Aluminum Flake Co. v. Commissioner

OPINION.

Morris:

The issue raised is the value to be used, in computing invested capital, of the Reifsnider property which was paid in for $400,000 of the capital stock of the petitioner. In support of its valuation the petitioner offered evidence of the sale of certain shares of stock at or about the same time the property was acquired for $33.33% per share and $50 per share. The petitioner also offered the testimony of two of its original incorporators and various corporate officials, and the expert testimony of a consulting engineer and geologist. .The respondent relies upon the valuation made by the board of directors in 1914, when capital stock was reduced from $500,000 to $50,000, and the property was valued on taxpayer’s books at $15,000.

The rule of law seems to be well settled that the valuation of property placed thereon by the board of directors in the exercise of their best judgment is evidence of actual value, but where the directors have arbitrarily placed successive valuations upon the property, the probative weight of any one of the values so fixed is lessened by each additional valuation. In the instant proceeding the board of directors have placed three separate values on the property as shown by their books. Any one of the values so fixed carries no greater weight than the other two so that if we would fix the value of the property, we must look to evidence other than the determination of the board of directors.

The best evidence of value adduced was the expert testimony of H. A. Wheeler, a consulting engineer and geologist. Wheeler was a graduate mining engineer with some 40 or more years of experience. He was with the United States Geological Survey; he was an organizer and the first president of the American Ceramic Society; he has been a manufacturer in the clay industry for many years; he has been professor of geology and mining at Washington University, St. Louis, Mo., for 12 years, and he was engaged by the State of Missouri to work up the clay resources of that State with the State Geological Survey. In the latter work he visited during 1890 to 1895 the clay deposits of Missouri, examining and analyzing the deposits and samples of the clay. He testified that the Reifsnider deposit was “ the richest and most extensive of the flint clay deposits known at that time,” that the tonnage of clay available was approximately 200,000 tons, that the clay in place was worth at least $1 a ton, and that land as rich in clay as the Reifsnider property was conservatively worth $200 per acre. He further testified that he had intended acquiring the Reifsnider property but was unable to do so because of a lack of capital. Also that the railroad connections which the Reifsnider properties had made the clay deposit much more valuable than the same property would be without such transportation facilities.

The petitioner is here alleging that this property should be valued at $138,840 in 1903. The evidence of the officers and directors and the expert testimony points conclusively to the fact that this value should be allowed. We are of the opinion, therefore, that the petitioner has sustained its allegations and that in computing invested capital the property paid for stock should be valued as claimed.

Judgment will be entered for the petitioner on 15 days notice, under Bule 50,