*2623 Respondent's determination approved because of failure of proof as to March 1, 1913, value of assets sold.
*357 Petitioner contests a deficiency of $1,511.91 in income and profits taxes for the year 1921 resulting from respondent's treating as taxable income the entire amount of $16,410 received by petitioner in one year as consideration for the transfer of its insurance business. Petitioner's investment assets did not enter into the sale transaction, they being retained by petitioner. The subject matter conveyed included premium rights, together with claim liabilities, on existing policies, petitioner's agency organization and its correspondence records and data necessary to enable the purchaser to hold and continue petitioner's insurance business. Petitioner contends the properties sold had a March 1, 1913, value equal to the selling price and, therefore, no taxable gain resulting from said sale, the inclusion of a sale price in 1921 income was in error.
FINDINGS OF FACT.
Petitioner is a Colorado corporation is dissolution, with offices*2624 in Denver. It was organized in 1906 to engage in the health and accident insurance business, which it continuously carried on from that time until February, 1921, when its business was terminated by the execution of the following contract of sale:
THIS CONTRACT OF RE-INSURANCE made and entered into, By and between THE WESTERN CASUALTY COMPANY, an insurance corporation, organized and doing business under the laws of the State of Colorado, party of the first part, hereinafter called the first party, and THE UNION HEALTH AND ACCIDENT COMPANY, an insurance corporation, organized and doing business under the laws of the State of Colorado, party of the second part, hereinafter called the second party, WITNESSETH:
THAT BOTH PARTIES hereto are engaged in conducting like kinds of insurance business in said State of Colorado and also in other States, and that the first party desires to secure the business and risks of the second party wherever the insured of the second party may reside, and to re-insure all such risks, and the second party desires to have its risks re-insured by first party, all for the consideration of the mutual covenants, undertakings and agreements herein set out, and*2625 the moneys to be paid as herein provided: -
WHEREFORE, and for the consideration aforesaid, the second party does hereby transfer and assign to the first party all of its risks under the policies of insurance issued to its policy holders and at the date hereof in force and *358 binding upon the second party, and this is intended to include such policies as are partially or wholly suspended or inoperative and not binding, but subject to re-instatement or renewal under the provisions thereof; and the first party, for the consideration aforesaid does hereby assume and agree to pay and satisfy all of said risks under the policy contracts governing the same and all of them respectively in all instances where the notice of liability, whether for death, injury sustained, commencement of sickness, or disability arising, shall be received after the date and time this contract shall take effect as hereinafter set out and provided; and as to all liabilities existing where the notice thereof shall have been received prior to the date and time this contract shall take effect as herein provided the second party shall pay the same. If any of the said policies contain any conditions for*2626 certain amounts to be paid as dividends in cash, or to be applied as extended premiums on the policies, in all such cases the first party assumes the liability for such dividends to the policy holders whenever the same become due, or applicable as such extended premiums, after the time and date this re-insurance contract shall so take effect. All premiums on said policies so transferred and assigned which shall be received by second party before this contract takes effect as herein provided shall be retained by second party; all premiums received after this contract so takes effect shall belong to, and be paid to the first party forthwith if received by the second party. It is intended and expressly understood hereby that by this re-insurance contract, from and after the date and time it takes effect as herein provided, the first party shall be substituted to, and receive, all the rights and benefits of the second party under such policies of insurance, and assumes all liabilities of the second party thereunder, except as herein otherwise provided. A Schedule of the said insurance policies is furnished herewith, but if any such policy should be omitted from said Schedule, such omission*2627 shall not affect the right of either the policy holder or the said first party.
TO MORE FULLY CARRY OUT AND MAKE KNOWN the above assumption of liability the first party convenants and agrees that immediately upon the execution of this contract and its approval by the INSURANCE DEPARTMENT of the State of Colorado, the first party will duly execute and deliver by mail, or personally, to each and every of the said policy holders, and ASSUMPTION OF LIABILITY RIDER, in substantially the following form, to-wit:
"ASSUMPTION OF LIABILITY RIDER, ISSUED BY THE WESTERN CASUALTY COMPANY,
"GENERAL OFFICES, DENVER, COLORADO, TO BE ATTACHED TO POLICY NO. ,
"ISSUED BY THE UNION HEALTH AND ACCIDENT COMPANY, OF DENVER, COLORADO.
"THIS IS TO CERTIFY, THAT THE WESTERN CASUALTY COMPANY, in accordance with the terms of its RE-INSURANCE CONTRACT, has assumed and does hereby assume, all liability of said The Union Health and Accident Company under the said numbered policy, in all instances where the notice of liability, whether for death, injury sustained, commencement of sickness, or disability arising, shall be received on and after five o'clock P.M. Standard Time, Denver, Colorado, on*2628 the 25th day of February, A.D. 1921, the date and time when said RE-INSURANCE CONTRACT by its terms takes effect.
"WITNESS THE EXECUTION HEREOF by the President of said THE WESTERN CASUALTY COMPANY, Attested by its Secretary under its corporate seal.
"THE WESTERN CASUALTY COMPANY
"By , Its President,
"Attest,
, Its Secretary."
*359 It is further covenanted and agreed between the said parties, that the second party shall turn over to the first party, at the time and date this contract shall take effect, all applications, premium records, correspondence, papers and documents relating to all the said policies of insurance, and all the records of the second party shall be subject to the inspection of the first party at any and all reasonable times, and all desired information in the possession of the second party pertaining to the matters and things covered by this contract shall be furnished on request of the first party; and the second party agrees to do all things necessary and convenient to carry out the purposes of this contract on its part, and the first party also covenants and agrees to do and perform all things herein devolving upon it and to pay to second*2629 party, at the date and time this contract takes effect, and after condition precedent thereto, the sum of Eighteen Thousand Dollars ($18,000.00) lawful money of the United States, less seventy-five per cent (75%) of the advance premiums on all policies on which the premiums are paid monthly or weekly; and also less seventy-five per cent (75%) of the unearned premiums on all policies on which the premiums are paid annually, semi-annually, or quarterly, all such deductions to be computed as of the date and the time this contract takes effect as herein provided.
It is further covenanted and agreed by the second party with the first party, that it will furnish to the first party, with all reasonable promptness after this contract takes effect as herein provided, the names and addresses of all its agents and solicitors wherever they may be located, and will use its good offices and all reasonable assistance towards inducing all such agents and solicitors to enter, and remain in, the service of the first party as its agents and solicitors.
It is further agreed between the said parties, that this contract shall take effect, subject to the conditions herein set out, at five o'clock, *2630 P.M. Standard Time, at Denver, Colorado, the 25th day of February, A.D. 1921. It is also agreed between the said parties, that this contract, before it shall become completely effective shall be approved by the Insurance Department of the State of Colorado.
THIS CONTRACT is executed by the said parties by order of the board of directors of each and both of them previously made, and the stockholders of the second party, except the holder of one share who is not accessible, also sign this contract to manifest their approval of the same.
IN WITNESS WHEREOF, the said parties by their respective Presidents, Attested by their respective Secretaries, under the corporate seals of each, do hereby execute this contract in Triplicate this 25th day of February, A.D. 1921.
THE WESTERN CASUALTY COMPANY,
(Signed) By CHARLES F. TEW, Its President.
Attest,
(Signed) R. V. TOWNER, Its Secretary.
[Corporate Seal]
THE UNION HEALTH AND ACCIDENT COMPANY,
(Signed) By J. S. McCLEERY, Its President.
Attest,
(Signed) By J. S. McCLEERY, Its Secretary.
[Corporate Seal]
This contract was executed in accordance with its terms, the consideration received by petitioner amounting*2631 to $16,410.
*360 The amount and sources of petitioner's income for the years 1909 to 1920, inclusive, were as follows:
| Gross income | Gross underwriting income | Gross investment income | Underwriting net income | Net income, including investment income | |
| 1909 | $100,077.66 | $91,740.37 | $8,337.29 | $5,133.75 | $13,471.04 |
| 1910 | 103,504.13 | 94,716.79 | 8,787.34 | 1 2,034.44 | 6,752.90 |
| 1911 | 87,348.79 | 78,258.17 | 9,090.62 | 1 3,034.16 | 6,056.46 |
| 1912 | 72,621.34 | 64,071.28 | 8,550.06 | 1 848.47 | 7,701.59 |
| Total | 363,551.92 | 328,786.61 | 34,765.31 | 1 783.32 | 33,981.99 |
| Averages | 90,887.98 | 82,196.65 | 8,691.32 | 195.83 | 8,495.49 |
| 1913 | 69,843.44 | 60,551.56 | 9,291.88 | 1 892.56 | 8,399.32 |
| 1914 | 80,366.32 | 72,047.72 | 8,318.60 | 1 2,384.61 | 5,933.99 |
| 1915 | 94,342.66 | 84,594.86 | 9,747.80 | 3,552.11 | 13,299.91 |
| 1916 | 95,578.96 | 85,442.96 | 10,136.00 | 2,930.39 | 13,066.39 |
| 1917 | 93,140.20 | 82,991.73 | 10,148.47 | 3,688.91 | 10,987.38 |
| 1918 | 88,701.43 | 77,463.55 | 11,237.88 | 1 4,344.02 | 6,893.86 |
| 1919 | 88,762.22 | 75,484.71 | 13,277.51 | 3,798.22 | 17,075.73 |
| 1920 | 82,926.58 | 70,606.07 | 12,320.51 | 1 2,715.71 | 9,604.80 |
| Total | 693,661.81 | 609,183.16 | 84,478.65 | 3,632.73 | 85,261.38 |
| Averages | 86,707.72 | 76,147.89 | 10,559.83 | 454.09 | 10,657.67 |
Disbursements and dividends for the same period were as follows:
| Gross disbursements exclusive of dividends | Dividends | |
| 1909 | $86,606.62 | $4,000.00 |
| 1910 | 96,751.23 | 10,000.00 |
| 1911 | 81,292.33 | 6,000.00 |
| 1912 | 64,919.75 | |
| Total | 329,569.93 | 20,000.00 |
| Averages | 82,392.48 | 5,000.00 |
| 1913 | 61,444.12 | 6,000.00 |
| 1914 | 74,432.33 | 6,000.00 |
| 1915 | 81,042.75 | 6,000.00 |
| 1916 | 82,512.57 | 6,000.00 |
| 1917 | 79,302.82 | 9,000.00 |
| 1918 | 81,807.57 | 10,000.00 |
| 1919 | 71,686.49 | 6,000.00 |
| 1920 | 73,321.78 | 8,000.00 |
| Total | 605,550.43 | 57,000.00 |
| Averages | 75,693.80 | 7,125.00 |
OPINION.
SIEFKIN: The only evidence of March 1, 1913, value, aside from exhibits showing income from the various sources, disbursements and dividends, as set out in our findings of fact, was the opinion testimony of a qualified expert. This witness was given exhibits showing income disbursements and dividends and asked if he could express an opinion as to the relative values on March 1, 1913, and *361 the date of sale of the property sold in 1921. His answer was that he could express such opinion and that he thought the property sold was worth no more in 1921 than it was in 1913. *2633 On cross examination he admitted the basis of his opinion to be faulty in that factors not before him would affect the values in question. Obviously such an opinion, standing alone, has little weight in determining values as of the basic date.
It does not require extended discussion to point out deficiencies in evidence necessary to an independent conclusion on our part as to March 1, 1913, values. Petitioner urges that what it sold was a policy list, together with the data necessary to enable the purchaser to acquire and hold the business it represented and that such asset, though fluctuating, was in existence at the basic date. Petitioner apparently considers the income shown under the head "underwriting net income" to be the principal factor in determining the value of the assets sold. Because the assets sold for $16,410 in 1921, despite losses in underwriting income in 1918, and 1920, petitioner would have us conclude that the March 1, 1913, value was at least $16,410, despite the fact that there were losses in underwriting income for the three years preceding the basic date. It may well be true that the properties sold had a value despite said losses in 1913 as well as*2634 in 1921, but such values might have been due to other factors or conditions which we can not assume remained constant over so long a period of time.
Nor are the amounts shown as investment income for the various years helpful in finding the value in question, as the invested assets were not sold, and we are not informed as to what extent the investments represent income derived from the business. We do not think the evidence sufficient to overcome the presumption of correctness inhering in respondent's determination.
Judgment will be entered for the respondent.
Considered by TRAMMELL, MORRIS, and MURDOCK.
Footnotes
1. Losses. ↩