*2579 1. Where the petitioner makes a prima facie showing that the statute of limitations has run against collection of taxes, the burden of showing that assessment was made within the statutory period, thus allowing six additional years for collection, is upon the respondent.
2. Collection of 1917 taxes held not barred by statute of limitations.
3. Collection of taxes for 1918 held not barred by statute of limitations.
4. Petitioner held not entitled to special assessment for year 1918.
5. Insufficient evidence was introduced to reverse the holding of the respondent in other regards.
*470 This is a proceeding for the redetermination of deficiencies in income and profits taxes for the calendar years 1917 and 1918 in the amounts of $1,442.04 and $3,593.97, respectively.
It is alleged that the respondent erred in:
(1) Holding that the profits tax as computed under the provisions of section 201 of the Revenue Act of 1917, and section 301 of the Revenue Act of 1918, is not in excess of the average profits*2580 tax "paid by a group of representative concerns," and in failing to find that petitioner's invested capital could not be determined for 1917, and that the petitioner's case for the year 1918 came within the provisions of section 327(a) or (c) of the Revenue Act of 1918;
(2) In holding that for the year 1917 petitioner was entitled to a deduction of 7 per cent instead of 8 per cent;
(3) In reducing petitioner's invested capital for 1917 by $2,852.62 due to the payment of dividends in 1917;
(4) In disallowing as a business expense, in 1918, the amount of $177, representing additional compensation given as Christmas gifts to petitioner's employees;
(5) In not comparing petitioner with representative concerns as required by section 328 of the Revenue Act of 1918; and
(6) In failing to hold that the collection of the alleged deficiencies is barred by the statute of limitations.
At the hearing the petitioner abandoned assignment (4) but was granted leave to amend the petition by adding the following assignments of error:
(7) The respondent erred in determining the war-profits credit for the year 1918, in deducting the salary paid Frank E. Harris, for which no services were*2581 rendered; and
(8) The respondent erred in determining petitioner's invested capital by failing to allow the fair value of intangible property acquired by petitioner for its stock.
*471 FINDINGS OF FACT.
The petitioner is a New York corporation with principal office at Binghamton. It was organized in the early part of 1913 to take over and operate the business started in 1889 by Frank E. Harris, which was, after his death, carried on by his wife, Carrie B. Harris, individually and as executrix of his estate. The business consists of the manufacture of flavors, flavoring extracts and proprietary medicines.
At organization the petitioner took over all the assets and assumed all the liabilities of the predecessor business and issued therefor the full amount of its authorized capital stock, $150,000 to Carrie B. Harris, or her order. On March 13, 1913, a stockholders' meeting and a directors' meeting were held and the transaction was formally authorized. The minutes of the stockholders' meeting provided in part:
II. In part consideration of such sale, the Company hereby assumes and agrees to pay, satisfy, and discharge all the lawful debts and liabilities of the*2582 vendor in relation to the said business and to indemnify the vendor and her heirs, executors, administrators, assigns, estates and effects against all actions, claims and demands in respect thereof.
III. As further consideration for the sale of the property above mentioned, the Company agrees to issue to the vendor and to her nominees, their legal representatives or assigns, certificates of full paid and non-assessable stock of the company to the aggregate amount of Seven Hundred Fifty Shares of the preferred stock, said stock being issued in exchange for and in payment of all the above named property except the good-will, trade-marks, trade-names, brands, labels, patterns, designs, formulas, patents, patent-rights and copy-rights; and the Company agrees to issue to the vendor and her nominees, their legal representatives or assigns, certificates of full paid and non-assessable stock of the Company to the aggregate amount of Seven Hundred Fifty Shares of the common stock, being in exchange for and in payment of the good-will, trade-marks, trade-names, brands, labels, patterns, designs, formulas, patents, patent-rights and copy-rights; the common and preferred stock to be issued*2583 as herein set forth aggregating the par value of One Hundred Fifty Thousand Dollars and being the amount of the total authorized capital stock of said company; * * *.
Among the assets received by the petitioner in this transaction were about 45 secret formulas. These made it possible to manufacture products at a lower cost and to produce a better extract than the Government standard. Petitioner also received trade-marks and trade-names, which at that time had not been registered with the Government. These were subsequently registered. These had been in use in the predecessor business for years and were in use by the petitioner in the year 1918. The business was carried on after incorporation in about the same way as before, with the same customers.
*472 The opening balance sheet of the petitioner was as follows:
| Resources | Liabilities | ||
| Treasury stock | $ 150,000.00 | Capital stock, preferred | $75,000.00 |
| Cash balance | 6,511.50 | Common stock | 75,000.00 |
| Bills receivable | 500.00 | Clifford G. Harris | 150.00 |
| Frank E. Sisson, expense acc. | 50.00 | Morrisville Food Co | 9.25 |
| Advertising inventory | 385.55 | E. G. Whitman | 2.50 |
| Fixtures inventory | 2,778.16 | Surplus | 67,511.20 |
| Merchandise inventory | 31,967.81 | ||
| Store expense inventory | 429.33 | ||
| Accounts receivable | 8,239.46 | ||
| Good will | 20,000.00 | ||
| Total | 220,861.81 | 220,861.81 |
*2584 The inclusion of the item "treasury stock" was a mistake on the part of the accountant, as the petitioner had no treasury stock. The amount included in this item was intended to represent the amount paid for formulas and trade-marks of the Frank E. Harris Co.
The closing entries of the Frank E. Harris Co. at the end of 1912 were:
| Cash balance | $ 6,511.50 |
| Bills receivable | 500.00 |
| Frank E. Sisson, expense account | 50.00 |
| Advertising inventory | 385.55 |
| Fixtures | 2,778.16 |
| Merchandise inventory | 31,967.81 |
| Store expense, inventory | 429.33 |
| Accounts receivable | $8,239.46 |
| Frank E. Harris stock account | 47,511.20 |
| Carrie B. Harris | 3,188.86 |
| Clifford G. Harris | 150.00 |
| Morrisville Food Co | 9.25 |
| E. G. Whitman | 2.50 |
| Frank E. Harris Co | 50,861.81 |
The total sales of the Frank E. Harris Co. for the years 1908 to 1912 were:
| 1908 | $163,507.83 |
| 1909 | 145,215.16 |
| 1910 | 192,902.29 |
| 1911 | 224,536.04 |
| 1912 | 181,117.61 |
The total profits after all deductions had been made were:
| 1908 | $6,219.84 |
| 1909 | 4,481.20 |
| 1910 | 3,668.57 |
| 1911 | 5,914.74 |
| 1912 | 1,345.74 |
The salary of Frank E. Harris during each of those years was as follows:
| 1908 | $5,557.50 |
| 1909 | 8,500.00 |
| 1910 | 7,100.00 |
| 1911 | 6,918.94 |
| 1912 | 8,090.10 |
*2585 *473 Frank E. Harris had an accident in July, 1910, and was not active in the business from September, 1910, until February 1, 1912.
The petitioner filed its income and excess-profits-tax return for the year 1917 between March 28, and March 30, 1918.
By letter of January 17, 1923, the respondent informed the petitioner that it was liable for an additional tax of $1,442.04 for 1917. The invested capital for 1917 was reduced by respondent by the accrued liability for income tax for 1916. The respondent also disallowed the deduction of 8 per cent claimed by petitioner and allowed a 7 per cent deduction.
On March 8, 1923, the respondent wrote a letter to petitioner informing it that its tax had been forwarded for assessment and that a claim for abatement would be entertained. Pursuant to this letter petitioner, within 30 days, filed a claim in abatement as to 1917 taxes.
By letter of March 2, 1925, the respondent informed petitioner that its claim for abatement of $1,442.04 and for refund of $2,559.82 for 1917, would be rejected.
On January 30, 1924, the petitioner and the respondent entered into the following instrument in writing:
1/30/1924.
INCOME AND*2586 PROFITS TAX WAIVER
In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, Frank E. Harris Co., Inc., of Binghamton, N.Y. and the Commissioner of Internal Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said corporation for the years 1917 and 1918, under the Revenue Act of 1921, or under prior income, excess-profits, or war-profits tax Acts, or under Section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes", approved August 5, 1909. This waiver is in effect for one year from the date it is signed by the taxpayer.
(Signed) FRANK E. HARRIS CO., INC.
Taxpayer.
By: C. G. HARRIS, Sec. & Treas.
D. H. BLAIR, Commissioner.
By letter of November 4, 1925, the respondent informed petitioner that there was no deficiency in tax for 1917, but that there was a deficiency in tax for 1918 in the amount of $3,593.97.
The additional tax of $1,442.04 for 1917 has not been paid, nor, to the best knowledge of the petitioner, *2587 has any warrant been issued, or suit commenced for its collection.
The petitioner's income and profits-tax return for the year 1918 was filed on April 24, 1919. On January 27, 1925, the petitioner and the respondent executed the following instrument in writing:
*474 JANUARY 27, 1925.
INCOME AND PROFITS TAX WAIVER.
(For taxable years ended prior to March 1, 1921)
In pursuance of the provisions of existing Internal Revenue Laws, Frank E. Harris Co., a taxpayer of 579 Griswold St., Binghamton, N.Y., 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 1918, 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, 1925, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) *2588 if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
(Signed) FRANK E. HARRIS COMPANY, INC.
Taxpayer.
C. G. HARRIS, Sec. & Treas.
D. H. BLAIR, Commissioner.
By the letter of November 4, 1925, the respondent informed the petitioner as follows:
You are advised that after a careful review of your protest dated March 30, 1925, and of all the evidence submitted in support of your contentions, the Bureau holds that your profits tax as computed under the provisions of sections 201 and 301 is not in excess of the average profits tax paid by a group of representative concerns which in the aggregate may be said to be engaged in a like or similar trade or business to that of your company. Accordingly, the conclusions set forth in office letter dated March 2, 1925, are sustained.
The deficiency of $3,593.97 for year 1918 has not been assessed or collected, nor, to the best knowledge of the petitioner, has any warrant been issued or any step taken for its collection.
OPINION.
SIEFKIN: At the hearing counsel for the respondent*2589 moved for a dismissal of the petition in so far as it relates to the year 1917, on the ground that no deficiency as to that year was asserted in the letter of November 4, 1925. However, by reference this letter incorporates the letter of March 2, 1925, in which the respondent rejected the petitioner's claim for abatement of 1917 taxes. The letter of March 2, 1925, does not purport to be a final determination, but is the ordinary 30-day letter. The letter of November 4, 1925, was the respondent's final determination that the petitioner's claim for abatement would be rejected and it is, therefore, the basis of an appeal to this Board. The motion is therefore denied.
*475 The petitioner contends that the 1917 deficiency is barred from collection.
Section 277(a)(2) of the Revenue Act of 1924 provides:
SEC. 277. (a) Except as provided in section 278 and subdivision (b) of section 274 and in subdivision (b) of section 279 -
* * *
(2) The amount of income, excess-profits, and war-profits taxes imposed by the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved on August 5, 1909, the*2590 Act entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October 3, 1913, the Revenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, and by any such Act as amended, shall be assessed within five years after the return was filed and no proceeding in court for the collection of such taxes shall be begun after the expiration of such period.
Section 278(c) and (d) of the Revenue Act of 1924 provides:
(c) Where both the Commissioner and the taxpayer have consented in writing to the assessment of the tax after the time prescribed in section 277 for its assessment the tax may be assessed at any time prior to the expiration of the period agreed upon.
(d) Where the assessment of the tax is made within the period prescribed in section 277 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax. Nothing in this Act shall be construed as preventing the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made.
*2591 The petitioner showed that the return for 1917 was filed between March 28, and March 30, 1918, but there is no evidence to show when the assessment was made. Upon whom is the burden of showing this fact? In , we held that, where the petitioner makes a prima facie showing that the collection of a deficiency is barred, the burden of proving any exception which would remove the case from the operation of the statute is on the respondent. The petitioner has shown that the return was filed on a certain date, that the five years have elapsed and that collection has not been made. This is a prima facie showing that collection is barred, since section 277 of the Revenue Act of 1924 provides that no collection can be had after five years after the return was filed. Section 278 provides that collection may be made if the assessment was made within the five-year period. If in this case the assessment was so made, the burden of proving this exception is upon the respondent, and he has failed to present such proof.
A written instrument was entered into by the petitioner and the respondent, on January 30, 1924, purporting to extend the*2592 time for determination, assessment and collection of 1917 taxes for a period of one year after the date signed by the petitioner. However, at the *476 time the instrument was signed, the statutory period of five years applicable to 1917 taxes, as stated in the Revenue Act of 1921, had expired.
The petitioner contends that, in order to extend the time within which assessment may be made, the consent in writing must be entered into before the expiration of the statutory period. The Court of Appeals of the District of Columbia so held on December 3, 1928, in , but the facts in that case indicate clearly that the parties were acting under a mistake of fact. No such facts appear in this case and we have held, in , that under such circumstances collection is not barred.
We must hold that the collection of the taxes for 1917 is not barred.
The return for 1918 was filed on April 24, 1919. On January 30, 1924, the parties entered into a consent in writing to a determination, assessment and collection of taxes at any time within*2593 a year thereafter. On January 27, 1925, they entered into a consent in writing to a later assessment of the tax. This instrument provided that it should be in effect until December 31, 1925. By letter dated November 4, 1925, the respondent notified petitioner of a deficiency for the year 1918, and this letter was the basis of this appeal. Assessment and collection are not barred, since the consents in writing acted to prolong the time within which assessment might be made and the Revenue Act of 1924 provides six years for collection after the assessment has been made.
The petitioner contends that the respondent erred in holding that the profits tax, as computed under the provisions of section 301 of the Revenue Act of 1918, is not in excess of the average profits tax "paid in by a group of representative concerns," and in failing to hold that the petitioner's case for the year 1918 came within the provisions of section 327(a) or (c) of the Revenue Act of 1918. However, the petitioner has failed to adduce evidence to show any abnormality entitling it to special assessment or to show that it is impossible to determine its invested capital for the year 1918. It was shown that*2594 a mixed aggregate of tangible and intangible property was paid in to it at organization, but it was not shown that it is impossible to determine the respective values thereof. In the absence of such proof the respondent's denial of special assessment will be upheld. It follows that the respondent did not err in failing to compare the petitioner with representative concerns as provided in section 328 of the Revenue Act of 1918.
The petitioner contends that the respondent did not allow in invested capital the fair value of intangible property acquired by petitioner for stock. However, there is insufficient evidence to determine *477 the value of such intangible property, and the respondent's holding will not be disturbed.
The petitioner also alleges that the respondent erred, in determining its war-profits credit for 1918, in deducting from the prewar income the salary of Frank E. Harris for which no services were rendered. However, the record does not show what the respondent did in this respect and his holding will not be disturbed.
Judgment will be entered under Rule 50.