*1465 1. Taxes for interest on bonds and for maintenance, repairs and expenses of drainage, levee and road district, not of a kind tending to increase the value of the property assessed, are deductible under section 234(a)(3) of the Revenue Acts of 1921 and 1924.
2. Unit rate for depletion and amount of timber cut determined.
*841 The income taxes in controversy in this proceeding are the amounts of $6,121.26, $18,260.53, and $16,335.38 asserted by the respondent as deficiencies for the fiscal years ended January 31, 1922, 1923, and 1924, respectively.
The petitioner alleges that the respondent's determination is in error:
1. In that the assessment and collection of the proposed deficiencies for the years ended January 31, 1922 and 1923, were barred by the statute of limitations prior to the date when the deficiency notice was mailed.
2. In overstating by the amount of $13,590.84 the income from petitioner's Blytheville Branch.
3. In disallowing as a deduction in each of said*1466 years, those portions of taxes assessed against petitioner by drainage, road and levee districts which were used to pay interest, repairs, maintenance and other expenses.
4. In not allowing as a deduction in each of said years the full amount of depletion sustained as to petitioner's timber.
The respondent alleges that the statutory period for the assessment and collection of taxes for the years ended January 31, 1922 and 1923, has been waived by both parties, who have entered into proper consents in writing; and the respondent further alleges that he erred in allowing the petitioner a deduction of $2,568.69 for the year ended January 31, 1922, and of $1,957.76 for the year ended January 31, 1923, as depletion upon timber upon the Chapman and Dewey tract.
FINDINGS OF FACT.
The petitioner is a trust, designated and known as Lee Wilson & Company, which was created on February 5, 1917, by a written declaration of trust. Since that date is has engaged in the business of lumbering, lumber manufacturing, farming and merchandising, with its principal office at Wilson, Arkansas.
For many years prior to the creation of the trust the same business was conducted by Lee Wilson*1467 & Company, an Arkansas corporation, the majority of the stock of which was owned by R. E. Lee Wilson, Sr. All of the said corporation's stock was surrendered and canceled and all of the corporation's assets and business were conveyed to Wilson and the corporation dissolved. The declaration of trust made on February 5, 1917, states in part, "that I, R. E. Lee Wilson, do hereby declare that I hold the property, real, personal and mixed, this day conveyed to me by Lee Wilson & Company, a corporation * * *, for the following uses and purposes, and *842 upon the following trusts, to wit: * * *." R. E. Lee Wilson, Sr., became the sole trustee and the certificates of interest were issued in equal amounts to Wilson, his wife and their three children.
On February 28, 1923, the petitioner filed with the collector of internal revenue at Little Rock, Arkansas, a fiduciary return on Form 1041 for income for the fiscal year ended January 31, 1922, and as to that year the following waivers were executed and filed:
INCOME AND PROFITS TAX WAIVER
December 21, 1926.
In pursuance of the provisions of existing Internal Revenue Laws Lee Wilson & Company - R. E. Lee Wilson, Sr., Trustee, *1468 a taxpayer of Wilson, Arkansas, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) ended January 31, 1922 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1927, and shall then expire.
R. E. LEE WILSON, SR., TrusteeTaxpayer.
By
D. H. BLAIR, Commissioner.
INCOME AND PROFITS TAX WAIVER
Wilson, Ark., Dec. 24th, 1926.
In pursuance of the provisions of existing Internal Revenue Laws Mr. R. E. Lee Wilson, Sr., Trustee for Lee Wilson & Company, Trust, a taxpayer of Wilson, Arkansas, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) ended January 31, 1922, under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment*1469 as aforesaid shall remain in effect until December 31, 1927, and shall then expire.
R. E. LEE WILSON, SR., Trustee,
Taxpayer.
APPROVED December 31, 1926.
Date
By
D. H. BLAIR, Commissioner.
On May 28, 1923, the petitioner filed with the said collector a fiduciary return on Form 1041 for income for the fiscal year ended January 31, 1923, and as to that year the following waiver was executed and filed.
*843 INCOME AND PROFITS TAX WAIVER
December 21, 1926.
In pursuance of the provisions of existing Internal Revenue Laws Lee Wilson & Company, R. E. Lee Wilson, Sr., Trustee, a taxpayer of Wilson, Arkansas, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) ended January 31, 1923 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1927, and shall then expire.
R. E. LEE WILSON, SR., Trustee,
Taxpayer.
By
D. H. BLAIR, Commissioner.*1470
The respondent ruled that petitioner was taxable as an association in the same manner as a corporation and on November 29, 1926, advised the said collector that petitioner's returns for all years should be filed on Form 1120 A. On March 24, 1927, the deputy collector under provisions of section 3176, R.S., prepared returns on Form 1120 A for this petitioner for the years ended January 31, 1922 and 1923.
The respondent's deficiency notice was mailed to petitioner on November 17, 1927, and the petitioner filed its petition with the Board on January 11, 1928.
The parties have agreed and stipulated that the net income as determined by the respondent for the fiscal year ended January 31, 1924, is overstated by the amount of $13,590.84, which represents excessive profits from petitioner's Blytheville Branch, included therein.
Certain drainage, road improvement and levee districts, created and operated pursuant to the Statutes of Arkansas, extended through the petitioner's property. The parties hereto have agreed and stipulated to the various amounts of local-benefit taxes levied and assessed by the respective districts, numbering 11 in all, for the fiscal years ended January 31, 1922, 1923, *1471 and 1924. The taxes were for the sole use and benefit of such districts and the property situated therein and were imposed in their entirety on the property located within such districts in proportion to the ratio of benefits derived, or to be derived. The said stipulation of the parties included a detailed schedule setting forth the total amount of taxes assessed and levied, the total amount of bonds matured and paid, the total amount of interest accrued and paid, and the amount of taxes paid by petitioner with respect to each of the various districts in each of the said three years. The total amount of the taxes paid by petitioner to the *844 various districts during the years in question and a proper allocation thereof as to the purposes for which such taxes were paid, are as follows:
| Special | |||||
| Year ended | Total tax | Maintenance | maintenance | ||
| Jan. 31 | paid | Bonds | Interest | and expenses | and levy |
| 1922 | $ 41,258.54 | $ 10,977.22 | $ 20,517.04 | $4,706.18 | $5,058.10 |
| 1923 | 46,985.28 | 13,058.06 | 22,259.22 | 6,729.80 | 4,938.20 |
| 1924 | 42,258.99 | 14,338.04 | 23,381.49 | 4,539.46 |
None of the said taxes have been allowed by the respondent*1472 as deductions in computing petitioner's net income for the said years.
There was no new construction in any of the said districts during the three years involved in this proceeding and all of the taxes levied and collected were used to pay bonds maturing and interest accruing on outstanding bonds during each of those years and for general maintenance, repairs and expenses which recurred annually. The recurring maintenance, repairs and expenses included the cost of cleaning out drainage ditches so that the water would run, repairs to levees and roads and other expenses incurred regularly in the management operation of such districts.
At the time of the dissolution of the corporation, Lee Wilson & Company, its entire business and property, consisting of standing timber, land, sawmills, railroads, lumber stock, merchandise, supplies, and interests in other businesses, passed to R. E. Lee Wilson, Sr., who, by the written declaration of trust of February 5, 1917, declared that he held all of said property conveyed to him by the corporation in trust for certain uses and purposes and designated the trust as Lee Wilson & Company, the petitioner herein. The said assets included a large*1473 area of timberlands known as the Wilson tract, comprising some 15,000 to 20,000 acres of standing timber, located in the northeast corner of Arkansas, in Mississippi County. Logging conditions were good throughout the greater portion of the Wilson tract, and the petitioner owned spur railroads used in hauling logs to its mill. Since February 5, 1917, petitioner has continuously engaged in the business of cutting its own logs and in addition thereto, purchasing logs from others, of manufacturing rough lumber which it sold in the general market, and of selling the small timber left standing, called bolt timber, to manufacturers of barrel staves, who would cut and remove such small timber.
On February 5, 1917, the petitioner's Wilson tract contained 86,142,746 feet of saw timber, which had a fair market value on that date of $5 per thousand feet, and 62,297,591 feet of bolt timber, which had a fair market value on that date of $3 per thousand feet.
*845 During the years here in controversy the following amounts of timber were cut from the petitioner's lands, the Wilson tract:
| Fiscal year ended Jan. 31 - | Saw timber | Bolt timber |
| Feet | Feet | |
| 1922 | 3,413,060 | 2,400,486 |
| 1923 | 6,653,195 | 1,245,664 |
| 1924 | 2,922,122 | 1,425,543 |
*1474 Sometime in 1916 a tract of timberlands known as the Chapman and Dewey tract was purchased by R. E. Lee Wilson, acting as an individual, for a consideration of $75,603.40. That tract contained 3,829.89 acres and 26,427,998 feet of standing timber, of which two-thirds was saw timber and one-third was bolt timber. This tract adjoined the timberlands of the petitioner and its standing timber was comparatively equal in available sizes and species with the standing timber on the Wilson tract. The parties who sold to Wilson were also in the business of lumbering, with their principal seat of operations at a place called Marked Tree, which was 50 or 60 miles from this tract by nearest railroad route. They had been accustomed to float the logs they cut on the Chapman and Dewey tract down the local streams to their mills at Marked, Tree, but the construction and operation of drainage ditches resulted in lowering the level of the waters in said streams to such an extent as to render that practice impossible. In purchasing the said timberlands at the price paid, Wilson drove a good bargain. The vendors could not profitable cut logs and haul them to their mill and the acreage involved*1475 did not justify the erection of a mill to saw the logs cut only from that tract. Wilson purchased the tract for the purpose of supplying Lee Wilson & Company, the corporation, with additional saw timber. The corporation never acquired title to the said timberlands, but it did purchase from R. E. Lee Wilson all of the saw timber which the corporation cut. Payment was made to Wilson by a credit to Wilsons' personal account carried on the books of the corporation. The proceeds of the sales of the standing bolt timber and also of the cut-over lands of the said tract, were also credited to Wilson's personal account. In making the purchase of the Chapman and Dewey tract, Wilson gave his personal notes therefor and when such notes fell due, the corporation paid such notes and charged the amounts so paid to Wilson's personal account. After the dissolution of the corporation and the creation of the trust, the petitioner continued to purchase from Wilson the logs cut from said tract in the same manner that the corporation had done. The Chapman and Dewey tract never became a part of the trust property, although petitioner handled the disposition of the following amounts of timber cut therefrom: *1476
| Fiscal year ended Jan. 31 - | Saw timber | Bolt timber |
| Feet | Feed | |
| 1922 | 2,148,117 | 624,637 |
| 1923 | 171,050 | 1,942,226 |
| 1924 |
*846 In determining the deficiencies in question the respondent has, for each of the said years, computed depletion at a rate of $3.75 per thousand feet for saw timber and $0.9264 per thousand feet for bolt timber, on the basis of the alleged March 1, 1913, value of the Wilson tract and the cost of the Chapman and Dewey tract. The respondent has allowed deductions in the amounts of $2,568.69 and $1,957.74 for the fiscal years ended January 31, 1922 and 1923, respectively, for depletion for certain amounts, other than as shown above, of timber cut from the Chapman and Dewey tract.
OPINION.
VAN FOSSAN: The first issue raises the question of whether the assessment and collection of deficiencies for the fiscal years ended January 31, 1922 and 1923, were barred by the statute of limitations prior to the date when the final deficiency notice was mailed on November 17, 1927. Our findings set forth the facts that as to the said years waivers were executed prior to the expiration of the four-year period of limitations provided*1477 for by section 250(d) of the Revenue Act of 1921, and reenacted in the later revenue acts, and that such waivers, if valid, extended the period until December 31, 1927, which is subsequent to the date when the deficiency notice was mailed. The petitioner disputes the validity of these waivers and argues that the respondent has failed to establish that such waivers were signed by the Commissioner personally or by some one properly authorized to sign his name, and, further, that respondent has failed to establish the date on which the Commissioner's name was signed on the waivers and whether they were signed before or after December 31, 1927. The signature of R. E. Lee Wilson, Sr., Trustee, affixed to each of the three waivers, is not disputed, nor is there any dispute as to the dates during the month of December, 1926, appearing at the head of the waivers. One waiver, pertaining to the year ended January 31, 1922, shows that it was approved by the Commissioner or his deputy on December 31, 1926. A waiver is not a contract and the Commissioner's signature is required purely for administrative purposes and not to convert into a contract what is essentially a voluntary, unilateral*1478 waiver of a defense by a taxpayer, , and , and there can be no doubt that *847 the Commissioner may authorize one or more persons to sign his name to meet the exigencies of such purely administrative duties. There is nothing in the requirement for the Commissioner's signature which limits the period during which a waiver may be effectively given, , and the signature of a Commissioner to a waiver of limitations is presumed to have been placed there by his authority, Trustees for ohio and . Each of the waivers here in question is regular on its face and the petitioner has not proven any irregularity as to signature or date. The waivers are valid. Cf. . Accordingly, assessment and collection of the deficiencies for the years ended January 31, 1922 and 1923 are not barred. Also cf. *1479 ; affd., ; certiorari denied, ; . The case of , relied on by petitioner, is clearly distinguishable from the instant case on the facts.
The second issue has been disposed of by the stipulation of the parties to the effect that the net income of petitioner as determined by respondent for the fiscal year ended January 31, 1924, is overstated by the amount of $13,590.84.
The third issue involves the question of whether petitioner is entitled to deductions, in each of the years in question, of certain portions of taxes assessed by drainage, road and levee districts which extended through petitioner's lands. We have briefly set forth in our findings of fact the allocation of the said taxes paid by petitioner in each of the years in question, which allocation is based upon the stipulation, testimony and records submitted in evidence.
Section 234(a)(3) of the Revenue Acts of 1921 and 1924 provides that, in computing the net income of corporations subject to the tax*1480 imposed by section 230 of such acts, there shall be allowed as a deduction "taxes paid or accrued within the taxable year except (c) taxes assessed against local benefits of a kind tending to increase the value of the property assessed."
The Commissioner's Regulations 62 and 65, articles 133 and 561, provide that taxes assessed against local benefits such as sidewalks, streets and other improvements are not deductible under the above quoted section of the revenue acts, and also that:
* * * Assessments under the statutes of California relating to irrigation and of Iowa relating to drainage, and under certain statutes of Tennessee relating to levees, are limited to property benefited, and when it is clear that the assessments are so limited, the amounts paid thereunder are not deductible as taxes. When assessments are made for the purpose of maintenance or repair of local benefits, the taxpayer may deduct the assessments paid as an *848 expense incurred in business, if the payment of such assessments is necessary to the conduct of his business. When the assessments are made for the purpose of constructing local benefits, the payments by the taxpayer are in the nature of*1481 capital expenditures and are not deductible. Where assessments are made for the purpose of both construction and maintenance or repairs, the burden is on the taxpayer to show the allocation of the amounts assessed to the different purposes. If the allocation can not be made, none of the amounts so paid is deductible.
No question has been raised as to the fact that the amounts paid to the said districts by petitioner constituted taxes duly assessed and collected by the several districts pursuant to the statutes of Arkansas. Our only question is whether that portion of such taxes used for interest, maintenance, repairs and expenses is deductible for the purpose of determining petitioner's net income. In the case of , we held that a tax, assessed and paid to an Idaho irrigation district for the purpose of meeting interest on that district's bonds, was not a tax of a kind tending to increase the value of the property assessed, and, therefore, was deductible as a tax under section 214(a)(3) of the Revenue Act of 1921. Under authority of that decision we hold that the portion of taxes paid by this petitioner and allocated to interest for*1482 each of the years is deductible, namely, the amounts of $20,517.04, $22,259.22 and $23,381.49 for the years ended January 31, 1922, 1923 and 1924, respectively.
The Commissioner's regulations have provided for the deduction of that portion of such local benefit taxes as may be allocated to maintenance and repair of local improvements such as irrigation works, levees and drainage ditches. We agree that such amounts should be allowed as deductions. Respondent has aribitrarily classed such items as expenses incurred in business, although in fact they were paid out as taxes. Since either is allowable as a deduction it is unnecessary to decide which is the correct terminology. We are of the opinion that the portion of taxes paid by this petitioner and allocated to maintenance, repairs and expenses for each of the years is deductible, namely, the amounts of $9,764.28, $11,668 and $4,539.46, for the fiscal years ended January 31, 1922, 1923 and 1924, respectively.
The fourth issue involves the question of deduction for each of the years for depletion of timber. The respondent in his determination of the deficiencies in question has allowed certain deductions for each of the years*1483 for depletion of timber on the Wilson tract and also has allowed deductions of $2,568.69 and $1,957.74 for the fiscal years ended January 31, 1922 and 1923, respectively, for depletion of timber on the Chapman and Dewey tract. The petitioner contends that respendent has not allowed sufficient depletion, while *849 respondent, by amendment to his answer to conform to the proof, avers that he erred in allowing any deductions for depletion of timber on the Chapman and Dewey tract.
The record in this proceeding discloses that the Chapman and Dewey tract of timberland was purchased in 1916 by R. E. Lee Wilson, Sr., as an individual, that it was never owned by the corporation which transferred all of its property to Wilson on February 5, 1917, and that Wilson, in creating this petitioner, declared that he held in trust all of the property transferred to him by the corporation. The record does not disclose any proof that the Chapman and Dewey tract ever became a part of the trust property, but, on the contrary, shows that Wilson remained the individual owner thereof and that during the years in question the petitioner purchased from Wilson the logs which it cut from the said tract. *1484 Accordingly, upon the facts of record, it is clear that petitioner is not entitled to any deductions for depletion of timber on the Chapman and Dewey tract and that respondent erred in allowing such deductions for the years ended January 31, 1922 and 1923.
The petitioner was created on February 5, 1917, as an operating trust and the certificates of interest were issued in equal amounts to Wilson, his wife, and their three children. On that date petitioner acquired numerous assets, by a transfer in trust, among which was a large tract of timberland known as the Wilson tract. There is no question but that for each of the three years in question petitioner is entitled to a deduction for depletion of its timber on the Wilson tract pursuant to section 234(a)(9) of the Revenue Act of 1921 and section 234(a)(8) of the Revenue Act of 1924, based upon the fair market value of the timber standing on said tract on February 5, 1917. ; section 204(a)(4), Revenue Act of 1924.
The record includes both opinion and documentary evidence as to value. The opinions of petitioner's witnesses were strikingly harmonious in the values fixed for saw*1485 timber and make slight reference to bolt timber. Certain of this testimony was materially weakened by cross-examination, when the values were translated into acreage and residual values. Of more than ordinary importance are the values fixed by petitioner itself in the year 1922 in a sworn statement supplied to the bureau of internal revenue before the present tax controversy arose. See .
Respondent's witnesses fixed a higher value than that employed in the computation on which the notice of deficiencies was based.
After careful consideration of all the evidence we have found as a fact that the fair market value of such timber on February 5, 1917, was $5 per thousand feet of saw timber and $3 per thousand feet of *850 bolt timber. We have set forth in our findings the number of feet of saw timber and bolt timber cut from the Wilson tract during each of the years in question and the allowable deduction for depletion should be computed on such amounts at the unit rate of $5 per thousand feet of saw timber and $3 per thousand feet of bolt timber.
Decision will be entered under Rule 50.