*3358 Where the respondent makes affirmative allegations in support of an issue which he raises, his contention will not be sustained where the evidence merely discloses an error, unless sufficient facts appear to enable the Board to know what should be done to improve the situation.
*1370 The two cases were consolidated for hearing and decision. The petitioner seeks redetermination of income and profits taxes for the calendar years 1920 and 1921, and of income taxes for the calendar *1371 years 1922 and 1923. The deficiencies as determined by the Commissioner are as follows:
| Year | Amount |
| 1920 | $3,013.71 |
| 1921 | 3,012.54 |
| 1922 | 1,129.50 |
| 1923 | 1,142.50 |
The only error alleged in the petitions was the failure of the Commissioner to allow reasonable deductions for depreciation.
FINDINGS OF FACT.
The petitioner was incorporated under the laws of Maine at some time subsequent to March 3, 1917. Its principal place of business is in Portland, Me. At the time it was organized certain individuals transferred*3359 certain real property which they owned to the petitioner in exchange for its capital stock. The parties have agreed that the following table shows the cost of that property to those individuals by years:
| Year | Percentage of construction | Cost of buildings | Cost of land |
| 1889 | 19 | $111,587.54 | $43,916.22 |
| 1904-06 | 10 | 61,748.76 | |
| 1907 | 11 | 64,869.40 | |
| 1908 | 23 | 136,647.44 | |
| 1909 | 6 | 37,201.84 | |
| 1910 | 2 | 12,080.42 | |
| 1914 | 2 | 14,229.45 | |
| 1915 | 16 | $94,587.04 | |
| 1916 | 8 | 49,162.71 | |
| 1917 | 6,000.00 | ||
| 1920 | 3 | 15,552.96 | $67,968.02 |
| 100 | 603,667.56 | 111,884.24 |
At incorporation the petitioner owned no other property save that above mentioned, the building on which was known as the "Congress Square Hotel." This it leased on January 1, 1920, for a term of 25 years, the lessee to keep the premises in good repair. The lessee immediately proceeded to make extensive alterations and improvements to the leased premises and continued to do so during each of the taxable years.
On its returns for the several years the petitioner deducted the following amounts on account of the exhaustion, wear and tear (including obsolescence) of its physical properties:
| Year | Amount |
| 1920 | $8,147.21 |
| 1921 | 9,036.00 |
| 1922 | 9,036.00 |
| 1923 | 9,140.00 |
*3360 The Commissioner disallowed all such deductions with the explanation that the expenditures for repairs and for permanent improvements *1372 on these buildings made by the lessee were deemed sufficient to arrest any wear and tear that might occur during the taxable years.
The probable useful life of the buildings owned by the petitioner during the taxable years was not in excess of 33 1/3 years from January 1, 1920, and exhaustion, wear and tear, including obsolescence, of these buildings took place during the taxable years despite the work done by the lessee.
The petitioner on its returns for 1920 and 1921, claimed invested capital in the amounts of $903,600 and $904,054.28, respectively. These amounts were adjusted by the Commissioner as follows:
| 1920 | ||
| Invested Capital | ||
| Invested capital as reported | $903,600.00 | |
| Less: | ||
| 1. Appreciation | $188.048.50 | |
| 2. Dividends paid in excess of earnings | 94.37 | |
| 188,142.87 | ||
| Total invested capital as adjusted | 715,457.13 |
EXPLANATION OF ADJUSTMENTS TO INVESTED CAPITAL
1. Invested capital is reduced by the amount of depreciation in accordance with Article 831, Regulations 45.
* * *
| 1921 | ||
| Capital stock and surplus as reported | $904,054.28 | |
| Additions: | ||
| 1. Depreciation disallowed | $8,157.21 | |
| 2. Capital expenditures disallowed | 617.78 | |
| 8,764.99 | ||
| Total | 912,819.27 | |
| Less: | ||
| 3. Appreciation | 188,048.50 | |
| 4. 1920 tax prorated | 3,878.97 | |
| 5. Dividends paid in excess of earnings | 175.53 | |
| 192,103.00 | ||
| Invested Capital as adjusted | 720,716.27 |
*3361 EXPLANATION OF ADJUSTMENTS TO INVESTED CAPITAL
* * *
3. Explained under Item 1. invested capital for 1920.
* * *
The balance sheets attached to the 1920 and 1921 returns were as follows:
| Feb. 6, 1920 | Dec. 31, 1920 | Dec. 31, 1921 | |
| ASSETS | |||
| Cash | $8,601.49 | $1,937.30 | |
| Liberty bonds | 9,872.71 | ||
| Land | $451,800.00 | 451,800.00 | 451,800.00 |
| Buildings | 451,800.00 | 451,800.00 | 451,800.00 |
| 903,600.00 | 912,201.49 | 915,410.01 | |
| LIABILITIES | |||
| Reserve for depreciation | 8,147.21 | 17,183.21 | |
| Capital stock: | |||
| Common | 3,600.00 | 3,600.00 | 3,600.00 |
| Preferred | 900,000.00 | 900,000.00 | 900,000.00 |
| Surplus | 454.28 | Red 5,373.20 | |
| 903,600.00 | 912,201.49 | 915,410.01 |
*1373 OPINION.
MURDOCK: At the conclusion of the hearing in this case counsel for the respondent moved to amend the answer to conform to the proof and "aver that the invested capital of the petitioner for the years 1920 and 1921 should be reduced by the depreciation accumulated upon the properties up to 1920, under section 331 of the Revenue Act of 1918." Counsel for the petitioner strenuously opposed this motion, claimed surprise and the right to a further hearing in case the issue of invested*3362 capital was thus raised. The motion was taken under advisement until the evidence could be fully considered.
If the petitioner were contending that the Commissioner had reduced its invested capital excessively on account of alleged depreciation of assets in the hands of prior owners who had exchanged their property for stock, we would not disturb the Commissioner's determination unless the evidence disclosed not only an error on the part of the Commissioner, but also sufficient facts to enable us to know what should be done to improve the situation. No less burden or duty is upon the respondent when he makes affirmative allegations in support of an issue which he raises. Were we to grant the respondent's motion to amend, nevertheless, from the evidence we would not be justified in reducing invested capital for the years in question. We do not know when the property was turned over to the petitioner nor the amount which represents depreciation of the property in the hands of the prior owners. There is no satisfactory evidence on either of these points. Indeed it is doubtful whether we could hold that an interest of 50 per cent or more in the property which changed ownership*3363 remained in the same persons. The motion to amend to conform to the proof is hereby denied.
The contention of the petitioner is that it is entitled to a deduction under section 234(a)(7) of the Revenue Acts of 1918 and 1921. The Commissioner has denied in toto the deductions claimed by the petitioner under these sections, which provide that a taxpayer is entitled *1374 to deduct from income "a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence." Where property has been acquired since March 1, 1913, the basis for this reasonable allowance is the cost to the taxpayer. An aliquot part of such cost, arrived at by dividing the cost by the number of years of probable useful life of the asset, has been held to be a reasonable allowance. The petitioner apparently set out to prove the factors necessary to compute in this way a reasonable allowance, but it never proved the cost of the assets to it. It proved cost to the prior owners, but that is not the cost to the petitioner. In the course of the trial, counsel for the petitioner said he would later show the value of the assets*3364 at the time they were transferred to the petitioner, but he did not do so. Thus we can not compute a proper allowance for any year in question and we will not disturb the Commissioner's determination. The deficiencies for each of the years in question are the amounts which the Commissioner has determined, as set forth in the opening statement of this decision.
Judgment will be entered in accordance with the foregoing opinion.