Gress Mfg. Co. v. Commissioner

*979OPINION.

The taxpayer does not question the adjustment of its 1920 income made by the Commissioner. It does question the computation of the invested capital and the computation of the deficiency.

It is the contention of the taxpayer that its 1917 and 1918 income tax liability was incorrectly computed by the Commissioner in the respects hereinafter set forth, and that, to the extent that such compuation of tax was excessive, its invested capital for 1920 was erroneously reduced. The 1917 and 1918 taxes, as computed by the Commissioner, have been paid in full by the taxpayer, but the time within which it may file a claim for refund or bring suit to recover the additional assessments has not yet expired. The contention of the taxpayer appears to be well taken, provided the 1917 and 1918 taxes were in fact erroneously computed.

It is taxpayer’s contention that the 1917 tax was erroneous because the debt of $27,401.31, due it on July 31, 1916, from the New York & Florida Lumber Co., was ascertained to be worthless in 1917 and should have been allowed in whole as a deduction in that year rather than allowed in part in each of the years 1915, 1916, and 1917, as was done by the Commissioner. It was incumbent upon the taxpayer to establish that the debt claimed by it existed in 1917 and was ascertained to be worthless in that year. After a very careful consideration of the record, we can not find that the taxpayer has sustained that burden.

As ivas pointed out to counsel before the close of the hearing, the testimony with reference to the transactions between the tax*980payer and New York & Florida Lumber Co. does not present a connected story. It appears that the New York & Florida Lumber Co. owned 28,000 acres' of timber land and that the taxpayer was engaged in buying and selling timber at wholesale. The officers of the two companies appear to have been the same, and the same individual owned more than a majority of the stock in each. The taxpayer entered into some arrangement with the New York & Florida Lumber Co., the details of which are not in evidence, by which the taxpayer was to'take lumber from lands of that company. It expended over $28,000 in placing mills, rails, and other property upon these timber lands, giving rise to the debt here in question. During 1916 taxpayer sold a part of this personal property and credited the proceeds to the New York & Florida Lumber Co. account. During the years 1916 and 1917 taxpayer was removing timber from the lands of that company, but the only credit which it gave that company for timber so removed was $856.15 in 1916 and $1,999.20 in 1917. There is testimony to the effect that there was a mortgage upon the property which required that there should be paid to the trustee under the mortgage $8 for each 1,000 feet of timber that was removed from the property. The sums credited by taxpayer to the New York & Florida Lumber Co. appear to have been paid to the trustee and the company debited with such payments, so that during the years in question the only amounts applied in reduction of the indebtedness were those realized from the sale of the personalty placed upon the property by the taxpayer. The price to be paid for timber removed was fixed by the same person acting for both corporations.

In 1917 the bonds issued under the mortgage came into the hands of interests unfriendly to the taxpayer. The situation which resulted is described in a letter from one officer of the taxpayer to another, as follows:

⅞ :■> ⅜ He [the bondholder] demands that we cease cutting all timber and cross ties on the New York and Florida Lumber Co.'s property at once.

If we will not do this he will start a lot of law suits against us. He claims ho has purchased about all the bonds of the above named company and is a real owner. He is willing to cancel all claims he might have against our company provided we stop Gritting now, and turn the property over to him.

I told him we would comply with his request and would stop, and I would advise you accordingly.

Operations were accordingly abandoned in November, 1917, and no other amounts were realized by the taxpayer after that date.

Even though it be conceded that the taxpayer has established that after that date the New York & Florida Lumber Co. was unable to meet its indebtedness and that its property was worth less than *981its bonds, we do not feel that we would be justified, in the circumstances of this appeal, in disturbing the action of the Commissioner in writing off the so-called indebtedness over the period during which timber was being removed by the taxpayer. The evidence is too indefinite to permit us to determine satisfactorily what was ■the true situation.

Taxpayer claims that, by reason of the adjustment of sales from 1921 to 1920, a net loss resulted in 1921, deductible from 1922 and 1923 income, and that a refund is due it for those years, which should be credited to reduce the 1920 deficiency. The returns for those years have not been audited by the Commissioner and the deficiency letter sent to the taxpayer by the Commissioner relates only to the year 1920. In our opinion, this Board has no jurisdiction to pass upon the tax liability of the taxpayer for those years to determine whether any refund is due which can be used as a credit against the deficiency for 1920 determined by the Commissioner.

Under section 274 of the Revenue Act of 1924, this Board is authorized to review an appeal from the determination of a deficiency by the Commissioner and to determine whether or not there is such a deficiency. It has no jurisdiction over refunds, Appeal of Everett Knitting Works, 1 B. T. A. 5; nor is the deficiency in question in this appeal a net deficiency arising from a determination by the Commissioner of a deficiency for one year and an overassessment for another, where both years had been audited by the Commissioner. as was the situation in the Appeal of E. J. Barry, 1 B. T. A. 156. We should be going beyond the power vested in this Board were we to go into the tax liability for a year not audited by the Commissioner in order that we might determine whether there was a refund to be applied as a credit against the deficiency determined by him.