*3674 Respondent's refusal to include in invested capital any amount for good will and patents approved, because of lack of satisfactory evidence as to their value at the time acquired by the petitioner.
*995 This is a proceeding for the redetermination of a deficiency in income and profits taxes for the fiscal year ended November 30, 1920, in the amount of $7,682.79. Approximately $4,000 of this amount is in controversy.
The error assigned is that the respondent excluded from petitioner's invested capital for the taxable year in question, any valuation for good will and patents acquired in exchange for capital stock in the year 1910.
It was stipulated by the parties that the testimony and evidence heretofore taken in the proceeding of , and the briefs filed therein he taken as the testimony, evidence, and argument in this proceeding.
FINDINGS OF FACT.
The petitioner is a Delaware corporation, with its principal office at*3675 Linfield, Pa.
On January 10, 1910, the board of directors of petitioner authorized the petitioner to buy the outstanding capital stock, applications and claims for patents, and other assets of the Mitchell & Van Meter Co., for the full paid preferred capital stock of petitioner to the amount of $115,125 and the full paid common stock to the amount of $500,000. The assets were taken over as authorized. The $115,125 of preferred stock was issued for plant values, and the $500,000 common stock was issued for good will and patents.
The Mitchell & Van Meter Co. started in business in 1904, and was engaged in the manufacture of cast iron soil pipes, fittings, and *996 plumbers' specialties, and, at the time its assets were acquired by the petitioner, owned three manufacturing plants, located at Linfield, Pottstown, and Zelienople. (Little evidence is given concerning two of them, but the iron plant at Linfield never lost money while operated by the Mitchell & Van Meter Co.) The petitioner restricted its operations to the Linfield plant and disposed of the brass foundry at Pottstown and the plant at Zelienople after 1912. Petitioner continued to manufacture cast-iron pipes, *3676 fittings, and plumbers' specialties. The good will and patents which were purchased were confined to the Linfield plant. Quite a number of the specialties which were manufactured by the Linfield plant prior to acquisition by the petitioner were protected by patents. These products had been stamped with the letters M. and V.M. Co., the trade name of the Mitchell & Van Meter Co. products, well known in the trade. In addition to the other assets the petitioner also obtained sales connections and a number of applications for patents.
The original entry on the books of the petitioner on January 1, 1912, showed a value assigned to good will and patents of $500,000. In 1917 a separation of the items was made and the books showed a value assigned to good will of $60,118.75 and to patents of $121,725. Some of the patents were the Ideal Closet Connection and the Improved Brooklyn Running Trap, and there were also acquired applications for patents on a Mitchell & Van Meter boiler stand.
The petitioner continued to use the name M. and V.M. Co. on its products, and the products were advertised as being the M. and V.M. Co. articles, or articles formerly manufactured by the Mitchell & *3677 Van Meter Co., one reason being the expense of replacing the cuts and patterns.
The records of the Mitchell & Van Meter Co. are not available. None of the persons who held stock of the petitioner at the time of the transactions are now stockholders of petitioner.
The gross earnings of the three plants from 1910 to 1912, inclusive, were not segregated on the books of the company.
The total amount paid for direct labor for the three plants was $237,046.79, of which $62,635.74 was attributed to the Linfield plant in 1910 and 1911 and $68,864.45 was attributed to this plant in 1912.
Following is a statement of income of petitioner as shown by its books:
| Year. | Number of months. | Net income. |
| 1913 | 10 | $16,529.32 |
| 1914 | 13 | 3,847.91 |
| 1915 | 11 | 31,040.55 |
| 1916 | 12 | 53,930.06 |
| 1917 | 12 | 42,037.05 |
*997 The tangible assets allocable to the three plants in 1911 as shown by its books were as follows:
| Linfield | $118,607.92 |
| Pottstown | 40,761.95 |
| Zelienople | 89,130.57 |
The tangible assets not identified with a particular plant December 31, 1911, were $18,134.64.
The Linfield plant investment was as follows:
| Number of months. | Amount. | |
| January, 1913 | 10 | $146,266.81 |
| October, 1913 | 13 | 116,649.08 |
| January, 1915 | 11 | 123,188.86 |
| November, 1915 | 12 | 151,601.71 |
| November, 1916 | 12 | 207,260.77 |
*3678 No evidence was introduced as to the length of life of the patents.
OPINION.
SIEFKIN: The sole question raised by this proceeding is whether the respondent erred in excluding from invested capital any value for good will and patents acquired in exchange for capital stock in the year 1910. The evidence discloses that on January 10, 1910, the petitioner issued $500,000 of its common stock for the good will and patents of the Mitchell & Van Meter Co.
In 1917 the books of petitioner showed a value assigned to good will of $60,118.75, and to patents of $121,725. No evidence was submitted as to the number and description of the patents. Two or three of the patents in applications were stated by name, but no evidence was introduced as to their expiration dates. There was testimony that among other assets the petitioner obtained valuable sales connections from the Mitchell & Van Meter Co., and that after acquisition of these assets customers sometimes called for M. and V.M. products. The petitioner continued to mark some of the products with the M. and V.M. Co. name and to advertise them as such. Some of the evidence in the case indicates that the reason for such marking and*3679 advertising was partly because changing the cuts and patterns would have been expensive. None of the records of the Mitchell & Van Meter Co. were produced and no evidence was submitted as to the earnings of this company. The only evidence submitted as to the value of the good will and patents acquired concerns subsequent earnings.
We must hold, as we did in , that the respondent's disallowance of values for patents *998 and good will for invested capital purposes should be approved for the reasons set forth in that case.
Judgment will be entered for the respondent.