 8999, 9001, 9002, and 9003. The determination of the correct income of the partnership for 1919 is applicable to Docket No. 9001 only.
Judgment will be entered under Rule 50.