*2182 The evidence fails to show that a certain copyrighted advertising plan owned by the petitioner had any value on March 1, 1913.
*1107 These proceedings, which were duly consolidated for hearing and decision, are for the redetermination of deficiencies in income tax asserted by the respondent in the amounts of $3,190.57 for 1921; $2,996.53 for 1922; $2,009.89 for 1923, and $14,325.65 for 1924. An overassessment in the amount of $107.24 was found by the respondent for the year 1925. The petitioner alleges that the respondent erred (1) in failing to give credit for income tax paid by the petitioner in the amounts of $101 for 1921 and $1,478.42 for 1923, (2) in including in income for 1924 the entire amount of certain payments *1108 received by the petitioner in that year from the Minneapolis Journal, and (3) in failing to allow deductions in the years 1921 to 1925, inclusive, as allowances for the exhaustion of an advertising plan owned by the petitioner.
FINDINGS OF FACT.
The petitioner is an individual residing at Philadelphia, Pa. He*2183 was for many years engaged in the newspaper business but is now, and has been since 1919, engaged in creating and selling plans for managing and building up the business of newspapers, magazines, banks and chain stores. During the years 1921 and 1925, inclusive, his books of account were kept and his returns of income made on the accrual basis.
In the year 1898 the petitioner devised or created a plan designed to enable newspapers purchasing it to acquire supremacy in classified advertising in their respective territories. The plan was copyrighted in 1899 and the copyright was renewed in 1926. The details of the plan were not shown by the record herein, for the reason that the petitioner refused to divulge them, and each purchaser is obligated, as a condition of its contract, to keep them secret. The plan is explained by the petitioner as "a plan for securing classified advertising, which was designed to give supremacy in classified or want advertising to daily newspapers, that is, to take supremacy from one newspaper and give it to another. By 'supremacy' I mean to enable a newspaper to publish the largest volume or the largest number of classified or want ads as compared*2184 with any other newspaper in its home field, the city in which it is published." The plan was and is sold to only one newspaper in a given city or town, but sales are not limited to cities or towns where there are competitive papers. Prior to March 1, 1913, the petitioner made four sales of his plan, one to the Atlanta Journal on a percentage basis, or for $2,000 if paid within twelve months; one to the Springfield Missouri Leader on the percentage basis, the amount received by the petitioner being less than $2,000; and one each to the Vancouver Province and the Lynn, Mass., Item on the percentage basis, from which the petitioner received about $2,000 and $4,000, respectively. No sales of the plan were made between 1913 and 1920.
On March 1, 1913, the petitioner was advertising manager for the New York Times, which position he held until November 1, 1915, when he resigned to go to Philadelphia as the editor and publisher of the Philadelphia Evening Telegraph. His salary with the New York Times was $10,400 and he received an annual bonus of $1,000. He remained with the Philadelphia Evening Telegraph from November, 1915, until in January, 1919. His salary with that paper was *2185 *1109 $15,600. While with the Philadelphia Evening Telegraph he used his plan to build up its classified advertisement business.
Since the year 1919 the petitioner's plan has been sold to the Providence Evening and Sunday Telegram, Providence, R.I.; the Albany Knickerbocker Press, Albany, N.Y.; the New York Evening Post, New York City; Bridgeport Star, Bridgeport, Conn.; the Middletown Press, Middletown, Conn.; Washington Herald, Washington, D.C.; Kansas City Star, Kansas City, Mo.; Allentown Record, Allentown, Pa.; Minneapolis Journal, Minneapolis, Minn.; New Haven Union, New Haven, Conn. The Albany Knickerbocker Press paid $2,500 for the plan at the rate of 50 per cent per week; the New York Evening Post paid the petitioner $1,000 per month for 24 months and 10 per cent on all increase in revenue from classified advertising, said 10 per cent on all increase in revenue from classified $29,000 paid to the petitioner by that paper.
On January 19, 1921, the petitioner entered into a contract with the Journal Printing Co., the publisher of a newspaper known as the Minneapolis Journal, whereby the petitioner gave said company the right to use the "Taylor Plan." On May 24, 1921, said*2186 contract was modified. By the contract, as modified, the Journal Printing Co. agreed to pay to the petitioner for the use of his plan the sum of $300 per week, payable every Monday for ten consecutive years, beginning May 28, 1921, or within three years from May 28, 1921, to pay the petitioner $100,000 in full settlement of the contract, all weekly payments theretofore made to be credited as a part of said $100,000. Beginning May 28, 1921, the petitioner accrued on his books under said contract the amount of $300 weekly. The Journal Printing Co., however, during the years 1921, 1922, and 1923, did not make the payments specified by said contract and at the end of each year the petitioner charged off all but $1 of said accounts, leaving the account open with the $1 balance. In 1924 the petitioner and the Journal Printing Co. effected a settlement of the obligations arising under said contract of May 24, 1921, the Journal Printing Co. paying to the petitioner $10,000 in October, 1924, and $70,000 on November 1, 1924, in full of its obligations under said contract to Julu 8, 1926. The petitioner then reentered on his books the amounts that had been accrued under said contract during*2187 the years 1921, 1922, and 1923, and also accrued amounts for 1924, 1925, and 1926. The entire amount of $80,000 was entered on the books as follows:
| 1921, May to December 31 | $9,500 |
| 1922 | 15,600 |
| 1923 | 15,600 |
| 1924 | 15,600 |
| 1925 | 15,600 |
| 1926 (27 weeks) | 8,100 |
| 80,000 |
*1110 In the settlement mentioned the petitioner waived the payment of $300 per week subsequent to July 8, 1926.
Subsequent to the date of the settlement between the petitioner and the Journal Printing Co., the petitioner filed amended income-tax returns for the years 1921, 1922, and 1923, reporting therein the amounts accrued on his books for those years under the contract with the Journal Printing Co., and paid additional tax in the amounts of $101 for 1921; $410.16 for 1922, and $1,478.42 for 1923, a total additional tax of $1,898.58.
The respondent, upon audit of the petitioner's returns for the years 1921 to 1925, inclusive, determined that the entire amounts realized by the petitioner in those years from the sales of the "Taylor Plan," constituted income to him and that the amount of $80,000 received by him in 1924 from the Journal Printing Company was income for that year.
*2188 OPINION.
MARQUETTE: It is the contention of the petitioner that the "Taylor Plan" was of the value of at least $500,000 on March 1, 1913, and that he is entitled to recover that value through deductions from income ratably over the period March 1, 1913, to July 7, 1926, when the copyright expired. In making his returns for the years involved herein he took the position that the value of the plan had not appreciated more than 5 per cent to 10 per cent since March 1, 1913, but he says that in order to be fair with the Government he assumed that it appreciated 20 per cent in value, and that he therefore treated 20 per cent of the amounts he received from the sale of the plan as income and considered the remainder as a return of capital. The respondent determined that there was no capital value on March 1, 1913, to be recovered, and that the proceeds from the sale of the plan were income in their entirety.
It is doubtful, to say the least, whether the petitioner has or had on March 1, 1913, an exhaustible asset in the copyrighted plan in question. We know nothing about it and the petitioner refused to divulge its detail. Whether the petitioner was protected by the copyright*2189 in the use of the plan or only in the name "Taylor Plan," we know not. However, passing that question and assuming for the moment that the "Taylor Plan" was an exhaustible asset, we are unable to find any basis for holding that it had any value on March 1, 1913, except a speculative or potential value.
The petitioner evidently arrives at his value by assuming that there were in 1913 a certain number of cities and towns in the United States in which newspapers were published, and that one sale of the plan could be made in each of said newspaper fields. However, few *1111 sales had been made prior to March 1, 1913, and no sale was made between that date and the year 1920. Judging by the few sales made prior to 1913, the plan had little, if any value, separate and apart from Taylor's ability as a salesman, and the sales made in and subsequent to 1920, in so far as they are disclosed by the evidence, would not warrant the value placed upon the plan by the petitioner, even if such sales were competent to prove value in 1913. The petitioner no doubt had high hopes and expectations for his plan and considered it of great potential value, but his testimony, together with the*2190 other evidence in the case, fails to convince us that it had in fact any substantial cash or fair market value on March 1, 1913. On this point we sustain the determination of the respondent.
The next question involves the proper treatment of the $80,000 that the petitioner received in 1924 in settlement of his contract with the Journal Printing Co. The petitioner takes the position that the payment in question should be accrued on his books and reported as income at the rate of $300 per week beginning May 28, 1921, and ending July 8, 1926, while the respondent contends that the entire amount was income to the petitioner in 1924. In our opinion, neither the petitioner nor the respondent is wholly correct. The petitioner's books were kept and his returns of income made on the accrual basis, and he therefore properly accrued in the years 1921, 1922, and 1923, the amounts due under the contract in those years, namely, $9,500, $15,600, and $15,600, respectively, even though the Journal Printing Co. had failed to make any payments. However, in 1924 a settlement was made, whereby the petitioner accepted $80,000 in full settlement of the amounts that were already due him and of all*2191 amounts that might thereafter become due. It is our opinion that the amount received in such settlement, to the extent that it exceeded the amounts which had theretofore accrued and become due and payable under the contract in the years 1921, 1922, and 1923, was income to the petitioner in and for the year 1924.
The respondent admits that the petitioner paid additional taxes in the amounts of $101 for 1921, $410.16 for 1922, and $1,478.42 for 1923. Credit will be given for these amounts in the final order herein.
It is alleged in the petition that the petitioner's tax liability for the year 1925 is in controversy. However, the deficiency letter shows that the Commissioner determined an overassessment for that year. It does not appear that the overassessment is due to the disallowance either in whole or in part of a claim for abatement of tax assessed against the petitioner, and we therefore have no jurisdiction as to that year. .
Reviewed by the Board.
Judgment will be entered under Rule 50.