*902 Before GRAUPNER, TRAMMELL, and PHILLIPS.
This is an appeal from the determination of a deficiency in estate tax under the Revenue Act of 1921, amounting to $5,343.21. The *903 deficiency results from the increase by the Commissioner in the value of stock owned by decedent in the Buck Creek Cotton Mills, a corporation.
FINDINGS OF FACT.
The taxpayer is the executrix, qualified and acting under the last will and testament of T. C. Thompson, deceased, of Siluria, Ala., who died October 5, 1922. T. C. Thompson, at his death, owned 909.8 shares of a total of 1,182.8 shares issued and outstanding of the common stock of the Buck Creek Cotton Mills. He owned 88.5 shares of a total of 643 shares issued and outstanding of the second preferred stock, and he owned 964 shares of a total of 3,000 shares issued and outstanding of the first preferred stock of the same corporation. Each of these shares had a par value of $100.
The Buck Creek Cotton Mills is a corporation organized under the laws of the State of Alabama, and is*2526 engaged in the manufacture of cotton cloth at Siluria, Ala. The second preferred stock of the above-named corporation provided for payments of 3 per cent semiannual dividends, payable on the 1st day of January and July of each year. Such dividends are noncumulative and have been paid each year from 1920. The first preferred stock of the above-named corporation provided for cumulative dividends at the rate of 3 per cent semiannually, payable on the 1st day of January and July of each year, which have been paid each year from 1916. The charter of the corporation prohibited the payment of any dividends upon the common stock until after the redemption or retirement of all of the first preferred stock, and limited the dividends on the common stock thereafter to 8 per cent per annum until the retirement of all of the second preferred stock. No dividends have ever been paid on the common stock. Following out the provisions of the charter, the company has retired $110,000 of the preferred stock since the reorganization of the company in 1911.
For the nine years ending September 30, 1922, the corporation's average annual earnings amounted to $47,783.39. The earnings of the company, *2527 as far back as the present records of the company go, after deducting income and profits taxes paid for each of such years, were as follows:
| Amount. | |
| 1914 (loss) | $27,034.36 |
| 1915 (gain) | 19,696.53 |
| 1916 (gain) | 52,825.73 |
| 1917 (gain) | 90,555.37 |
| 1918 (gain) | 116,189.09 |
| 1919 (gain) | 85,461.04 |
| 1920 (gain) | 171,428.52 |
| 1921 (loss) | 64,403.61 |
| 1922 (loss) | 14,667.74 |
*904 At the time of the death of T. C. Thompson, the cotton-mill industry was in an extremely depressed condition, wide fluctuations in the cotton market rendering it difficult to determine a manufacturing or a buying policy. While some improvement over the depth of the depression was at that time noted, the future was somewhat uncertain. At that time the company, the books of which were kept upon a fiscal year basis ending September 30, had closed its second consecutive year of losses.
The assets and liabilities of the Buck Creek Cotton Mills from September 30, 1918, to and including September 30, 1922, were as follows:
| Balance Sheets Buck Creek Cotton Mills, Siluria, Ala. | |||
| Year ending Sept. | Year ending Sept. | Year ending Sept. | |
| 30, 1918 | 30, 1919 | 30, 1920 | |
| ASSETS. | |||
| Cash | $42,069.69 | $4,239.58 | $80,386.96 |
| U.S. Liberty loan bonds | 2,500.00 | 5,000.00 | 5,000.00 |
| Victory loan bonds | 75,000.00 | ||
| War savings certificates | 834.00 | 834.00 | 834.00 |
| Accounts receivable | 105,018.60 | 81,014.86 | 31,616.68 |
| Inventory cotton | 98,250.00 | 59,640.00 | 18,750.00 |
| Finished products | 61,215.57 | 49,340.42 | 396,383.80 |
| Lumber | 7,001.41 | ||
| Plant, equipment, | |||
| machinery, land, etc | 757,844.59 | 775,662.24 | 789,449.89 |
| Total | 1,067,732.45 | 1,050,731.10 | 1,329,422.74 |
| LIABILITIES | |||
| Bonds | 6,000.00 | ||
| Notes payable | 46,700.00 | ||
| Reserve for depreciation | 175,713.67 | 259,224.27 | 298,696.76 |
| Reserve for income and | |||
| excess profits taxes | 46,550.67 | 101,368.63 | |
| Capital stock, first | |||
| preferred | 310,000.00 | 310,000.00 | 310,000.00 |
| Capital stock, second | |||
| preferred | 64,300.00 | 64,300.00 | 64,300.00 |
| Capital stock, common | 118,280.00 | 118,280.00 | 118,280.00 |
| Surplus | 346,738.78 | 252,376.16 | 436,777.35 |
| Total | 1,067,732.45 | 1,050,731.10 | 1,329,422.74 |
| Balance Sheets Buck Creek Cotton Mills, Siluria, Ala. | ||
| Year ending Sept. | Year ending Sept. | |
| 30, 1921 | 30, 1922 | |
| ASSETS. | ||
| Cash | $23,228.37 | $34,947.64 |
| U.S. Liberty loan bonds | 5,000.00 | |
| Victory loan bonds | ||
| War savings certificates | 834.00 | 834.00 |
| Accounts receivable | 85,512.94 | 69,173.01 |
| Inventory cotton | 59,400.00 | 111,030.00 |
| Finished products | 138,946.79 | 72,637.30 |
| Lumber | 6,668.63 | |
| Plant, equipment, machinery, land, etc | 812,664.51 | 838,507.94 |
| Total | 1,132,255.24 | 1,127,129.89 |
| LIABILITIES | ||
| Bonds | ||
| Notes payable | ||
| Reserve for depreciation | 338,610.14 | 380,535.53 |
| Reserve for income and excess profits taxes | ||
| Capital stock, first preferred | 310,000.00 | 310,000.00 |
| Capital stock, second preferred | 64,300.00 | 64,300.00 |
| Capital stock, common | 118,280.00 | 118,280.00 |
| Surplus | 301,065.10 | 264,014.36 |
| Total | 1,132,255.24 | 1,127,129.89 |
In 1921, about a year prior to decedent's death, 16 shares of common stock of the Buck Creek Cotton Mills were sold at $100 per share, and 10 shares of second preferred stock were sold at $80 per share to one of the officers of the corporation. There were no sales of first preferred shares of*2529 stock within recent years.
The Commissioner's valuation of the stock of decedent at the time of his death on October 5, 1922, was as follows:
| Share. | |
| Common stock | $234 |
| First preferred stock | 85 |
| Second preferred stock | 75 |
The taxpayer claims that the value of the stock of decedent at the time of his death on October 5, 1922, was as follows:
| Share. | |
| Common stock | $55 |
| First preferred stock | 75 |
| Second preferred stock | 65 |
*905 The value of the common stock owned by decedent at the time of his death on October 5, 1922, was $200 per share. The value of the first preferred stock was $85 per share, and that of the second preferred stock was $75 per share.
DECISION.
The deficiency should be computed in accordance with the foregoing findings of fact. Final determination will be made on 15 days' notice, under Rule 50.
On reference to the Board, GREEN dissents.