*4167 Value of corporate stock on March 1, 1913, determined.
*181 TRAMMELL: This is a proceeding for the redetermination of a deficiency in income tax of $79.50 for 1923. The deficiency results from the respondent's having increased the petitioner's income from the sale of certain stock due to his determination that the fair market value of such stock on March 1, 1913, was less than that reported by the petitioner.
FINDINGS OF FACT.
The petitioner is a resident of Newburgh, N.Y.
Prior to his death in 1902, the petitioner's father owned all of the stock of the Newburgh News Printing & Publishing Co., consisting of 300 shares of a par value of $100 each. Through an arrangement made with the decedent's estate, 150 shares of the stock were acquired by Frederick W. Wilson and the remaining 150 shares passed to the decedent's wife, daughters and sons, including the petitioner. The stock has always been closely held and no sales were made from 1902 to January 17, 1923, when some of the members of the Keefe family, including the petitioner, sold a total*4168 of 125 shares to Wilson. As a part of this total, the petitioner sold 12 1/2 shares, receiving therefor $1,200 per share. In 1924 Wilson sold the 125 shares of stock that he had purchased from the Keefe family in 1923 to Frederick H. Keefe, the petitioner's brother, who held the 25 shares which he acquired in 1902 upon the death of his father. The sale price of the stock in this transaction was $1,100 per share. On July 1, 1925, Wilson sold to Frank E. Gannett at $1,766 per share the 125 shares he acquired in 1902.
The following is a statement of the amount of the tangible assets and net income of the Newburgh News Printing & Publishing Co. from 1907 to 1924, together with the dividends paid from 1913 through 1923:
| Dec. 31 - | Tangible assets | Net income | Dividends |
| Percent | |||
| 1907 | $90,827.86 | $18,542.01 | |
| 1908 | 105,234.53 | 21,906.67 | |
| 1909 | 122,996.64 | 17,468.70 | |
| 1910 | 141,181.88 | 25,685.24 | |
| 1911 | 150,453.77 | 16,771.90 | |
| 1912 | 163,006.39 | 20,052.61 | |
| 1913 | |||
| 165,641.90 | 9,971.77 | 25 | |
| 1914 | 172,133.47 | 8,311.97 | 25 |
| 1915 | 181,618.20 | 9,484.75 | 25 |
| 1916 | $197,564.31 | $15,946.10 | 25 |
| 1917 | 218,485.83 | 21,693.77 | 25 |
| 1918 | 178,054.77 | 30,546.32 | 25 |
| 1919 | 211,093.99 | 35,737.21 | 58 1/3 |
| 1920 | 246,114.72 | 49,503.47 | 50 |
| 1921 | 232,257.60 | 35,158.77 | 50 |
| 1922 | 202,294.81 | 40,418.44 | 50 |
| 1923 | 238,657.89 | 81,292.96 | 108 1/3 |
| 1924 | 232,899.98 | 82,171.51 |
*4169 *182 The following are the balance sheets of the Newburgh News Printing & Publishing Co. at the dates indicated:
| Dec. 31, 1912 | Mar. 31, 1913 | Dec. 31, 1922 | Dec. 31, 1923 | Dec. 31, 1924 | |
| ASSETS | |||||
| Cash, news account | $10,661.14 | $11,034.41 | $2,361.73 | $22,406.27 | $20,678.73 |
| Cash, realty account | 149,27 | 150.55 | |||
| Notes, receivable | 80.50 | 1,272.23 | 1,922.63 | ||
| Accounts, receivable | 15,723.37 | 16,240.14 | 31,885.68 | 36,078.61 | 42,765.84 |
| Inventory | 3,545.55 | 3,744.26 | 5,804.31 | 10,295.06 | 9,359.91 |
| Broadway realty | 761.17 | 1,014.90 | |||
| Investments | 6,172,00 | 672.00 | 500.00 | ||
| M. L. Keefe | 11,042.67 | 11,977.24 | |||
| Loans | 700.00 | 32,300.00 | 22,554.13 | ||
| Real estate, News Building | 28,582.24 | 28,582.24 | |||
| Real estate, Broadway-Liberty | 28,741.25 | 28,706.25 | |||
| Land | 26,000.00 | 9,000.00 | 9,000.00 | ||
| Deferred charges | 3,108.00 | ||||
| Plant equipment | 70,110.56 | 70,730.37 | |||
| Plant, buildings, and equipment, less depreciation | 109,049.90 | 85,419.35 | 85,929.24 | ||
| Circulation, promotion | 21,269.41 | 23,155.70 | 38,081.68 | 38,328.84 | 38,385.17 |
| Purehased good will | 20,620.50 | 20,620.50 | 20,620.50 | ||
| 190,667.13 | 195,336.06 | 241,948.03 | 256,468.58 | 254,824.15 | |
| LIABILITIES | |||||
| Bond and mortgage | $11.25 | $15.00 | |||
| Mortgage | $18,000.00 | ||||
| Notes payable | 10,000.00 | ||||
| Accounts payable | 1,228.84 | 828.47 | 3,481.48 | $2,523.17 | $6,552.69 |
| News band, concert fund | 26.60 | 26.60 | |||
| F. W. Wilson | 2,084.63 | 2,273.28 | |||
| Current income tax | 6,871.14 | 13,915.38 | 13,973.68 | ||
| Reserve for depreciation | 24,091.08 | 25,231.46 | |||
| Subscriptions paid in advance | 1,300.60 | 1,372.14 | 1,397.80 | ||
| Adjustment account | 218.34 | 218.34 | |||
| Capital stock | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 |
| Surplus | 133,006.39 | 136,742.91 | 172,294.81 | 208,657.89 | 202,899.98 |
| 190,667.13 | 195,336.06 | 241,948.03 | 256,468.58 | 254,824.15 |
| Surplus March 31, 1913 | $136,842.91 |
| Surplus December 31, 1912 | 133,006.39 |
| Increase for 3 months | 3,836.52 |
| Increase for 2 months, two-thirds of increase for 3 months | 2,557.88 |
| Surplus December 31, 1912 | 133,006.39 |
| Surplus March 1, 1913 | 135,564.27 |
The stock at the time acquired by the petitioner in 1902 had a value of less than $679 per share.
In filing his income-tax return for 1923 the petitioner reported the stock as having a fair market value of $912.80 on March 1, 1913, and computed his income from the sale of the stock accordingly. The respondent determined that the intangible assets of the Newburgh News Printing & Publishing Co. on March 1, 1913, had a value of $68,835.03, and that the stock on that date had a fair market value of $781.33 per share. In his answer to the petitioner the respondent contends that he erred in his determination and alleges that the value of the intangible assets on March 1, 1913, was only $38,205.93 and *183 that the fair market value of the stock on that date was $679.23 per share.
Due to costly production and poor business the period from 1913 to 1918 witnessed a decline in the earnings of the Newburgh News Printing*4171 & Publishing Co. as compared with a similar period prior to 1913. Beginning with 1918 and following the war period, earnings show a considerable increase over the prior periods.
The stock of Newburgh Printing & Publishing Co. on March 1, 1913, had a fair market value of $761.90 per share.
Judgment will be entered on 15 days' notice, under Rule 50.