*1865 Cost of certain property in 1915 determined for the purpose of computing the profit on its sale in 1922.
*378 This proceeding involves a deficiency in income tax as determined by the Commissioner for 1922 in the amount of $2,988.02. The only question at issue is the cost in 1915 of certain lots which were sold in 1922.
FINDINGS OF FACT.
The petitioner is a California corporation with its principal office at Long Beach.
In 1905 certain individuals acquired a tract of land for $16,000 and immediately subdivided in into 192 lots of dimensions of 50 feet front and 135 feet deep. At or about that time 20 of the lots were sold at approximately $250 each. Shortly thereafter, sales were discontinued and the property was taken off the market.
In 1915 the petitioner was formed and its entire capital stock of a par value of $25,000 was issued for the property referred to above. The formation of the petitioner was for the purpose of providing a more suitable means of handling the property and no attempt was made at that*1866 time to issue capital stock equal in amount to the fair market value of the property exchanged therefor, the corporation being what is ordinarily termed a "close corporation." At that time the property in question was located about one and one-half miles from the business section of Long Beach and two miles from the Pacific Ocean. Long Beach was growing, and has continued to grow, in the direction of the tract in question. While no sales were made in or about 1915 of any of the lots referred to, lots in another subdivision a short distance therefrom were being actively dealt in shortly prior to 1915.
During 1922 the petitioner sold 103 of the 172 lots originally acquired by it for a total selling price of $45,159. Of the lots sold, 86 were inside lots and 17 were corner lots. The total cost to the petitioner in 1915 of the lots sold in 1922 was not less than $36,900.
*379 OPINION.
SEAWELL: The question presented is entirely one of fact, namely, the cost to the petitioner in 1915 of certain lots which were sold by it in 1922. The cost used by the Commissioner is the par value of the stock issued therefor, but we do not understand that it is contended that such par*1867 value is conclusive as to cost. The testimony of one of the incorporators was that it was first contemplated to make a much larger issue of stock, but that since there was no thought of selling stock, the incorporators, who were also the owners of the property, accepted the advice of counsel to issue a smaller amount of stock, which resulted in a saving in local taxes. The testimony of three well qualified witnesses who were familiar with the property in 1915, as well as prior and subsequent to that time, was more than sufficient to satisfy us that the value of the lots in 1915, and of the stock given therefor, was not less than $36,900. While the sales shown prior to 1915 were made in 1912 and 1913, the uncontradicted testimony was to the effect that there was no decrease in these property values from that time to 1915. On the whole, we are satisfied that a cost to the petitioner in 1915 of $36,900 for the 103 lots sold in 1922 is fully substantiated.
Judgment will be entered under Rule 50.