Merchants Transfer & Storage Co. v. Commissioner , 17 B.T.A. 290 ( 1929 )

MERCHANTS TRANSFER & STORAGE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Merchants Transfer & Storage Co. v. Commissioner

Docket Nos. 12351, 13105, 13282, 30906, 36227.

United States Board of Tax Appeals

17 B.T.A. 290; 1929 BTA LEXIS 2318;

September 18, 1929, Promulgated

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1. Assessment and collection of the additional tax for the year 1917 involved herein held not to be barred by the statute of limitations.

2. Respondent's action in reducing petitioner's invested capital for the years 1917 to 1921, inclusive, on account of depreciation sustained in 1917 and prior years, affirmed.

3, Petitioner held not to be entitled to any deduction for the amortization of a certain building erected by it in 1917 and 1918.

4. Respondent's action with respect to deductions for depreciation of petitioner's hauling equipment for 1921 and 1922, sustained.

5. The petitioner held to be entitled to deduct from gross income for 1922 the amount of $500 contributed by it to the Shriners' convention.

Robert A. Littleton, Esq., and James A. Councilor, C.P.A., for the petitioner.

John D. Foley, Esq., for the respondent.

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MARQUETTE

In these proceedings, which were duly consolidated for hearing and decision, the petitioner seeks a redetermination of the deficiencies which the respondent has asserted for the years, and in the amounts, as follows:

Docket No.	Year	Deficiency
13282	1917	$2,269.33
12351	1918	18,854.00
	1919	7,407.55
	1920	2,958.62
13105	1921	$5,177.00
30906	1922	1,230.77
36227	1924	800.82
	1925	621.63

In Docket No. 13282 the petition, as amended, sets forth the following assignments of error:

(1) The Commissioner of Internal Revenue erred in attempting to assess a deficiency in taxes after such assessment is barred by the statute of limitations;

(2) The Commissioner of Internal Revenue erred in attempting to assess and collect a tax, the liability for which has been extinguished by law;

(3) The Commissioner of Internal Revenue erred in attempting to collect a tax when the petitioner has not underpaid the tax lawfully assessed;

(4) The Commissioner erroneously reduced the invested capital for 1917 by deduction of alleged accrued depreciation.

In Docket No. 12351 the petition, as amended and supplemented, sets forth the following assignments of error:

(1) The Commissioner erred in his refusal to allow the petitioner a deduction for the amortization of a building constructed and erected subsequent to April 6, 1917, and used in the production of articles contributing to the prosecution of the war against the German government;

(2) The respondent erroneously reduced the invested capital of the petitioner for the years 1917, 1918, 1919 and 1920, because of alleged inadequate depreciation taken for the years 1901 to 1917, inclusive.

In Docket No. 13105 the petition sets forth the following assignments of error:

(1) The Commissioner has erroneously disallowed $9,954.73 depreciation on heavy hauling equipment;

(2) The Commissioner has erroneously reduced invested capital by $64,459.32 on account of alleged insufficient charges on the books of the taxpayer for depreciation on buildings;

(3) The Commissioner has erroneously reduced invested capital by deducting additional taxes found due, but which are claimed by the taxpayer to be excessive. The question of the correctness of these additional taxes are now before this Board (Docket No. 12351).

Counsel for the petitioner, at the hearing, withdrew the first assignment of error.

In Docket No. 30906 the petition sets forth the following assignments of error:

(1) The Commissioner has erroneously disallowed as a deduction from income, the amount of $500 donated to a Shriners' convention which was held in the city of washington during the taxable year in question;

(2) The Commissioner has erroneously disallowed as a deduction from income, the amounts of $6,163.70 and $39.38, respectively, taken in the nature of depreciation on its heavy hauling and parcel delivery equipment, and has instead thereof calculated a certain amount of depreciation on this equipment on a straight-line basis;

(3) The Commissioner has erroneously reduced the deduction for depreciation on buildings by the amount of $5,451.87 by reducing the annual rate adopted by the petitioner and substituting therefor lower rates.

In Docket No. 36227 the petition sets forth the following assignment of error:

(1) The Commissioner erroneously reduced the deduction for depreciation on buildings and furniture and fixtures for the year 1924 by the amounts of $6,328.53 and for the year 1925 by the amount of $4,747.10, by reducing the annual rates adopted by the petitioner and substituting therefor lower rates.

FINDINGS OF FACT.

The petitioner, a Delaware corporation with its principal office and place of business at 920 E Street, Northwest, Washington, D.C., is, and was during all of the years under consideration, engaged in operating a warehouse for storage of household goods and general merchandise, in the distribution of parcels for numerous merchants in Washington, and in a general transfer business.

The petitioner filed an income and excess-profits-tax return for the calendar year 1917 on April 1, 1918.

The following waivers, or consents in writing, were entered into by the petitioner and the Commissioner of Internal Revenue:

IT:R:AMT

JANUARY 11, 1924.

(Date)

INCOME AND PROFITS TAX WAIVER.

In pursuance of the provisions of subdivision (d) of section 250 of the Revenue Act of 1921, Merchants Transfer & Storage Co., of Washington, D.C., 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 Merchants Transfer & Storage Co., 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 from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation, or the statutory period of limitation as extended by any waivers already on file with the Bureau, within which assessments of taxes may be made for the year or years mentioned.

(Signed) MERCHANTS TRANSFER & STORAGE CO.

Taxpayer

By: JOHN L. NEWBOLD, Pres.

D. H. BLAIR

Commissioner

INCOME AND PROFITS TAX WAIVER.

For taxable years ended prior to January 1, 1922.

IT:SA:2335-6

December 23, 1925.

In pursuance of the provisions of existing Internal Revenue Laws Merchants Transfer and Storage Co., a taxpayer of Washington, D.C., 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 dur under any return made by or on behalf of said taxpayer for the year (or years) 1917 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, 1926, 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) 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) MERCHANTS TRANSFER & STORAGE CO.,

Taxpayer.

By: JOHN L. NEWBOLD,

President.

D. H. BLAIR,

Commissioner.

The petitioner was notified of respondent's determination of a deficiency of $2,269.33 for 1917, by registered letter dated December 31, 1925. The deficiency was assessed against the petitioner in March, 1926. The petition, in respect of the year 1917, was filed with this Board on April 9, 1926.

At January 1, 1918, the petitioner owned the following depreciable assets: A warehouse building at 920 E Street, Northwest, a six-story building of factory type construction being erected on alley property in rear of the warehouse, garage and stable at Third and Canal Streets, Southwest, wheelwright shops at Second and B Streets, Southwest, and various types of delivery and transfer equipment.

The warehouse building at 920 E Street, Northwest, was erected in 1901, and is of brick construction, eight stories high, with basement floor, having a capacity of approximately 102,276 square feet.

The garage and stable at Third and Canal Streets, Southwest, was formerly used by a street railway company as a car barn, and upon abandonment by the railway company, it was remodeled for the storage of horse-drawn and motor delivery and transfer equipment.

It was the opinion of petitioner's officers that the cost of constructing the warehouse building, at 920 E Street, Northwest, was so low, compared with the cost of other buildings which had been constructed in Washington, as to be subnormal. This led to the adoption of the policy that no depreciation should be charged off on the books in respect of this building until the value of the building had receded to the level of cost or below that level. Prior to 1913 no provision was made on the books of account for any depreciation sustained on this building. Some depreciation was charged off on the books in connection with this building subsequent to 1913.

It has been the petitioner's practice to make an annual inventory of horses and horse-drawn delivery and transfer equipment. Usually this inventory has been made by the foreman of the stable, the foreman of the "shops," and the superintendent or general foreman. The value placed upon each horse and item of equipment was the amount agreed upon by the persons taking the inventory as the "fair value." In some instances the "fair value" placed upon a horse or an item of equipment exceeded cost or the last inventory value, this being due to the fact that in the opinion of the persons taking the inventory the "fair values" of such horses and items of equipment were greater than their costs, and also to the fact that some of such equipment had been placed in a condition of good repair during the year. Age and estimated life of horses and equipment are factors which were given consideration, more or less, in arriving at "fair values" for the purposes of the inventory. There was charged off on the books in each year, as depreciation, the difference between the inventory value of horses and equipment for that year and the inventory value of the preceding year. This practice was following prior to, and throughout all of, the years involved in these proceedings.

The respondent reduced invested capital for each of the years 1917, 1918, 1919, 1920, and 1921 by the amount of $60,094.17, on account of "Depreciation taken from 1901 to 1916, not deducted on books," and the invested capital for 1918, 1919, 1920, and 1921 by the additional sum of $4,356.15, on account of "Additional depreciation for 1917."

Of the total deduction claimed by the petitioner for 1921 on account of depreciation of heavy hauling equipment, the respondent disallowed the sum of $9,954.73. Also, respondent added to the net incomes of 1922, 1924, and 1925 the sums of $9,918.05, $6,328.52, and $4,747.10, respectively, on account of "excessive depreciation" disallowed "in accordance with depreciation schedule attached to the report of the Revenue Agents."

Until 1910 the petitioner's delivery and transfer equipment consisted solely of horse-drawn vehicles. Stables for the shelter of the horses and wagons were maintained at Third and Canal Streets, Southwest, a distance of approximately two miles from the warehouse. In 1910 or 1911, petitioner commenced a gradual change in its delivery and transfer equipment, from horse-drawn to motor vehicle, and by 1917 thie equipment had been pretty generally motorized. Following some remodeling of its stables, which was done to meet the requirements of the city's fire regulations, the motor vehicles were sheltered in that structure. The officers of the company, however, were convinced that the sheltering of its motor equipment at such a distance from the warehouse presented a rather uneconomical situation, and that the best interests of the business required that such equipment be sheltered in closer proximity to the warehouse. In 1915 a definite program for the alleviation of this situation was adopted, which had as its object the acquisition of certain alley property in the rear of the warehouse and the construction thereon of a modern garage. With this end in view the petitioner began to purchase this alley property and by the summer of 1917 the petitioner had acquired sufficient of it to begin the construction of the garage There was one strip of property, approximately 20 feet wide, running the entire width of all of the other properties, which the petitioner was enabled to acquire only after it had secured a permit from the Building Division of the District of Columbia for the construction of a garage.

The plan of construction of the garage on the alley property contemplated a two-story brick and concrete building, with a ramp from the first to the second floors to permit motor vehicles to proceed from one floor to the other under their own power, and with facilities for the sorting and routing for the parcel distribution end of the business. After the acquisition of the 20-foot width of property referred to in the preceding paragraph, the plan was modified to the extent that the foundation was to be capable of supporting three instead of two stories.

On August 4, 1917, the Samuel J. Prescott Co. submitted to the petitioner an estimate of the probable cost of constructing a garage building on the alley property. The estimate of cost was $26,183.34 for a 77-foot 8-inch building, and $4,825.26 additional for a 20-foot extension. The detailed estimate called for deductions in case certain changes were made, and contained an estimate of the additional cost in case the building was to be constructed so as to permit of the later addition of one, two, three, or four stories. On August 16, 1917, petitioner directed Samuel J. Prescott, in writing, to proceed with the construction of a reenforced concrete garage building, in Temperance Alley, on the basis of actual cost plus 10 per cent. This order also stated "Building to be fireproof, three stories in height, provision in foundation for an additional three stories."

On August 28, 1917, the Building Division of the District of Columbia issued a permit to the petitioner for the razing of brick buildings located on the alley properties. On September 20, 1917, the Building Division issued a permit to the petitioner for the construction of a three-story brick and concrete garage; and on October 3, 1917, a further permit was issued to petitioner "to erect one three-story brick addition to building being erected."

On November 20, 1917, the Samuel J. Prescott Co. wrote the petitioner in part as follows:

* * *

The garage building, which I am erecting for you on lots E to K and 39 - square 378, is progressing very satisfactorily, and, with favorable weather conditions, I will have the building roofed in next week and completed the following week, with the exception of the permanent elevator, which will require several months to get. I have, therefore, made arrangements to install for you a temporary electric elevator with same size platform, as the new one and capable of hoisting at least a ton at a time. This will be installed and ready for your use as soon as the building is ready.

As per your request, I have carefully gone into the question of constructing three additional stories at this time, and, am prepared to say, that I can complete the same in thirty-six working days, which allowing for bad weather, would not exceed two months, and if the present weather continues it can be completed in less time than that.

I have approximated the net cost of the three additional stories at $34,212. If this work is done at this time while all of my equipment is in place, I estimate a saving of $5,261, in other words, if the three stories should be erected in six months from now the additional expense would be as follows: * * *.

On November 30, 1917, a further permit was issued to the petitioner by the Building Division to "add three additional stories to the building now under construction."

Instead of the three-story reenforced concrete garage originally planned to be constructed, there was erected a six-story reenforced concrete fireproof warehouse of factory type construction. The building was completed in the latter part of April or the first of May, 1918. The total cost of construction amounted to $89,407.42.

The following is a copy of the minutes of the meeting of petitioner's board of directors, held on March 19, 1918:

Mar. 19, 1918.

The regular monthly meeting of the Board of Directors of the Merchants Transfer and Storage Company was held at the office of the company, 920 E Street, N.W., on Tuesday, March 19, 1918, at 3 P.M.

Present: John L. Newbold, W. J. Eynon, J. R. Corning, rudolph Kaufman, Fleming Newbold.

The following resolution was thereupon unanimously adopted:

Resolved: That although to deprive the Company of the use of the new building for the purposes for which it was constructed would interfere with the economical operation of the new business and entail substantial loss to the Company, the President is hereby authorized to rent the new six-story fireproof building, rear of 920-922 E Street, N.W., to the Ordnance Department of the War Department on the following terms:

The rental to be at the rate of $33,750 per annum.

The operation of the building to be at the expense of the United States Government.

The taxes and insurance to be paid by the Merchants Transfer and Storage Company.

Any alterations, changes, etc., if needed, to be made at the expense of the Government.

The lease to be effective from April 1, 1918, to June 30, 1918, with the privilege of renewal at the same rate for a further period of one or two years.

On motion the meeting adjourned.

The building was taken over and occupied by the Ordnance Bureau of the War Department in the latter part of March or early in April, 1918. The Ordnance Bureau moved out of the building in the latter part of April or early in May, 1918. During the period of its occupancy, the building was used by the Ordnance Bureau for the purpose of assembling portable field machine shops mounted on automobile chassis. Following the removal of the Ordnance Bureau, the building was occupied temporarily by the War Risk Insurance Bureau of the Treasury Department. On February 15, 1919, formal lease of the premises was made to the Zone Supply Officer, for storage purposes, for a period from the date of occupancy to June 30, 1919, at an annual rental of 35 cents per square foot for 45,000 square feet, payable in monthly installments of $1,312.50 each. This lease was renewed on July 1, 1919, for a period of one year ending June 30, 1920. Possession of the leased premises was surrendered by the Government some time in 1920 prior to June 30.

Since the building was restored to the petitioner, it has been put to some, but very limited, use. It is not adequate to house the increased motor facilities of the business; nor is it suitable, by virtue of the type of construction, for the housing of such facilities. It has not been needed for storage purposes, as the space available in the main warehouse building has been entirely adequate for the needs of the business. Continuous efforts have been made to rent and sell the building, but without avail. Shortly after the premises were restored to the petitioner, letters were sent to more than 45 merchants in Washington and its environs advising that suitable storage space was available in the building, but this procedure did not secure for the petitioner any tenant or customer.

In its return for 1918 petitioner claimed a deduction for amortization of the new building as a war facility, in the amount of $5,400; and the claimed deduction was disallowed by the respondent.

In 1922 the petitioner contributed $500 to the "Shriners'" convention to be held in Washington. Such contribution was made with the expectation that the petitioner would receive a direct benefit through holding the convention at Washington, by way of increased business in the transportation of baggage and materials. During the convention the petitioner did a considerable amount of hauling of baggage and trunks, which, as a whole, exceeded its usual and normal business activities.

OPINION.

MARQUETTE: The petitioner pleads the bar of the statute of limitations against the deficiency asserted by the respondent for 1917, and avers that the bar is not lifted by a waiver, or consent agreement, executed after the period limited by statute. The facts upon which the petitioner relies in support of its plea are set out in the findings of fact and need not be repeated here. The questions of law presented by the petitioner's plea and averment have heretofore received the consideration of this Board in , and again, since the reversal of our decision in that case by the Court of , in . Our conclusions in the matter are clearly set forth in our opinion in the latter case, and no extended discussion will serve any useful purpose here. In our opinion the waivers or consents relating to the year 1917 are valid and serve to extend the period for assessment and collection of the tax for that year. Since the deficiency notice was mailed by the respondent within the statutory period as extended by the waivers, or consent agreements, of January 11, 1924, and December 23, 1925, assessment and collection of any tax found due for 1917 are not barred. This disposes of the first three assignments of error in Docket No. 13282.

The petitioner complains of respondent's action in reducing invested capital of the years 1917 to 1921, inclusive, by $60,094.17, on account of alleged inadequate depreciation charged off on the books from 1901 to 1916, inclusive, and in further reducing invested capital of the years 1918 to 1921, inclusive, by $4,356.15, on account of additional depreciation allowed for 1917. The petitioner's policy as to the writing off of depreciation of its physical assets on the books is clearly disclosed by the findings of fact. It involved the practice of offsetting appreciation against depreciation, a practice which is clearly erroneous. Prior to 1913 no depreciation was charged off in respect of the main warehouse building, because it was believed that the excess of the fair value of this building over its actual cost more than exceeded any depreciation sustained. Subsequent to 1913 some depreciation in respect of this building was charged off on the books, but how much, and upon what basis, we do not know. Neither do we know anything about the petitioner's depreciation policy as it relates to stables and garage and wheelright shops, nor as to the amounts of depreciation that have been charged off on the books, if any, in respect of these buildings. As to horses and delivery and transfer equipment, depreciation was determined by the inventory method under which unrealized increases in values were offset against decreases in values due to wear, tear and exhaustion. It is not denied by the petitioner that all of these depreciable assets have suffered, more or less, from wear, tear and exhaustion, but assets that its practice, as regards the writing off of depreciation, has resulted in entirely adequate provision being made for all depreciation sustained. That assertion, however, is entirely refuted by the evidence, which reveals that unrealized appreciation has been used to offset depreciation, a practice not countenanced by the statute. Cf. , and . There are no facts in the record which challenge the correctness of the respondent's determination as to the amount by which each year's invested capital must be reduced on account of depreciation sustained; hence, we shall not disturb the respondent's determination in that respect. This disposes of the fourth assignment of error in Docket No. 13282, the second assignment of error in Docket No. 12351, and the second assignment of error in Docket No. 13105.

Petitioner alleges that respondent has erroneously disallowed $9,954.73 of the whole deduction claimed in the return of 1921 as depreciation of heavy hauling equipment. No evidence was presented to the Board in support of this assignment of error; and, accordingly, we shall not disturb the respondent's action. This disposes of the first assignment of error in Docket No. 13105.

Complaint is also made by the petitioner that respondent disallowed the deductions claimed in the return for 1922 for depreciation of heavy hauling equipment and parcel delivery equipment, and that respondent redetermined the allowance for depreciation in respect of those assets "on a straight line basis." It complains, further, that respondent disallowed $5,451.87 of the whole amount of depreciation on buildings claimed in the return, the result of reducing the annual rate adopted by the petitioner. The petitioner presented no proof that the depreciation allowed by the respondent in respect of heavy hauling and parcel delivery equipment and buildings is not a reasonable allowance. We apprehend that the fact that the respondent determined the depreciation deduction in respect of heavy hauling and parcel delivery equipment by another method than that used by the petitioner offers no cause for disturbing the respondent's action in the absence of proof that the allowance made by the respondent is not reasonable within the meaning of the statute. This disposes of the second and third assignments of error in Docket No. 30906.

At page 60 of the brief filed by counsel for the petitioner, after the hearing, is the following statement:

There is not sufficient evidence in the record to warrant the Board in disturbing the action taken by the respondent for the years 1924 and 1925, and the petitioner here and now abandons any further protest of the respondent's action for those years and requests the Board to approve for assessment the deficiencies proposed to be assessed in the respective amounts of $800.82 for the year 1924, and $621,63 for the year 1925.

The foregoing statement constitutes an abandonment of all of the issues raised in Docket No. 36227.

Petitioner alleges that respondent erred in refusing to allow a deduction, for each of the years 1918, 1919 and 1920, for the amortization of a building erected subsequent to April 6, 1917, and used in the production of articles contributing to the prosecution of the war against the German Government. The building in question is the six-story reenforced concrete warehouse of factory type construction erected for the petitioner by the Samuel J. Prescott Co., in 1917 and 1918, in the rear of the main warehouse at 920 E Street, Northwest, at a total cost of $89,407.42. The petitioner contends that this building was erected at the request of theGovernment, and under threat of the exercise of the right of eminent domain; that the building was used by the Ordnance Bureau of the War Department for the production of articles (portable field machine shops) contributing to the prosecution of the war; and that these circumstances bring it within the provisions of section 234(a)(8) of the Revenue Act of 1918.

As to the contention that this building was erected at the request of the Government, the petitioner's president testified as follows:

Q. After you had gotten this 20-foot strip, was there any change in the plans for the garage?

A. We planned that we might put up a three-story garage. It was all on a cost plus basis so that we could go as far as we wanted to, and we made plans for a foundation for a three-story garage. We figured that the economic proposition was a two-story garage, and that was our definite idea.

Q. Now, when were your plans for constructing a two-story garage and the possibility of a subsequent story on that two-story garage, changed from a garage to another kind of building?

A. The moment that we started in and had our permits, the Government, apparently on the job, came in and we were importuned from various sources, the War Department, the Treasury Department, and various Bureaus of the Government, - "Why build a two-story garage as you have planned here. We have got to have facilities. We are in war. Be patriotic and put us up what we want, and change from a two-story garage building for your own purposes and put up a fire-proof factory type of a warehouse."

Q. When the Government demanded that you change your plans, then what plans were made with reference to the plans for construction of a garage - what changes were made?

A. In our plans? Q. Yes.

A. Why, we put in foundations to carry up a six-story building, and we figured to carry it as far as the economic conditions for the height of the building would regulate in our property.

Q. Prior to the time of the change to a six-story building, that is erecting a six-story building, what work had been done with reference to constructing the two-story garage that you had originally planned?

A. Just the foundation had been started and the excavation work which was necessary.

Q. Was it necessary to change your plans for the foundation at that time?

A. It was necessary to change our plans, absolutely. You have to carry the weight and the height.

There is much in the documentary evidence which, standing entirely unexplained, refutes much of this testimony. In the first place, it will be noted from this testimony that it was after the permit for the construction of the building had been secured from the Building Division of the District of Columbia, that the Government is alleged to have approached the petitioner in the matter of constructing a six-story building instead of a two-story garage; and that change was made in the foundation plan, to one capable of supporting a six-story structure, after excavation work had been completed and foundation work started, and after the petitioner was approached by the Government. That the matter of constructing a six-story building was under consideration, or at least the subject of discussion, before the Government had any knowledge as to the petitioner's plans, is evident from the estimate of the cost of construction submitted in writing by the Samuel J. Prescott Co., under date of August 4, 1917, in which an estimate is given of the additional cost in case the building was to be constructed so as to permit of the later addition of one, two, three, or four stories. This estimate was made more than three weeks before the first permit for any operations was issued by the Building Division. To be exact, the date of that permit is August 28, 1917. Moreover, petitioner's order to the contractor to proceed with the construction of the building contained the provision "Building to be fore-proof, three stories in height, provision in foundation for an additional three stories." That order was dated August 16, 1917, twelve days before the first permit was issued by the Building Division. This documentary evidence clearly refutes the testimony that any change in the foundation plan was necessitated by virtue of the Government's alleged request that the petitioner construct a six-story building. Furthermore, the estimate of the contractor of August 4, 1917, and the petitioner's order to the contractor of August 16, 1917, to proceed with construction, indicate that the plan for a foundation capable of supporting a six-story structure had been adopted as a part of the construction program before the Government had any knowledge of petitioner's plans, if that knowledge was obtained, as the testimony states, after the issuance of the building permit.

Also, we have in evidence a letter from the contractor to the petitioner, dated November 20, 1917, advising that construction was progressing satisfactorily and that, "I will have the building roofed in next week and completed the following week," and further setting forth the estimate of the cost of erecting the three additional stories. This letter indicates that up to the time the contractor was prepared to roof the building, no decision had been made to add the three additional stories; and this does not coincide with the testimony that the plan of construction was changed to a six-story building at the time the foundation was being laid.

Finally, we have the resolution of petitioner's own board of directors, adopted at the meeting of March 19, 1918, authorizing the president to rent the "new six-story building" to the Government, at an annual rental equal to approximately 40 per cent upon the investment, notwithstanding that "to deprive the Company of the use of the new building for the purposes for which it was constructed would interfere with the economical operation of the new business and entail substantial loss to the Company." If this resolution means anything, it is that the building was not constructed at the Government's request, but that it was erected to meet the petitioner's needs and for the economical operation of "new business"; and in our opinion after examining all of the documentary evidence, this resolution more nearly exhibits the entire situation, as concerns the construction of this building, than the testimony of the president.

The fact that the building was used by the Ordnance Bureau of the War Department during the period of its occupany, for the production of portable field machine shops, and, in that respect, for the production of articles contributing to the prosecution of the war, is not sufficient to bring the petitioner within the amortization provisions of the statute. We have already expressed the opinion that the building was constructed to meet the needs of petitioner's business, anticipated but apparently unrealized needs; and in the erection of the building there was not a purpose to devote it, either in whole or in part, to the production of articles contributing to the prosecution of the war, nor was it ever devoted to such use by the petitioner. On the other hand, following completion, or possibly before the building was entirely completed, the petitioner authorized its rental of the Government at an annual rental which represented a return of approximately 40 per cent upon its investment, and it was the Government, not the petitioner, which used the building for the production of articles contributing to the prosecution of the war. This brings the petitioner squarely within our decision in , as well as that in . In the former case we stated:

It seems clear to the Board that Congress did not have in mind affording any relief by the amortization section to those taxpayers who did not produce or manufacture articles contributing to the prosecution of the war, but who erected or acquired buildings for the purpose of investment or for the purpose of renting to manufacturers who were engaged in the production of articles contributing to the prosecution of the war.

The rule there announced is equally applicable to the case at bar, and we hold the respondent committed no error in denying to the petitioner any deduction for amortization of the building in question. This disposes of the first assignment of error in Docket No. 12351.

The third assignment of error in Docket No. 13105 is that respondent has erroneously reduced invested capital of 1921, by deducting additional taxes found due, but which the petitioner claims to be excessive. The assignment of error sets forth "The question of the correctness of these additional taxes are now before this Board [Docket No. 12351]." The two assignments of error in Docket No. 12351 have been decided favorably to the respondent; and, since the petitioner has not offered any proof that this action of the respondent is not correct, this assignment of error must also be decided favorably to the respondent.

The last assignment of error to be decided is the first in Docket No. 30906, that respondent erroneously disallowed the deduction for 1922 of a contribution of $500 to the Shriners' convention. This contribution was made with the belief and expectation that the petitioner would be directly benefited through increased business if the convention was held in Washington. Not an officer of the petitioner was or is a member of the organization which the petitioner refers to as the "Shriners." The contribution was made solely for business purposes; and it had the result hoped for to a large extent. The contribution constituted an ordinary and necessary expense of doing business, and the respondent erred in disallowing the deduction. ; ; .

Judgment will be entered for the respondent for the years 1917, 1918, 1919, 1920, 1921, 1924, and 1925. Judgment for the year 1922 will be entered under Rule 50.