*3385 1. Respondent's determination of March 1, 1913, value of certain shares of stock sold sustained for lack of evidence proving error.
2. In 1920 the petitioners sold the stock and received in that year payments in excess of 33 per cent of the sales price. Held, the petitioners are not entitled to report the profit realized on the transaction on an installment basis.
*1180 The respondent has determined a deficiency in income tax for the year 1920 in the sum of $10,432.80. The issues raised by the pleadings are:
(1) The March 1, 1913, value of certain shares of stock sold in 1920.
(2) Whether the respondent erred in not treating the stock sale as an installment sale.
(3) Whether a note for $144,000 received in part payment for the stock was during the year 1920 the equivalent of cash.
(4) Whether error was committed in not deducting expenses, alleged to be in the amount of $10,000, incurred in making the stock sale.
FINDINGS OF FACT.
The petitioners are the executors and trustees named under the will of Jeremiah Roberts Downing, *3386 who died October 3, 1911, leaving all of his property in trust to the petitioners with directions, among other things, to divide the estate at the expiration of ten years equally between his wife and son, Jere R. Downing, one of the petitioners.
The principal asset of the estate consisted of 1,190 shares of the capital stock of J. R. Downing Co., a Massachusetts corporation, organized November 13, 1905, with an authorized capitalization of $125,000, divided into 1,250 shares of a par value of $100 each, to take over the retail ice business of Jeremiah R. Downing in Brookline, Newton, and Brighton, suburbs of Boston, Mass.
From about 1893 until 1908 the J. R. Downing Co. and its predecessor retailed ice in competition with E. A. Leary. In 1908 the latter's business was acquired by the former in exchange for 60 shares of its capital stock. There were no further sales of stock until 1920, when the stock in question was disposed of as hereinafter described.
Commencing in 1909, there was an understanding, not arising out of contract, oral or written, among retail ice dealers in and around Boston not to invade territory being served by other dealers. As a *1181 consequence*3387 of this practice or custom, the J. R. Downing Co. was the sole retailer of ice in all or part of the above mentioned suburbs of Boston after 1908.
In 1912 and 1920 the J. R. Downing Co. had wagon sales of ice of about 11,000 and 14,000 tons, respectively. The net tangibles and profits of the J. R. Downing Co. each year, commencing with 1911, were, according to statements prepared from the books, as follows:
| Net tangibles | Profit | |
| 1911 | $123,077.34 | $7,825.72 |
| 1912 | 123,159.54 | 82.20 |
| 1913 | 129,160.66 | 4,501.12 |
| 1914 | 131,224.58 | 2,063.92 |
| 1915 | 137,493.11 | 6,268.53 |
| 1916 | $138,150.96 | $5,657.85 |
| 1917 | 138,242.81 | 4,779.35 |
| 1918 | 146,116.82 | 7,874.01 |
| 1919 | 141,635.93 | 5,519.11 |
The balance sheets of J. R. Downing Co. at the close of the years 1912 and 1919 were as follows:
| Dec. 31,1912 | Dec. 31, 1919 | |
| ASSETS | ||
| Cash on hand | $418.98 | $1,416.37 |
| Accounts and notes receivable | 17,161.49 | 9,631.06 |
| Inventories | 1,058.73 | 2,701.00 |
| Interest paid in advance | 63.99 | |
| Land and buildings | 130,617.28 | 113,774.44 |
| Equipment | 21,320.00 | 21,050.75 |
| Good will and rights | 10,000.00 | 10,000.00 |
| 180,640.47 | 158,573.62 | |
| LIABILITIES | ||
| Notes payable | 36,123.42 | |
| Accounts payable | 1,553.95 | 6,937.69 |
| Estate of J. R. Downing | 5,248.56 | |
| Capital stock | 125,000.00 | 125,000.00 |
| Surplus | 8,159.54 | 26,635.93 |
| Reserve for depreciation | 4,555.00 | |
| 180,640.47 | 158,573.62 |
*3388 There were no substantial changes in the accounts between December 31, 1912, and March 1, 1913. The 1,190 shares of stock in question had a book value at December 31, 1912, of $131,102.30, or $110.17 per share.
The real estate holdings of J. R. Downing Co. at March 1, 1913, consisted of a block of wooden ice houses with all necessary machinery and equipment therefor and having a capacity of 14,000 tons; a twostory basement stable about 40 feet by 180 feet, built in 1912 at a cost of $31,417.28, for the accommodation of about 100 horses and outfitted for the care of about 50 horses; 3 four-flat and one two-flat wooden tenement houses, two of which were about 30 years old; a small wooden office building with a desk and scales in it; a blacksmith shop; a wagon shop and garage, and 1,973,352 square feet of land, *1182 all of which was located in whole or in part in Boston or Newton; a small tract of land at Watertown, Mass., and about 40 acres of land and an ice plant at Milton, N.H., having a capacity of 25,000 tons of ice. At March 1, 1913, this property, excepting the stable, had a fair market value of $110,500.56. Other assets of the corporation, consisting of horses, *3389 wagons and harness, machinery and tools, and current assets and inventories, had a fair market value at that date of $40,023.19. The liabilities of the corporation at March 1, 1913, amounted to $42,925.93.
On February 2, 1920, the Porter-Milton Ice Co., a Massachusetts corporation, purchased the shares of stock of the J. R. Downing Co. for $200,000, of which $194,000 was for the 1,190 shares of stock owned by the estate and the balance of $6,000 was for the 60 shares owned by E. A. Leary. Under the terms of the sale, the petitioners received $50,000 in cash, and for the balance of $144,000, received the following promissory note dated February 2, 1920:
FOR VALUE RECEIVED, the PORTER-MILTON ICE CO., promises to pay to JERE R. DOWNING, EVERETT MORSE and FRANK G. NEWHALL, Trustees under the will of Jeremiah R. Downing, or order, one hundred and forty-four thousand dollars with interest at the rate of six per centum per annum payable quarterly, payable as follows:
$15,000 on or before August 1st, 1920
$15,000 on or before December 1st, 1920
$15,000 on or before August 1st, 1921
$15,000 on or before December 1st, 1921
$15,000 on or before August 1st, 1922
$69,000 on or*3390 before December 1st, 1922
Having deposited with this obligation as collateral security, eleven hundred and ninety shares of the capital stock of the J. R. Downing Company, with authority to sell the same upon ten days notice, either at public or private sale, or otherwise, at the option of the holder orholders hereof on the non-perform ance of this promise, he or they giving credit for any balance of the net proceeds of such sale remaining, after paying all sums due from it to the said holder or holders, or to his or their order. And it is further agreed that the holder or holders hereof may purchase at any public sale.
In the event they any instalments should be in default, it is agreed that the whole note shall be and become due and payable.
The installment due August 1, 1920, was paid on or about its maturity date. In February, 1922, the balance of $79,000 then owing under the note was paid. Subsequent to its delivery, the petitioners agreed with the maker not to discount the note. The cash value of the note at the time of its receipt was equal to the face amount due under it.
On or about December 1, 1921, the Boston Ice Co. purchased the Brighton plant of the Porter-Milton*3391 Ice Co., including tools, equipment, etc., for $156,000.
*1183 On an audit of the returns made by the petitioners, the respondent computed the profit made on the sale of the stock on the basis of a cash transaction and a March 1, 1913, value of $131,102.37.
OPINION.
ARUNDELL: In computing the profit realized by the estate on the sale of 1,190 shares of stock of J. R. Downing Co. to the Porter-Milton Ice Co., the respondent used a March 1, 1913, value for the stock of $131,102.37. The petitioners assert that there were no sales of the shares at or about March 1, 1913, and that their value can be determined only by a resort to the assets of the corporation, which assets they claim were on March 1, 1913, worth $171,181.50, including good will of a value of $40,000.
From the testimony of petitioners' two witnesses, Jere R. Downing, president of J. R. Downing Co. subsequent to the death of J. R. Downing, and Frank G. Newhall, a banker in the Brighton and Newton districts with many years of experience in valuing property for the purpose of making loans, we have found that the assets of the corporation, except the stable, had a fair market value or price at March 1, 1913, of*3392 $110,500.56. With the exception of a difference of $699.44 in the value of the lands owned by the corporation at its Brighton plant, its witnesses having approximated the amount instead of computing it accurately according to their valuation of 3 cents per square foot, our figures correspond with the uncontradicted opinion of the two witnesses presented by the petitioners as to the value of the property.
The petitioners' witnesses testified that the March 1, 1913, value of the stable was equal to its construction cost in 1912 of $31,417.28. The building was designed for the accommodation of 100 horses, but due to the fact that the corporation did not need or use in its business more than 50 horses, the stable was not outfitted for the care of more than that number of animals. The corporation started to replace its horse-drawn ice wagons with trucks as early as 1913, but the construction of the building was such that in 1913 it could not have converted it into a garage without considerable expense for metal lathe and cement plaster, and because of the fact that the property was situated about a mile from any community having residents owning automobiles, the building could not*3393 have been profitably employed as a public garage. In 1920 it would have cost more to convert the building into a garage than its construction cost in 1912. At the hearing Jere R. Downing volunteered the information that he "thought it was a very foolhardy piece of business for my father to go ahead and build such a barn as that was." In valuing the stable as of March 1, 1913, at an amount equal to its cost in 1912, *1184 neither witness predicated his opinion on any factor other than cost, or made any allowance for depreciation. We have frequently held that valuations based upon cost have little evidentiary value without corroborative evidence. ; ; and . The evidence before us here strongly indicates that the stable was worth on March 1, 1913, considerably less than its actual construction cost. We have, therefore, not assigned any value to the stable in determining the net assets of the corporation on March 1, 1913.
The petitioners' claim of a valuation of $40,000 for good will is predicated principally*3394 upon a so-called right to the exclusive retail sale of ice in the district in which J. R. Downing Co. transacted business. The territory was not protected by contract with other ice dealers. The most that can be said of this contention of the petitioners is that it was the custom or practice of retailers of ice in and around Boston not to invade the territory of each other. This practice did not in any sense given the Downing Company a monopoly over the territory it served and there was nothing to prevent any person from entering the territory in competition with the corporation. The various routes maintained by the corporation were similar in many respects to laundry routes and the circulation of newspapers, which, when properly proven, have a value. , and .
It was admitted at the hearing by counsel for the petitioner that the earnings of the corporation in 1911 and 1912 do not of themselves justify any good will valuation. The two interested witnesses presented by the petitioners gave as their opinion that the corporation's good will at March 1, 1913, had a value of $40,000. *3395 We can not accept the categorical opinion of Jere R. Downing, lacking, as it does, any basis whatever, and Frank G. Newhall, the other witness, failed to show sufficient familiarity with the business and knowledge of the factors essentially necessary to form an opinion on the value of good will to entitle his valuation to any weight.
The petitioners have proven net assets of the corporation back of its capital stock of $107,597.76, which amount is approximately $30,000 less than the sum determined by the respondent in connection with his valuation of the stock in question. There were no sales made of the corporation's stock prior to sale made by the petitioners in 1920 and no evidence was offered to prove that the stock had a value aside from the assets back of it. As a matter of fact, the petitioners are relying altogether on the corporation's worth to determine the value of its stock.
*1185 The petitioners have not only failed to prove that the March 1, 1913, value of the net assets of J. R. Downing was greater than the amount used by the respondent as a basis for determining the value of the stock in question, but have not overcome the presumption existing in favor*3396 of the correctness of the respondent's determination of the fair market value or price of the stock at March 1, 1913.
From the opening statement made at the hearing by counsel for the petitioners, we have learned that 65/194 of the profit realized on the sale of the stock was returned as income in 1920, 50/194 in 1921, and the balance in 1922, when the note was paid in full. It is claimed by the petitioners that the respondent erred in declining to permit them to return profit on an installment basis. With this contention we do not agree. Section 212(d) of the Revenue Act of 1926, which section 1208 of the same Act provides shall be retroactively applied in computing income under the provisions of the Revenue Acts of 1917, 1918, and 1921, reads as follows:
Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of real property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price. In the*3397 case (1) of a casual sale or other casual disposition of personal property for a price exceeding $1,000, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed one-fourth of the purchase price, the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, be returned on the basis and in the manner above prescribed in this subdivision. As used in this subdivision the term "initial payments" means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.
The initial payment of $50,000 was almost 27 per cent of the sales price of the stock and the total of the payments received in 1920 was in excess of 33 per cent. No error was committed by the respondent in refusing to permit the petitioners to return the profit realized on the sale on an installment basis. See , and .
No competent evidence was offered to prove that the cash value of the note was not equal to the face amount thereof, *3398 less any payments made.
The petitioners did not offer any testimony in support of their claim that the respondent erred in not deducting as an expense incurred in making the stock sale, an amount alleged to be in the sum of $10,000.
Judgment will be entered for the respondent.