*3874 1. Value of assets determined as of March 1, 1913.
2. Respondent's disallowance of good will as of March 1, 1913, approved.
3. Reduction of March 1, 1913, value of property by depreciation allowed, approved.
*87 This is a proceeding for the redetermination of a deficiency in income and profits taxes for the year 1920 in the amount of $15,980.01. The only question is the amount of profit realized upon a sale of assets in 1920.
*88 FINDINGS OF FACT.
In 1920 the petitioner, a West Virginia corporation, sold its assets to the Parkersburg Sand Co. for $90,000, and undertook, by contract, that its officers would not engage in the sand or gravel business in the City of Parkersburg, W. Va., or within fifteen miles, for ten years. The assets sold consisted of barges, machinery, tools and miscellaneous equipment and a tract of land used in operating a sand and gravel dredging business on the Ohio River. The petitioner was incorporated in 1906. Some of the assets sold in 1920 were acquired at the formation of the company in 1906, some were*3875 acquired between 1906 and March 1, 1913, and some were acquired after March 1, 1913. The books of the petitioner showed a cost of assets as of December 31, 1912, of $32,310.73.
When the petitioner was organized it took over the assets of a similar business operated by C. D. Dotson who, with C. H. Wright became the officers and chief stockholders of petitioner. The par value of the petitioner's capital stock was $20,000. Dotson and Wright were practical river and harbor men and Wright was a civil engineer as well. During the first three years of incorporation Dotson and Wright received no salaries, then for a few years Dotson received $100 a month, then $3,500 a year. Wright received $125 to $150 a month. Dotson devoted his entire time to the business of the petitioner, Wright devoted most of his time. During the period from incorporation to March 1, 1913, no dividends were paid. The earnings of the company were used to repair and enlarge the plant. The gross income, net income and deductions taken for depreciation of the petitioner, as shown by corporation Federal excise and incometax returns filed by it for the years 1909 to 1913 and 1915 to 1918, follow:
| Year | Gross income | Net income | Depreciation taken |
| 1909 | $24,435.66 | $862.14 | $3,400.00 |
| 1910 | 26,842.52 | 3,843.06 | 3,551.07 |
| 1911 | 19,784.29 | 3,318.10 | 1,610.53 |
| 1912 | 16,555.16 | 2,716.81 | None. |
| 1913 | 18,480.50 | 2,571.01 | None. |
| 1915 | $28,139.97 | $4,838.14 | $2,141.67 |
| 1916 | 30,213.35 | 4,304.70 | 4,663.99 |
| 1917 | 31,480.90 | 2,412.71 | 2,354.75 |
| 1918 | 35,015.92 | 2,683.81 | 4,574.03 |
*3876 The amounts taken as depreciation constituted 5 per cent in some years and 10 per cent in other years of the book value of the property. A capital-stock-tax return filed by the petitioner for the fiscal year ended June 30, 1918, reported the fair value of its assets as of January 1, 1918, at $56,965.29, the same amount as shown upon its books.
*89 The records of the petitioner show that between January 1, 1913, and the date of sale of its assets it purchased additional capital assets in the amount of $38,631.91, sold assets in the amount of $10,469.40 and suffered a loss of assets in the amount of $5,000, and deducted depreciation on its tax returns of a total of $21,104.70.
In 1921 at the time the petitioner filed its income and profits-tax return for 1920 the president of the petitioner was advised by the office of the Collector of Internal Revenue of the district where it filed its return to obtain an appraisal of its assets as of March 1, 1913, by two disinterested qualified persons. Such an appraisal was made and determined the value of such assets at that date of $68,675. The petitioner's computation of the profit of $6,767.19 reported by it in its return as*3877 the result of the sale was as follows:
| Property acquired prior to and on hand Mar. 1, 1913, | ||
| per appraisement. | $68,675.00 | |
| Subsequent purchases | 38,631.91 | |
| Total | 107,306.91 | |
| Sold from plant | $15,469.40 | |
| Depreciation | 21,104.70 | |
| 36,574.10 | ||
| Net sold plant | 70,732.81 | |
| Good will | 10,000.00 | |
| Commission on sale | 2,500.00 | |
| 12,500.00 | ||
| Total | 83,232.81 | |
| Sale price | 90,000.00 | |
| Net gain on sale | 6,676.19 |
The respondent, in determining the deficiency in controversy, used the amount as shown by the petitioner's books as of March 1, 1913, or $32,310.73 instead of the $68,675 used in the petitioner's computation and further disallowed the $10,000 for good will. He also reduced the basis by $21,104.70 on account of depreciation taken as deductions.
OPINION.
SIEFKIN: The sole question in this proceeding relates to the profit realized, if any, by the petitioner upon the sale of its assets in 1920. Some of the assets were acquired prior to March 1, 1913, and some subsequent to that date.
In 1921 the petitioner had two disinterested qualified persons appraise its plant and equipment as of March 1, 1913. A value of $68,675 was placed upon such*3878 assets as of March 1, 1913, and at the hearing the one surviving appraiser testified that this figure represented the fair market value as of that date.
*90 In its petition, the petitioner states and the respondent admits that from its inception up to March 1, 1913, the petitioner expended $32,310.73 for various assets, plant, equipment, barges, hoisting engines, etc. The plant and equipment were carried on the books at that figure.
At the hearing, a number of witnesses for the petitioner stated the value of the plant and equipment of the petitioner as of March 1, 1913, at figures ranging from $68,675 to $100,000, and of good will at from $13,000 to $25,000.
After considering all the evidence we are of the opinion that the plant and equipment had a value of $68,675, on March 1, 1913.
The witnesses who testified as to the value of the good will did not establish any bases for their opinions and we must discount their testimony in that regard. The petitioner was organized in 1906 and up to 1913 did not show any large income. In fact in 1912 and 1913 the income decreased. We are of the opinion that insufficient evidence has been introduced to establish the value*3879 of good will and the respondent's disallowance of this item is approved.
The petitioner contends that the respondent erred in failing to disregard the item of $21,104.70, depreciation taken on tax returns from January 1, 1913, to date of sale, in ascertaining the net value of assets sold. We must approve this holding of the respondent. See ; ; ; .
Judgment will be entered on 15 days' notice, under Rule 50.