*1154 1. STATUTE OF LIMITATIONS. - An affiliate of petitioner received a notice of deficiency for 1925 and filed a petition for redetermination. The proceeding was heard and decision of the Board entered. Thereafter the respondent mailed a notice of deficiency to petitioner for the year 1925. Held, that under section 501(a) of the Revenue Act of 1928 the period during which the statute was suspended by reason of the earlier proceeding may be added to the time when the statute of limitations would otherwise run in the case of the petitioner, and when so added the notice of deficiency to petitioner was timely.
2. RES ADJUDICATA. - The questions presented in this proceeding for 1925 were presented and decided in the case of the same petitioner for 1924, and they are res adjudicata by reason of the earlier proceeding. 26 B.T.A. 322">26 B.T.A. 322.
*133 Petitioner seeks a redetermination of a deficiency in income tax in the amount of $4,951.55 for the calendar year 1925. It is alleged that respondent erred in including*1155 in income the installments received in 1925 on the sale price of certain theatre properties. The contracts for the sales of the properties were acquired from a predecessor partnership for stock and petitioner claims that the installments received by it were capital payments and not income. It is also alleged that assessment and collection are barred by the statute of limitations.
FINDINGS OF FACT.
The petitioner was incorporated on August 16, 1923, under the laws of the State of California, with an authorized capitalization of $1,000,000, consisting of 10,000 shares of common stock of the par value $100of per share. On September 4, 1923, the petitioner acquired certain assets and assumed certain liabilities of Wobber Brothers, a partnership composed of Edward H. Wobber, William P. Wobber, and Herman Wobber.
As consideration for the excess of partnership assets over partnership liabilities of Wobber Brothers, the petitioner issued to the partners 9,997 shares of its capital stock of a par value of $100 per share.
The excess of partnership assets over partnership liabilities received by the petitioner in exchange for its stock had a value equal to the par value of its*1156 stock issued for such assets.
*134 On January 1, 1920, prior to incorporation of the petitioner, the partnership of Wobber Brothers sold to Famous Players-Lasky Corporation, for the sum of $400,000, certain leaseholds owned by the partnership on property known as the Imperial Theatre property in the city of San Francisco, together with the appurtenances, equipment, and furnishings thereon, payments of the purchase price to be made in seven equal annual installments, the first to be paid upon execution of the contract of sale and the remaining six to be on or about January 1 of each succeeding year, such deferred payments to draw interest at the rate of 6 percent per annum from January 1, 1921, to date of payment. The first four payments due under the contract of sale were made to the partnership prior to the organization of petitioner, leaving a balance of principal and interest amounting to $191,999.98 still due on September 4, 1923.
Among the assets acquired by the petitioner on September 4, 1923, from the partnership was the right to receive the unpaid installments of principal and interest, aggregating $191,999.98, due on the purchase price of the Imperial Theatre*1157 property sold to Famous Players-Lasky Corporation. Payments thereon were received by the petitioner on the dates and in the amounts as follows:
| Interest received | Total received | |||
| Date of | Principal | on date of | ||
| payment | received | 6% on - | Amount | payment |
| Jan. 2, 1924 | $57,142.86 | $171,428.56 | $10,285.71 | $67,428.57 |
| Jan. 2, 1925 | 57,142.85 | 114,285.70 | 6,857.15 | 64,000.00 |
On or about November 30, 1922, prior to incorporation of the petitioner, the partnership of Wobber Brothers sold to R. A. McNeil and E. H. Emmick, for the sum of $41,800, certain leaseholds in the city of Monterey, California, on which the partnership was operating theatres known as the Star, Strand, and Monterey Theatres (hereinafter referred to as the Monterey theatres), together with all interest in the business of such theatres, and all furnishings, equipment, etc., connected with them.
The purchasers of the Monterey theatres, leaseholds, and equipment paid earnest money of $2,500 upon execution of the contract of sale, and made a further payment of $17,500 on December 30, 1922, when option to purchase was exercised. A further payment of $4,600 was made to the partnership*1158 on June 29, 1923, leaving a balance of $17,200 still due on September 4, 1923.
Among the assets acquired by the petitioner on September 4, 1923, from the partnership of Wobber Brothers was the right to receive the unpaid installments, aggregating $17,200, due on the purchase *135 price of the Monterey theatre properties. These payments were received by the petitioner on the dates and in the amounts as follows:
| December 28, 1923 | $4,480 |
| June 30, 1924 | 4,360 |
| December 29, 1924 | 4,240 |
| July 1, 1925 | 4,120 |
On March 15, 1926, the petitioner filed with the collector of internal revenue at San Francisco, California, a consolidated income tax return for the calendar year 1925, in which were included the income and deductions of itself and the corporations with which it was affiliated for the taxable year.
The notice of deficiency in this proceeding was mailed to petitioner on March 27, 1933.
Under date of January 30, 1928, respondent notified petitioner and two of its affiliates of deficiencies for the years as follows:
| Wobber's, Inc. | 1923, 1924, 1925 |
| Wobber Brothers (petitioner) | 1924 |
| Schwartz-Kasser Improvement Co. | 1924, 1925 |
*1159 On March 30, 1928, each of the above taxpayers filed a separate petition for redetermination of the deficiencies proposed, which petitions were assigned docket numbers 36874, 36875, and 36876. Upon joinder of issue and trial, our findings of fact and opinion in all three proceedings were promulgated on June 8, 1932, and reported in , and decision was entered on November 10, 1932. That decision has not been appealed.
Petitioner and the other two corporations named above filed consolidated returns for the years 1924 and 1925.
OPINION.
ARUNDELL: The first issue requiring consideration is whether assessment and collection are barred by the statute of limitations. The petitioner's return for 1925 was filed on March 15, 1926, and the deficiency notice was mailed March 27, 1933, which was after the expiration of the three-year period provided for in section 277(a)(1) of the Revenue Act of 1926. Counsel for the respondent relies upon section 501 of the Revenue Act of 1928 as suspending the operation of the statute of limitations. That section, as far as material here, reads as follows:
SEC. 501. AFFILIATED CORPORATIONS - STATUTE OF LIMITATIONS.
*1160 (a) Section 240 of the Revenue Act of 1926 is amended by adding at the end thereof a new subdivision to read as follows:
"(h) (1) If a notice under subdivision (a) of section 274 in respect of a deficiency for the taxable year 1922, 1923, 1924, 1925, 1926, or 1927, has been mailed to a corporation, the suspension of the running of the statute of limitations, *136 provided in subdivision (b) of section 277 and in subdivision (1) of section 283, shall apply in the case of corporations with which such corporation made a consolidated return for such taxable year."
Subdivision (b) of section 277 of the Revenue Act of 1926 provides that the running of the statute of limitations shall be suspended after the mailing of a deficiency notice for the period during which the Commissioner is prohibited from making an assessment. Under section 274(a) the Commissioner is prohibited from assessing "until the decision of the Board has become final," which under section 1005(a)(1) is upon "expiration of the time allowed for filing a petition for review," and that time under section 1001(a), as amended by section 1001 of the Revenue Act of 1932, is "within three months after the decision*1161 is rendered."
As set out in our findings, the deficiency notices in the prior proceedings were mailed January 30, 1928, and decision was entered November 10, 1932, and became final February 10, 1933. Between the dates of January 30, 1928, and February 10, 1933, a period of more than five years elapsed during which the respondent was prohibited from assessing, and such period, if it can be added to the time when the statute would otherwise have run in petitioner's favor, extends the time well beyond the date of March 27, 1933, when the deficiency notice in this proceeding was mailed. It is our opinion that such period can be added. The situation here seems to fit exactly into the pattern of section 501(a) of the Revenue Act of 1928. The substance of that provision is that where a deficiency notice has been mailed to a member of a group which filed a consolidated return, the suspension of the statutory period applies to the other members of the group in respect of the years covered by the deficiency notice. In this case two of petitioner's affiliates with which it filed a consolidated return for 1925 were sent deficiency notices for that year. Now the petitioner has received*1162 a notice of deficiency for the same year. Section 501(a) clearly applies to this situation, and we hold that assessment and collection were not barred at the time the deficiency notice was sent to the petitioner.
It is alleged in the petition, and admitted in the respondent's answer, that on January 2, 1925, petitioner received an installment payment of $64,000 on the sale price of the Imperial Theatre property sold to Famous Players-Lasky Corporation. It is further alleged by petitioner and admitted by respondent that on July 1, 1925, petitioner received an installment of $4,120 on the sale price of the Monterey Theatre properties. These amounts respondent has included in income, less a deduction of $6,057.14 for commissions in the Imperial Theatre case, which deduction is not here in dispute.
*137 Petitioner contends, however, that when its stock was issued to the partnership for the sales contracts a gain was recognized to the partnership under the 1921 Act, which gain, when added to the basis in the hands of the partnership, (sec. 204(a)(8), Revenue Act of 1924) gives the petitioner a basis equal to the full amounts received by it from the contracts, hence there*1163 was no income upon receipt of any of the installments.
Respondent's view is that the questions urged by petitioner in the case at bar were considered and disposed of in the prior proceedings hence are res adjudicata. We agree with the respondent. Petitioner was a party to the other proceedings reported at , in which the respondent determined a deficiency against petitioner for the year 1924 arising out of the receipts from the Imperial and Monterey theatre contracts. There were other issues in those proceedings, but one of the questions presented and decided was the same as that here under consideration. We said in the opinion (p. 327) that petitioners "contend that any profit from the sale was realized by the partnership and that the corporation has sold nothing from which profit could be realized." We then proceeded to consider the application of the same sections of the various statutes which are cited by the petitioner in this proceeding and reached the conclusion that the receipt of installment payments under the contracts resulted in income. We furthermore specifically held that the $64,000 received by petitioner in 1925 under the Imperial*1164 Theatre contract should be included in income for that year. The respondent had determined that that installment had been received in 1924 and had included it in income for that year. We found from the evidence that it was received in 1925, and upon respondent's amendment of his answer asserting an increased deficiency for 1925 by reason of the receipt in that year, we held that that amount should be included in group income for that year.
Thus the matters presented here appear to have been presented, considered, and decided in the earlier proceedings and under the authorities they are res adjudicata. ; ; ; . The argument that the doctrine of res adjudicata should be applied only where an appeal has been taken from the prior decision is without merit. "* * * A judgment of a court in a matter within its jurisdiction, however erroneous, is final and conclusive if not appealed from." *1165 ; .
Decision will be entered under Rule 50.