Zouri Drawn Metals Co. v. Commissioner

OPINION.

Lansdon:

We are convinced that at December 31, 1920, certain dies, acquired by the petitioner at a cost of $21,630.74, were discarded and that at that date such assets were worthless and had only a salvage value, which w® have found was $746.53. It appears from the evidence that the petitioner carried these dies on its books at cost and that it had never taken depreciation thereon. From the evidence we conclude that the average useful life of the discarded assets was ten years and by computation we have determined that depreciation thereon at December 31,1920, had accrued in the amount of $9,276.93. It follows, then, that the unextinguished useful value of such property at the close of the taxable year was $12,353.21. Changes in the art in which they were employed had rendered these dies obsolete. Under the provisions of section 234(a) (7) of the Revenue Act of 1918, the petitioner is entitled to deduct their depreciated unextin-guished cost, less salvage, from the gross income for the taxable year.

In support of its estimate of the alleged value of certain patents and good will acquired for stock at date of incorporation, the petitioner introduced the evidence of two patent attorneys. Each testified that in his opinion the patents in question had a cash value of at least $25,000 at the date of acquisition. It is apparent from the testimony that these witnesses were more expert in the determination of the validity of patents than of the cash value of such property. This evidence has very little evidentiary weight. The only additional proof offered was that at the date of organization one of the incor-porators bought 428 shares of the capital stock of the petitioner at par for cash. As no shares were offered or sold to the public, we can not regard this transaction as evidence of the value of the intangibles that were included among the assets of the corporation. As the statute provides that assets purchased for stock at the incorporation of a company can be taken into invested capital only at their actual cash value, it is the petitioner’s burden to prove such value. We are not convinced that this has been done.

Judgment will be entered on 10 days’ notice, under Rule 50.

Considered by Green and Arundeel.