*2027 In its income-tax returns for 1920 and 1921 the petitioner deducted from gross income certain amounts for obsolescence of patents acquired at a nominal consideration of $1. These deductions were disallowed by the Commission. Held, the evidence does not warrant the deductions claimed.
*527 This proceeding challenges the correctness of determinations of deficiencies for 1920 and 1921 of $2,211.75 and $939.96, respectively.
The allegations of error contained in the petition are:
(a) The failure of the Commissioner to allow the inclusion of value of patents in the invested capital for the calendar years 1920 and 1921, when he permitted the patents to be included in the invested capital for the calendar year 1919;
(b) The failure of the Commissioner to allow as a deduction from gross income in the calendar years 1920 and 1921, depreciation (obsolescence) upon said patents, based upon decreased earning power.
FINDINGS OF FACT.
The petitioner was incorporated on or about April 1, 1914, taking over the business of a partnership which had*2028 theretofore been engaged in the manufacture and sale of brushes. From 1910 or 1911 the predecessor business had spent undetermined amounts in the development of certain brushes. Those efforts were continued after the organization of the corporation and a mechanic was employed at irregular intervals to perfect the inventions. In 1914 or 1915 six patents were taken out by the mechanic upon such inventions. They were all assigned to the petitioner in 1915 or 1916 for a consideration of $1 each. All amounts expended by the petitioner with respect to the inventions and patents were charged to expense and deducted *528 from gross income in annual tax returns. The patents protected the petitioner in the manufacture of two brushes and a mopholder: (1) a brush with a hose nozzle for the use of washing and cleaning automobiles; (2) a brush which was an improvement on a toothbrush, being circular instead of straight across; and (3) a mopholder for the purpose of attaching and taking off a brush for housewives and others. No demand was ever created for these brushes and mopholder. The manufacture of the brush with a hose-nozzle attachment was discontinued in 1919 or in 1920, and*2029 the mopholder proved to be impracticable. The petitioner continued to manufacture the toothbrush until 1920, but no demand could be created for it. In 1920 the sales from the patented article, locking device for mopholder covered by patents Nos. 1,148.558 and 1,148,559, decreased to the point of no demand. In its income-tax return for 1920 the petitioner deducted $3,500 for obsolescence on these patents. In 1921 the sales from the patented articles, improved toothbrush covered by patent No. 271,252, and hose-nozzle attachment covered by patent No. 169,467, decreased to the point of no demand for same, and in its income-tax return for 1921 the petitioner claimed the deduction of $3,500 for the obsolescence of the patents.
The petitioner's books of account during the period in which the cost of developing the patents was involved were on a single entry basis and no capital account was set up with respect to the cost of development. In 1917 or 1918 accountants installed a more modern accounting system and determined that the value of the patents was approximately $7,000. Against this capital value $3,500 was charged off in 1920, and $3,500 in 1921.
The Commissioner disallowed*2030 the deductions for obsolescence in the income-tax returns filed for 1920 and 1921 and determined deficiencies accordingly.
OPINION.
SMITH: The evidence in this case utterly fails to show that the patents acquired by the petitioner ever had any commercial value and it further fails to show the cost of the development of the patents, all of which cost, borne by the petitioner, is admitted to have been deducted from gross income in income-tax returns for years prior to the taxable years involved in this proceeding.
The allowance for depreciation is designed to return to taxpayers the capital cost or March 1, 1913, value of property, whichever is the basis for the computation. United States v. Ludey,274 U.S. 295">274 U.S. 295. The evidence of record fails to show what, if any, capital cost the petitioner had in the patents, which were determined to be worthless in 1920 and 1921. The burden of proof with respect to *529 such showing is upon the petitioner. Avery v. Commissioner, 22 Fed.(2d) 6. The petitioner has failed to meet that burden.
Judgment will be entered for the respondent of deficiencies of $2,211.75 for 1920, and $939.96 for*2031 1921.