Appeal of Cramer-Krasselt Co.

*390OPINION.

: If the taxpayer is to be permitted to include good will in its invested capital, it must result from the restoration to surplus of amounts expended in prior years for the purpose of increasing the earning capacity of its business — in acquiring something of permanent use in the business. The Commissioner eliminated the item under consideration from invested capital for two reasons: First, because of the taxpayer’s failure to show that the amounts set up on the books in 1904, 1906, and 1911, as good will, bore any direct relation to the actual expenditures made in the acquisition of an asset of that character; and, secondly, that, as a matter of good accounting, it is optional with the taxpayer whether expenditures of the character here under consideration shall be charged to a capital account or treated as cost of current operations, and, since the taxpayer elected to treat them as cost of current operations concurrently with the transactions, a revision of that election can not now be permitted.

The views of the Board as they relate to the second reason for the Commissioner’s action have been clearly stated in the Appeal of Gilliam Manufacturing Co., 1 B. T. A. 967, and the Appeal of Goodell-Pratt Co., 3 B. T. A. 30, in which 'we had under consideration the identical question presented by this appeal. Suffice it to say, as was said in those appeals, that a taxpayer has no option to treat capital expenditures as operating expenses and that, upon a proper showing that the expenditures sought to be restored to surplus were in fact capital expenditures, the taxpayer may make such restoration and include the amount thereof in invested capital.

*391However, we point out here that, in each of the above-cited appeals, the fact that the expenditures were of a capital nature and the amounts actually expended were clearly established, which is not the case in this appeal. The Board is satisfied that prior to the taxable years the taxpayer had built up a good will of considerable value in its business; however, we are not convinced from the evidence before us that the total of the amounts restored to capital in 1904, 1906, and 1911, is at all fairly representative of the expenditures actually made in the acquisition of this good will. Proof of the expenditures actually made in the building up of good will is entirely lacking. Although the taxpayer submitted proof of the salaries and commissions paid to executive officers and salesmen, there is no competent evidence before us upon which a fair apportionment thereof to capital and expenses can be predicated.