Conrad & Co. v. Commissioner , 13 B.T.A. 1332 ( 1928 )

CONRAD & CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Conrad & Co. v. Commissioner

Docket Nos. 10042, 18293, 19582.

United States Board of Tax Appeals

13 B.T.A. 1332; 1928 BTA LEXIS 3064;

October 31, 1928, Promulgated

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1. Where a corporation, after March 3, 1917, used a part of its assets to acquire from its stockholders property which such stockholders acquired without cost, section 331 of the Revenue Acts of 1918 and 1921 prohibits the inclusion in invested capital of any value for such assets.

2. In such circumstances invested capital is properly computed by reducing the amount as computed under section 326 by the amount paid for such assets.

3. Special assessment granted.

Hugh Satterlee, Esq., for the petitioner.

M. N. Fisher, Esq., and James L. Backstrom, Esq., for the respondent.

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PHILLIPS

The Commissioner determined deficiencies in income and profits taxes of $11,432.95, $6,450.48, $6,237.44, and $7,260.91 for the fiscal years ended on the last day of February in the years 1919, 1920, 1921, and 1922 respectively. The petitioner duly filed petitions for the redetermination of its liability. The three proceedings were consolidated for hearing and decision.

It is alleged that for each of the taxable years in question the petitioner erroneously reduced invested capital by $155,019.78 and failed to determine petitioner's tax liability pursuant to the provisions of section 328 of the Revenue Acts of 1918 and 1921. At the hearing the petitioner withdrew its contention with respect to assessment under said section 328 for the fiscal years 1921 and 1922.

FINDINGS OF FACT.

1. The petitioner is a Massachusetts corporation, with its principal office in Boston. It was incorporated on or about November 1, 1917, with an authorized capital stock of $500,000 par value. It established a fiscal year ending February 28, and has made its Federal income-tax returns on the accrual basis for such accounting period.

2. On or about November 1, 1917, the petitioner entered into a contract with Sidney S. Conrad and Bertram B. Conrad, partners, doing business under the firm name of Conrad & Co., a copy of which is as follows:

MEMORANDUM OF AGREEMENT entered into this first day of November, 1917, by and between Sidney S. Conrad, of Boston, in the County of Suffolk, and Bertram B. Conrad, of Brookline, in the County of Norfolk, both in the Commonwealth of Massachusetts, co-partners under the firm name of Conrad & Company, parties of the first part, and Conrad & Co., Inc., a corporation organized under the laws of the said Commonwealth of Massachusetts, party of the second part, WITNESSETH that

WHEREAS the said partnership has heretofore carried on the business at 25 Winter Street in the City of Boston, and is the owner of the assets connected therewith, and the said corporation desires to purchase the said business and to issue its capital stock in payment therefor,

Now, THEREFORE, it is hereby agreed by and between the parties hereto as follows:

First: The said Sidney S. Conrad and Bertram B. Conrad, co-partners as aforesaid, hereby assign, transfer and set over unto the said Conrad & Co., Inc., its successors and assigns, the cash, accounts and notes receivable, stock of merchandise, furniture, fixtures, equipment, and all other tangible assets of whatever kind and description belonging to the said business to have and to hold the same unto the said corporation, its successors and assigns, to their own use forever; and further covenant with the said corporation that the said property as aforesaid is of the fair value of the amount of not loss than Four hundred ninety-nine thousand Seven hundred ($499,700) dollars, and is free from all encumbrances, and that the said co-partners have full right to convey the same, and will each of them make, execute and deliver any further writings or instruments which may be necessary or convenient to vest a perfect title to the said property in the said corporation and to secure to the said corporation full benefit and enjoyment of the said property.

And the said corporation hereby agrees to issue shares of its capital stock of the par value of one hundred dollars each at par to the said co-partners or to such persons as they may designate as payment for the foregoing property, said shares to be issued to an amount equal at their aggregate par value to the value of said property transferred as aforesaid, as of November 1, 1917, as the same may appear according to an inventory of said property to be taken forthwith.

Second. The said Sidney S. Conrad and Bertram B. Conrad, co-partners as aforesaid, further agree with the said corporation to sublet to the said corporation the premises 25 Winter Street in the City of Boston, Massachusetts, at which the business of the said Conrad & Company has heretofore been carried on, for the term of the two leases thereof from Charles E. Cotting et al, one dated November 5, 1908, for a term ending October 31, 1920, and the other dated March 19, 1917, for the term beginning November 1, 1920, and ending October 31, 1935, for the rent in the amount reserved in the said leases, the said sub-leases to contain the same terms and provisions set forth in the copies thereof hereto annexed.

Third: The said Sidney S. Conrad and Bertram B. Conrad, co-partners as aforesaid, further convey, assign, transfer and set over unto the said corporation the good will of the said partnership, the trade mark "Lady Dainty" and other trade marks owned by said partnership, and all intangible property belonging to the said partnership not included in the paragraph designated First: and the right to use the name Conrad & Company as a part of the corporate name, and in payment therefor the said corporation agrees to and with said Sidney S. Conrad and Bertram B. Conrad and each of them to assume and pay all the bills payable and other outstanding liabilities of said partnership, including the liability of the said partnership for taxes due now or hereafter to the United States, Commonwealth of Massachusetts, and the City of Boston, and to save the said Sidney S. Conrad and Bertram B. Conrad and each of them forever harmless therefrom.

IN WITNESS WHEREOF the said parties hereunto set their hands and seals this first day of November, 1917.

SIDNEY S. CONRAD,

BERTRAM B. CONRAD,

CONRAD & CO., (Inc.),

D. E. MOESER,

Treasurer.

3. In pursuance of the terms of the above contract, the partnership of Conrad & Company transferred and conveyed to the petitioner, on or about November 1, 1917, (1) its cash, cash items, merchandise, supplies, and other tangible property, which cost and had a current cash value of $562,265.20, in exchange for the petitioner's entire capital stock of $500,000 par value, and (2) certain trade-marks and other intangible property, in consideration of the petitioner's agreement to assume the liabilities and pay the debts of said partnership, which amounted to $155,019.78 and which were thereafter paid in cash by the petitioner.

4. In its income and profits-tax return for the 4-month period ended February 28, 1918, the petitioner claimed the amount of $562,265.20 as its invested capital. The respondent allowed this amount as the petitioner's invested capital for the purpose of determining its tax liability under the provisions of the Revenue Act of 1917, but excluded from the claimed invested capital $155,019.78 in determining its tax liability under the provisions of the Revenue Act of 1918.

5. In its income and profits-tax returns for the taxable years ended February 28, 1919, February 29, 1920, February 28, 1921, and February 28, 1922, the petitioner claimed invested capital based on an original cost of the property paid in for stock on November 1, 1917, and an initial invested capital of $562,265.20. The respondent excluded from the claimed invested capital $155,019.78 for each of said years.

6. The business which the taxpayer took over in 1917 had been founded about 1860 by D. Conrad. Just prior to 1900 it was owned by S. S. Conrad, B. B. Conrad and M. A. Heilbrun, as partners. In 1900 M. A. Heilbrun's interest was acquired by S. S. Conrad and B. B. Conrad, who formed and continued the partnership which in 1917 sold out to the petitioner.

7. The petitioner and its predecessor partnership always advertised. In 1908 the mediums used were principally the newspapers, some direct mail advertising, and cards in street cars. The newspaper advertising was directed largely to immediate sales of current goods. The advertising in the nature of street car cards was designed to acquaint the people of Boston with the general advantage of trading at the petitioner's store and with the policies of the petitioner. A slogan which was used in a good many of the street car cards was "Conrad's for quality."

8. The street car advertising and advertising similar to that had been started about 1906. It was called general advertising or institutional advertising to distinguish it from ordinary advertising. That kind of advertising - institutional advertising, continued up to the organization of the petitioner in 1917.

9. The institutional advertising was charged on the books of the partnership in a special account, at least part of it. About the year 1908 the institutional advertising was carried and charged in an account called general advertising. There was a separate account for newspaper advertising. Later there was a somewhat different segregation of accounts.

10. The partnership had an adjustment policy, which was to see to it that customer received full value and satisfaction with the merchandise he bought. It took the concrete forms of adjustment of complaints, refunding of money, allowances and exchanges, and sometimes merchandise was given for other merchandise. The complaints of customers were adjusted whether or not the petitioner felt they were entitled to adjustment. The purpose of the policy was to establish the petitioner's good will in the community. Since 1908 it cost the petitioner about three-fourths of 1 per cent of its gross sales per year to maintain such policy. No store had a policy more liberal, there being few stores that had a policy quite as liberal in all respects.

11. The expenditures for advertising by Conrad & Company, the partnership, for the period from August 1, 1900, to February 28, 1913, and to November 1, 1917, were as follows:

Aug. 1, 1900, to Jan. 31, 1901		$4,751.15
Feb. 1 to July 31, 1901	$4,063.40
Aug. 1, 1901, to Jan. 31, 1902	5,143.15
		9,206.55
Feb. 1 to July 31, 1902	5,287.68
Aug. 1, 1902, to Jan. 31, 1903	4,951.90
		10,239.58
Feb. 1 to July 31, 1903	6,645.78
Aug. 1, 1903, to Jan. 31, 1904	5,807.95
		12,453.73
Feb. 1 to July 31, 1904	5,483.15
Aug. 1, 1904, to Jan. 31, 1905	6,388.61
		11,871.76
Feb. 1 to July 31, 1905	6,985.15
Aug. 1, 1905, to Jan. 31, 1906	19,614.87
		26,600.02
Feb. 1 to July 31, 1906	11,364.73
Aug. 1, 1906, to Jan. 31, 1907	16,138.54
		27,503.27
Feb. 1 to July 31, 1907	$18,070.78
Aug. 1, 1907, to Jan. 31, 1908	17,617.63
		$35,688.41
Feb. 1 to July 31, 1908	17,154.45
Aug. 1, 1908, to Jan. 31, 1909	20,692.62
		37,847.07
Feb. 1 to July 31, 1909	21,501.15
Aug. 1, 1909, to Jan. 31, 1910	21,054.43
		42,555.58
Feb. 1 to July 31, 1910	18,719.92
Aug. 1, 1910, to Jan. 31, 1911	22,536.98
		41,256.90
Feb. 1 to July 31, 1911	21,800.87
Aug. 1, 1911, to Feb. 29, 1912	24,839.94
		44,640.81
Mar. 1 to Aug. 31, 1912	24,311.55
Sept. 1, 1912, to Feb. 28, 1913	23,337.68
		47,649.23
Total to Mar. 1, 1913		354,264.06
Mar. 1 to Aug. 31, 1913	22,093.65
Sept. 1, 1913, to Feb. 28, 1914	18,845.26
		40,938.91
Mar. 1 to Aug. 31, 1914	21,972.10
Sept. 1, 1914, to Feb. 28, 1915	21,789.27
		43,761.37
Mar. 1 to Aug. 31, 1915	22,799.67
Sept. 1, 1915, to Feb. 29, 1916	22,412.20
		45,211.87
Mar. 1 to Aug. 31, 1916	25,946.43
Sept. 1, 1916, to Feb. 28, 1917	28,369.58
		54,316.01
Mar. 1 to Aug. 31, 1917	31,472.03
Sept. 1 to Oct. 31, 1917	11,852.75
		43,324.78
Total to Nov. 1, 1917		581,817.00

12. The expenditures for advertising by the partnership for the years 1905 to 1913, aside from supplies and miscellaneous, were segregated in separate accounts as follows:

	Newspapers	General advertising	Salaries
Feb. 1 to July 31, 1905	$6,591.34
Aug. 1, 1905, to Jan. 31, 1906	9,557.89	$3,064.33
Feb. 1 to July 31, 1906	7,286.08	4,078.65
Aug. 1, 1906, to Jan. 31, 1907	8,422.09	7,268.45	$448.00
Feb. 1 to July 31, 1907	8,349.06	6,592.98	2,710.51
Aug. 1, 1907, to Jan. 31, 1908	9,961.14	5,930.36	2,611.50
Feb. 1 to July 31, 1908	9,341.99	6,607.50	823.66
Aug. 1, 1908, to Jan. 31, 1909	12,788.85	6,211.43	1,348.10
Feb. 1 to July 31, 1909	17,425.31	2,144.72	1,730.44
Aug. 1, 1909, to Jan. 31, 1910	17,980.74	1,009.35	1,816.52
Feb. 1 to July 31, 1910	16,534.89		1,964.38
Aug. 1, 1910, to Jan. 31, 1911	20,108.95	30.00	2,053.01
Feb. 1 to July 31, 1911	19,310.82	91.38	2,020.28
Aug. 1, 1911, to Feb. 29, 1912	21,506.21	898.03	2,354.10
Mar. 1 to Aug. 31, 1912	20,755.58	591.86	2,055.06
Sept. 1, 1912, to Feb. 28, 1913	20,499.74	664.59	1,655.17
		45,183.63

13. The gross sales of Conrad & Company, the partnership, for the period from 1900 to 1917, were as follows:

1899-1900	$304,483.65
1900-1901	270,885.21
1901-1902	301,589.84
1902-1903	307,869.46
1903-1904	357,045.48
1904-1905	353,327.00
1905-1906	492,109.94
1906-1907	592,922.88
1907-1908	677,229.69
1908-1909	637,059.18
1909-1910	$745,353.18
1910-1911	776,925.73
1911-1912	950,552.40
1912-1913	911,315.47
1913-1914	990,939.48
1914-1915	1,103,804.92
1915-1916	1,268,513.93
1916-1917	1,475,926.97
Mar. 1 to Nov. 1, 1917	973,385.88

14. The net earnings of Conrad & Company, the partnership, for the period from August 1, 1900, to October 31, 1917, were as follows:

Aug. 1, 1900, to Jan. 31, 1901		$13,140.01
Feb. 1, to July 31, 1901	$8,951.64
Aug. 1, 1901, to Jan. 31, 1902	16,048.83
		25,000.47
Feb. 1 to July 31, 1902	8,774.24
Aug. 1, 1902, to Jan. 31, 1903	5,883.90
		14,658.14
Feb. 1 to July 31, 1903	12,662.95
Aug. 1, 1903, to Jan. 31, 1904	12,175.68
		24,838.63
Feb. 1 to July 31, 1904	8,414.86
Aug. 1, 1904, to Jan. 31, 1905	17,779.42
		26,194.28
Feb. 1 to July 31, 1905	15,404.33
Aug. 1, 1905, to Jan. 31, 1906	13,207.59
		28,611.92
Feb. 1 to July 31, 1906	12,204.82
Aug. 1, 1906, to Jan. 31, 1907	10,976.49
		23,181.31
Feb. 1 to July 31, 1907	13,686.13
Aug. 1, 1907, to Jan. 31, 1908	11,065.84
		24,751.97
Feb. 1 to July 31, 1908	4,814.28
Aug. 1, 1908, to Jan. 31, 1909	2,847.66
		7,661.94
Feb. 1 to July 31, 1909	20,354.66
Aug. 1, 1909, to Jan. 31, 1910	21,246.47
		41,601.13
Feb. 1 to July 31, 1910	32,265.65
Aug. 1, 1910, to Jan. 31, 1911	22,199.97
		54,465.62
Feb. 1 to July 31, 1911	28,558.18
Aug. 1, 1911, to Feb. 29, 1912	46,267.26
		74,825.44
Mar. 1 to Aug. 31, 1912	34,035.83
Sept. 1, 1912, to Feb. 28, 1913	26,997.70
		61,033.53
Mar. 1 to Aug. 31, 1913	43,171.06
Sept. 1, 1913, to Feb. 28, 1914	56,371.03
		99,542.09
Mar. 1 to Aug. 31, 1914	59,358.06
Sept. 1, 1914, to Feb. 28, 1915	57,919.71
		117,277.77
Mar. 1 to Aug. 31, 1915	86,618.57
Sept. 1, 1915, to Feb. 29, 1916	90,613.86
		177,232.43
Mar. 1 to Aug. 31, 1916	$98,879.92
Sept. 1, 1916, to Feb. 28, 1917	125,674.07
		$224,554.59
Mar. 1 to Aug. 31, 1917	51,990.93
Sept. 1, 1917, to Oct. 31	16,880.90
		68,871.83

15. The net tangible assets of Conrad & Company, the partnership, for different periods from August 1, 1900, to October 31, 1917, were as follows:

August 1,	1900	$29,055.81
January 31,	1901	38,591.81
	1902	55,029.92
	1903	52,389.41
	1904	60,091.53
	1905	77,510.73
	1906	97,346.47
	1907	112,445.41
	1908	130,306.08
	1909	135,276.73
	1910	170,595.49
	1911	201,449.58
February 29,	1912	263,117.30
February 28,	1913	292,706.34
	1914	323,354.43
	1915	388,851.96
	1916	334,575.63
	1917	252,103.82
October 31,	1917	324,394.13

16. The actual cash value of the intangible property of the partnership at November 1, 1917, was in excess of $155,019.78.

17. During the taxable years ended February 28, 1919, and February 29, 1920, the petitioner rented land and buildings for use in its business, which were assessed in 1913 at $871,000, in 1919 at $939,000, and in 1920 at $1,145,000. The practice in Boston is to assess real estate at its full value. The annual amount of rent paid by the petitioner for said rented property during the taxable years was $60,160.44 for 1919 and $63,621.68 for 1920.

18. On February 28, 1918, the accounts payable of the petitioner for merchandise, rent and other liabilities amounted to $126,731.64. On February 28, 1919, such accounts payable amounted to $95,659.86 and on February 28, 1920, to $114,714.79. Included in its assets were investments in bonds as follows: February 28, 1918, $96,790.05; February 28, 1919, $534,047.05; February 29, 1920, $637,330.44. The respondent determined its invested capital for the fiscal year 1919 at $404,593.88 and for the fiscal year 1920 at $767,225.15.

19. The net earnings and gross sales of the petitioner for the years ended February 28, 1919, to February 28, 1925, were as follows:

	Net income	Gross sales
1919	$152,574.17	$1,570,956.57
1920	223,514.38	1,968,361.63
1921	199,820.41	2,342,136.92
1922	249,314.18	2,629,285.02
1923	$255,426.72	$2,677,294.98
1924	204,034.02	2,660,001.86
1925	185,942.23	2,603,653.49

OPINION.

PHILLIPS: On November 1, 1917, the petitioner corporation took over the business theretofore conducted by S. S. Conrad and B. B. Conrad. This business had been founded about 1860 by D. Conrad, father of S. S. and B. B. Conrad. Just how or when they came into the business is not shown, but it does appear that after 1900 they were the owners. We are here concerned with the determination of the invested capital of the petitioner for the fiscal years ended February 28, 1919, to February 28, 1922, inclusive. The determination of the issue involves consideration of sections 326 and 331 of the Revenue Acts of 1918 and 1921, which are identical so far as concerns the parts we must consider. The material portions of those sections provide as follows:

SEC. 326. (a) That as used in this title the term "invested capital" for any year means (except as provide in subdivisions (b) and (c) of this section):

(1) Actual cash bona fide paid in for stock or shares;

(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such payment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commissioner to have been clearly and substantially in excess of such par value, in which case such excess shall be treated as paid-in surplus: * * *

(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year;

* * *

(5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year, whichever is lowest: Provided, That in no case shall the total amount included under paragraphs (4) and (5) exceed in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year; but

* * *

SEC. 331. In the case of the reorganization, consolidation, or change of ownership of a trade or business, or change of ownership of property, after March 3, 1917, if an interest or control in such trade or business or property of 50 per centum or more remains in the same persons, or any of them, then no asset transferred or received from the previous owner shall, for the purpose of determining invested capital, be allowed a greater value than would have been allowed under this title in computing the invested capital of such previous owner if such asset had not been so transferred or received: Provided, That if such previous owner was not a corporation, then the value of any asset so transferred or received shall be taken at its cost of acquisition (at the date when acquired by such previous owner) with proper allowance for depreciation, impairment, betterment or development, but no addition to the original cost shall be made for any charge or expenditure deducted as expense or otherwise on or after March 1, 1913, in computing the net income of such previous owner for purposes of taxation.

The previous owner of the business or property which changed ownership having been a partnership, the effect of section 331 was such that no asset acquired from the partnership may be taken by the corporation in computing its invested capital, at a greater value than its cost of acquisition to the previous owner with proper allowance for the elements specified in the concluding clauses of that section. It would appear to follow that if, as the respondent contends, the good will of the partnership cost the partners nothing, no amount may be taken into the invested capital of the petitioner for that asset. For the purposes of the discussion immediately following, we shall assume that the Commissioner is correct in his determination that the good will cost the partnership nothing.

In the instant case the Commissioner has computed the invested capital of the petitioner by taking the par value of its capital stock, adding thereto the surplus at the beginning of the respective years and deducting therefrom $155,019.78, the amount at which the good will of the predecessor partnership was set up on the books to offset the accounts payable which were assumed on organization. It is the contention of the petitioner that its stock was issued for tangible assets and that no part of its stock was issued for intangibles; that such intangibles were acquired for cash or its equivalent (assumption and payment of debts) and that its invested capital was improperly reduced by the amount paid for good will.

Ordinarily the acquisition of assets for cash or its equivalent would not change invested capital and it is upon the application of such a rule that petitioner must rely. We are of the opinion, however, that section 331 provides a contrary rule where such assets are acquired from those who own and continue to own a majority of the stock.

This petitioner issued its capital stock for tangible assets which had cost the partners $562,265.20 and which had a value of that amount at that time. Had this been the sole transaction there could be no doubt that the invested capital was $562,265.20. At the same time the petitioner paid out, or agreed to pay out of such assets, $155,019.78 for an intangible asset owned by the partnership which had cost the partnership nothing. It will be conceded, we believe, that if the petitioner had issued its capital stock for $562,265.20 of tangible assets and had immediately distributed to the partners $155,019.78 in cash, the invested capital would have to be reduced by the amount of such distribution, whether or not any part of the stock issued was canceled. The definition of invested capital must necessarily contemplate that amounts which might otherwise have been included in invested capital are to be reduced by amounts which are withdrawn by the stockholders. If the original invested capital is impaired by distributions to the stockholders, it must be reduced by reason thereof. If the law were otherwise, fictitious invested capital would be built up by large amounts paid in for stock, perhaps of no par value, or as paid-in surplus which would be immediately returned to the stockholders or used to purchase assets from the stockholders at an inflated price.

It makes no difference, for the purpose of computing invested capital, whether a corporation distributes a part of its capital assets to its stockholders and receives nothing therefor or whether it uses a part of such capital assets to acquire from its stockholders something which the statute says may not go into invested capital. Section 331 is not confined in its operation to property acquired for stock or even to property acquired by a corporation upon organization. It covers any change of ownership of property after March 3, 1917, where an interest or control in such property of 50 per centum or more remains in the same persons. It follows that whenever a corporation purchases assets from majority stockholders, such assets go into invested capital at not more than their cost to such stockholders, regardless of the amount at which the consideration paid might have gone into invested capital. We are of the opinion that the Commissioner correctly adjusted invested capital by excluding from the computation any value for the good will acquired from the partnership, if he is correct in holding that such good will had no cost.

The petitioner claims, in the alternative, that the good will had cost the partnership at least $155,019.78 and that it had a greater value when transferred to the corporation. It is not seriously contended that the good will value did not exist, the respondent placing his reliance upon the absence of any cost. Petitioner relies upon the amounts expended for advertising and the cost of its adjustment policy as establishing such cost. There is no showing whether the amounts expended for these purposes were deducted by the partners after March 1, 1913, in computing their net income for taxation. The books indicate that they were charged off to profit and loss on the firm's accounts and presumably they were deducted by the partners in computing taxable income. The brief of petitioner's counsel so assumed and in any event the burden was on it to establish the contrary. The question then is, how much of the expenditures made prior to March 1, 1913, for advertising and for adjusting the complaints of customers represents cost of the good will transferred in November, 1917? Petitioner urges that as a minimum cost it should include the amounts expended from 1900 to 1913 for so-called institutional advertising and the amounts expended from 1908 to 1913 for adjustment of complaints. It also seeks to include a part of the amount spent for newspaper advertising. Recognizing that all such expenditures are in part designed to stimulate current sales and in part to build up good will, we know of no basis upon which a division may be made. We are satisfied that it did cost the previous owners a substantial amount to build up the good will which the business enjoyed in 1917, but we are also satisfied that the amount of such cost can not be determined. Sections 327 and 328 of the Revenue Act were designed to care for such cases. . The petitioner is entitled to a computation of its tax under section 328 of the statute, if any relief is afforded thereby. It is conceded that for the fiscal years 1921 and 1922, the application of section 328 would not reduce the tax. The first hearing having been limited to the trial of the issues specified in subdivisions (a) and (b) of Rule 62 of the Board, further proceedings as to years other than 1921 and 1922 will be in accordance with subdivision (c) of that rule.

Reviewed by the Board.

Decision will be entered for the respondent in Docket No. 19582. In Docket Nos. 10042 and 18293 further proceedings will be in accordance with Rule 62.