*3598 Cash value of good will and intangibles paid in to a corporation in exchange for shares of capital stock not proven by the evidence.
*140 This is a proceeding for the redetermination of a deficiency in income and profits tax for 1921 in the amount of $562.12. The assignments of error are: (1) In computing invested capital for 1921 the Commissioner has excluded $25,000 therefrom on account of good will, but only $12,500 should have been excluded; and (2) in computing invested capital for 1921 the Commissioner has reduced same in the amount of $117.26 on account of income tax paid for the year 1920, prorated from the respective due dates in accordance with Treasury Department regulations.
FINDINGS OF FACT.
The petitioner is an Indiana corporation with its place of business at Warsaw. It was organized in 1904 for the purpose of taking over the printing and publishing business of a partnership of the same name and this has been its business ever since.
The partnership was formed in 1856 by Reub Williams and his eldest son, Mel R. Williams, *3599 each having a one-half interest in same. It owned and acquired the United Press Franchise and published the "Northern Indianian," a weekly paper, until about 1919. In 1881 it established the "Warsaw Daily Times," a daily paper which it has continued to publish to the present time.
*141 At the time of organization in 1904, Logan H. Williams, a younger son of Reub Williams, was taken into the business and the 500 shares of stock were issued as follows:
| Shares | |
| Reub Williams | 200 |
| Mel R. Williams | 250 |
| Logan H. Williams | 50 |
Logan H. Williams had been an employee of the partnership since 1895, as city editor of the daily paper which it published and the object of incorporation was to take him into the business and to perpetuate the business which had been built up over a period of nearly 50 years.
At the time of organization the corporation issued $50,000 par value of capital stock for tangible assets consisting of printing plant and equipment of a value of approximately $25,000, United Press franchise, subscription list which the partnership had, and good will.
The partnership made money prior to 1904 and the corporation has made money since incorporation. *3600 The profits of petitioner for the years 1909 to 1921 were as follows:
| 1909 | $5,121,20 |
| 1910 | 6,000.00 |
| 1911 | 7,454.53 |
| 1912 | 6,740.31 |
| 1913 | 7,193.09 |
| 1914 | 7,201.48 |
| 1915 | 4,956.28 |
| 1916 | $5,812.22 |
| 1917 | 3,205.79 |
| 1918 | 5,370.80 |
| 1919 | 7,232.49 |
| 1920 | 4,774.73 |
| 1921 | 7,832.81 |
The net tangibles in 1904 were approximately $25,000. The net tangibles for 1917 were $25,117.09; for 1918, $25,000; for 1919, $29,466.44; for 1921, $29,150.89. The average net tangibles for the period 1904 to 1921 were around $25,000.
In computing invested capital for 1921 the Commissioner excluded any amount for good will or intangibles.
The circulation of the daily newspaper in 1904 was approximately 2,300 and in 1921 approximately 3,700.
The Commissioner also reduced invested capital for 1921 by $117.26, representing the amount of the 1920 tax paid by petitioner prorated from the respective due dates in accordance with Treasury Department regulations.
The Commissioner computed the profits tax for 1921 under section 302 of the Revenue Act of 1921.
OPINION.
SMITH: Petitioner assigns two errors in the computation of the deficiency for 1921, both of which relate to the*3601 determination of the *142 correct invested capital for the year. Petitioner claims that it is entitled to include in invested capital $12,500 in respect of the value of good will and intangibles paid in to the corporation upon its organization in 1904 for shares of capital stock. This is the greatest amount which could be included in invested capital under section 326(a)(5) of the Revenue Act of 1921. The Commissioner has disallowed this claim upon the ground that the good will and intangibles paid in for shares of stock in 1904 had no cash value. To prove a cash value for these intangibles the petitioner has offered in evidence a deposition of Logan H. Williams.
The testimony of the deponent was elicited by highly leading questions or asked conclusions as to value which were objected to by counsel for the respondent either upon the ground that they were leading questions or not the best evidence. The books and records of the petitioner were not introduced in evidence and it was not shown that they could not have been.
The burden of proving a value for good will was on the petitioner. *3602 (C.C.A., 5th Cir.). We are of the opinion that the petitioner has not met the burden of proving a cash value of the intangibles either in the amount of $12,500 or in any amount whatever. The fact that the predecessor partnership had profits is not sufficient to prove that the intangibles had a cash value in 1904. The earnings of the corporation for the period 1909 to 1921 do not prove a value for the intangibles in 1904. Many factors may have intervened between 1904 and 1909, which would account for a large part of the earnings subsequent to 1909. Upon the record the determination of the respondent is approved.
Petitioner further objects that the respondent has excluded from invested capital a prorated portion of the income tax payable for the year 1920. Such exclusion was proper. See section 1207 of the Revenue Act of 1926.
Judgment will be entered for the respondent.