Jotham Bixby Co. v. Commissioner

*145 This proceeding is for the redetermination of a deficiency in income and profits taxes asserted by the respondent for the year 1921 in the amount of $1,558.91. The petitioner alleges that the respondent erred: (1) In disallowing as a deduction from gross income the amount of $3,396.15 representing special assessment taxes paid to the City of Los Angeles; (2) in excluding from invested capital for 1921 the amount of $1,003,951.65 which the petitioner claims as paid-in capital, and (3) in reducing invested capital by $7,862.34 instead of by $6,082.82 on account of dividends paid.

FINDINGS OF FACT.

The petitioner is a California corporation with its principal*3019 office and place of business at Long Beach. It is and was during the year 1921 engaged in the real estate and investment business.

The respondent, upon audit of the petitioner's income and profits-tax return for the year 1921, excluded from invested capital the amount of $1,003,951.65, representing the value of real estate appearing on the petitioner's books, on the ground that said amount represented an appreciation of real estate; and he also computed a tentative tax for the year 1921 and adjusted the petitioner's earned surplus in an amount by which certain dividends, plus a proportion of the tentative tax, exceeded current earnings on various dates during the year 1919. This computation and adjustment resulted in reducing the amount of the petitioner's invested capital by $7,862.34.

OPINION.

MARQUETTE: At the hearing in this case the petitioner abandoned its claim that the respondent erred in disallowing as a deduction from gross income the special assessment taxes paid by it in the year 1921 to the City of Los Angeles. The respondent's determination as to that item is therefore approved.

In the petition filed herein it is alleged that about the year 1902 the petitioner*3020 acquired from Jotham Bixby certain property of the value of $1,052,352.50, for which it issued to Bixby its capital stock of the par value of $750,000; that it is entitled in computing its invested capital to capital stock of $750,000, and paid-in surplus of $302,552.50, and that the respondent erred in excluding therefrom the amount of $1,003,951.65. The only evidence introduced by the petitioner as to this issue was the testimony of a single witness in an attempt to show that the witness had participated in an appraisal of certain lands in Orange County, California, in the year 1918, in an effort to fix the values of said lands as of 1902. The witness was permitted to read into the record a list of land descriptions in Orange County, California, together with certain figures alleged to represent the *146 valuation placed thereon by the witness. The total amount of these valuations is $64,296. The petitioner has wholly failed to prove the number of shares of capital stock if any, which it issued, or the par value of the same, and what, if any, property was paid into the petitioner for stock. There is nothing in the pleadings or the evidence from which we can make even*3021 a findings of fact as to this issue. The petitioner has wholly failed to substantiate the allegations of the petition and we can, therefore, only affirm the respondent's determination.

On the third issue our decision is in favor of the petitioner. We have heretofore held in , that the invested capital of a corporation may not be reduced in determining the extent to which a dividend is paid from current earnings of a year, by a "tentative tax" theoretically set aside out of such earnings pro rata over such year, because the income and profits tax does not become due and payable and, therefore, does not accrue, until the following year. The rule announced in the Ayers case applies to the present proceeding.

Judgment will be entered under Rule 50.