*2113 The evidence does not show that on March 1, 1913, the petitioner had good will of any fair market value.
*162 This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent for the period January 1 to September 30, 1924, in the amount of $6,859. The petitioner alleges that the respondent in computing the profits from the sale of the petitioner's assets in 1924 erred in excluding from the basis for such computation the amount of $55,000Representing the March 1, 1913, value of good will.
FINDINGS OF FACT.
The petitioner is a New York corporation, with its principal office at 7th Avenue and 36th Street, New York City. It was incorporated May 7, 1912, and issued $250,000 of capital stock, consisting of $125,000 of preferred stock and $125,000 of common stock for the assets of the York Co. and the Hotel York, a corporation. The preferred stock was issued for the assumed value of the tangibles, $125,000, and the common stock was issued, $70,000 for the appraised value of a lease and*2114 $55,000 for the appraised value of good will. These were the values placed upon the tangible assets, the lease and the good will, by the incorporators of the petitioner.
In 1903 Henry G. Williams and Sylvanus Stokes leased the hotel building at the northwest corner of 36th Street and Seventh Avenue, New York City. The term of the lease was 21 years, with a privilege of renewal. Williams and Stokes operated the hotel as partners from 1903 to 1906. In the latter year the partners, who had *163 invested $135,000 in the partnership, organized a corporation known as the York Co. and turned the assets of the partnership, including the lease, in to the corporation for its capital stock of $135,000. Of the stock, $88,500 was issued to Williams and $46,500 to Stokes. At the same time another corporation, known as "Hotel York, a corporation," was organized, which operated the hotel under the lease held by the York Co. Its capital stock of $50,000 was issued to Williams for $50,000 cash. From 1906 to 1911 the hotel was operated as a loss. Neither the partnership nor the Hotel York, a corporation, had net earnings, and no dividends were ever paid by either of the corporations. *2115 On December 21, 1911, receivers were appointed for the York Co. and for the York Hotel, a corporation, and they operated the York Hotel from December 21, 1911, to May 7, 1912, the date of the incorporation of the taxpayer. In 1912 Hotel York a corporation, was indebted to Williams for personal loans to the extent of $24,174.37. Williams was never repaid any portion of the moneys thus advanced by him. In 1912 he paid an additional $57,054.24 to creditors of the corporation, including $10,000 to Sylvanus Stokes for his interest in the York Co. in order to wind up the receivership and get the properties in his own hands. Williams' total investment to May 7, 1912, was as follows:
| York Corporation | $88,500.00 |
| Hotel York, a corporation | 50,000.00 |
| Personal loans to corporation | 24,174.37 |
| Paid to creditors | 57,054.24 |
| Total | 219,728.61 |
The owners of the fee of the property voluntarily reduced the rental of the hotel $10,000 per annum from May 1, 1912, to May 1, 1917.
The York Hotel building occupied about 8,000 square feet of ground, was 13 stories tall, and contained about 242 rooms. It was located at Seventh Avenue and 36th Street in the City of New York, in*2116 a district composed largely of stores selling second-hand clothing and shoes.
Henry G. Williams originally became interested in the York Hotel property and continued his interest therein in the expectation of future profits which he thought would result from the location and completion of the Pennsylvania Railroad Terminal and surrounding improvements. At the inception of the business and for some time thereafter the property was operated at a loss and, as stated above, receivers were appointed for the Hotel York Corporation, but they were appointed at the instance of Stokes, who was not in accord with Williams in respect to the management of the hotel; and the receivership was of a limited character. The receivership was *164 terminated by settlement of the differences between Stokes and Williams, and was dismissed for the reason that there was no evidence of insolvency.
Prior to March 1, 1913, the uptown terminal of the Hudson Tubes, which connected railroad terminals and other points in New Jersey and New York with New York City by rapid transit was completed. The Seventh Avenue subway connecting lower and upper New York with a station at the Pennsylvania Terminal, *2117 33rd Street and Seventh Avenue, was projected and under construction. The McAlpin Hotel, on Broadway between 33rd and 34th Streets was completed and open, and the Gimbel Brothers' and Saks' department stores on 33rd Street and Sixth Avenue were completed and open.
On September 30, 1924, the petitioner sold its assets, including good will, to the 464 Corporation for $50,000.
The respondent in computing the profit from the sale of the petitioner's assets did not include in the basis therefor any value for good will at March 1, 1913.
OPINION.
MARQUETTE: In the case of , the taxpayer, the petitioner herein, claimed that upon its organization on May 7, 1912, it acquired from its predecessor corporations, the York Co. and the Hotel York, good will of the actual cash value of $55,000, which it was entitled to include in invested capital for the year 1921. We held in that case that the evidence failed to show that the petitioner acquired from its predecessor corporations good will of any actual cash value.
In the instant proceedings the petitioner claims that it had on March 1, 1913, good will of the value of $55,000, which*2118 should be included in the basis for computing gain or loss on the sale of the assets in 1924. In support of this contention the petitioner introduced the record in , together with the testimony of three witnesses.
Upon consideration of the evidence presented we are unable to find that the petitioner had good will of any value on March 1, 1913. The testimony of two of the witnesses as to the value of the petitioner's good will is purely speculative, and is based on their ideas of what a hotel of the size and location of the hotel operated by the petitioner should earn per room, but they did not show that they had any knowledge of the actual conditions as to the capitalization, earnings and expenses of the petitioner. The other witness. Williams, testified that immediately after the settlement of the difficulties between him and Stokes the operations of the petitioner began to show a profit and that the profits increased each subsequent year. *165 However, he did not state the amount of the profits and the books of the petitioner are not before us. In any event the record discloses that with the possible exception of a period*2119 of a few months the York Hotel as operated by the petitioner and its predecessors was at all times prior to March 1, 1913, a losing venture. On the record we sustain the determination of the respondent.
Judgment will be entered for the respondent.