L. J. Christopher Co. v. Commissioner

L. J. CHRISTOPHER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

L. J. CHRISTOPHER CO. OF CALIFORNIA, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

L. J. CHRISTOPHER CO. OF DELAWARE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

L. J. Christopher Co. v. Commissioner

Docket Nos. 8931, 16085, and 17448.

United States Board of Tax Appeals

13 B.T.A. 729; 1928 BTA LEXIS 3197;

October 2, 1928, Promulgated

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1. Certain withdrawals from a corporation made by a stockholder who owned all the stock of the corporation except certain qualifying shares, held to be taxable dividends under section 201 of the Revenue Act of 1921.

2. In the absence of evidence showing when income-tax returns were filed, held, that the assessment of a deficiency is not barred by the statute of limitations.

3. The value of the good will of a corporation determined.

4. Right to special assessment under section 328 of the Revenue Act of 1921 denied where the only facts established in evidence are the amount of income and the amount of invested capital of petitioner as determined by respondent.

George E. H. Goodner, Esq., for the petitioners.

George H. Koster, C.P.A., and I. R. Blaisdell, Esq., for the respondent.

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MILLIKEN

The above proceedings were consolidated for hearing and decision and all involve deficiencies in tax for the year 1921. In the proceeding of L. J. Christopher, the deficiency is $89,501.52. In the proceeding of L. J. Christopher Co. of California, hereafter referred to as the California Company, the deficiency is $6,227.17 and in the proceeding of L. J. Christopher Co. of Delaware, hereafter referred to as the Delaware Company, the deficiency is $20,210.94. Petitioner, L. J. Christopher, asserts that respondent erred (a) in holding that petitioner was in receipt of a taxable dividend in the amount of $192,872.67, and (b) in refusing to hold that petitioner received said amount as trustee for the California Company. Petitioner, the California Co., asserts (c) that the assessment of any additional tax is barred by the statute of limitations; (d) that there was no actual sale by the California Company to the Delaware Company upon which a profit was realized; (e) that the transaction between said companies constituted a reorganization which did not result in taxable gain; (f) that respondent in computing the profit on the alleged sale by the California Company to the Delaware Company erroneously excluded from cost the value of good will acquired by that company in exchange for its capital stock and in including in gain the amount of $12,093.46. Petitioner, the Delaware Company, asserts (g) that the assessment of the additional tax is barred by the statute of limitations; (h) that respondent erred in holding that petitioner's invested capital could be determined; (i) that respondent erroneously concluded that there were present during the year 1921, in the income and invested capital of said company no abnormal conditions which would justify him in computing the profits tax of petitioner under the provisions of section 328 of the Revenue Act of 1921; and (j) that respondent erroneously excluded from said petitioner's invested capital the value of good will acquired by it at the time of its organization and the purchase of the assets of the California Company.

FINDINGS OF FACT.

L. J. Christopher entered the wholesale and retail ice cream, candy and confectionery business in the year 1887, in Los Angeles, Calif., with a capital of approximately $50,000. The business was successful and steadily increased in value. Prior to the year 1914, he had acquired certain real estate and had built thereon an extensive plant. The sales grew in volume and by 1914 he was selling ice cream in many of the surrounding towns and cities. In 1912 he registered his name as a trade-mark. By 1914 his annual sale of ice cream amounted to approximately 200,000 gallons. In 1914 he organized the California Company under the laws of California with a capital stock of $400,300, and transferred to it all of the assets of the business including the good will, in consideration of all of its capital stock except a few qualifying shares. Immediately upon its organization, the California Company set up on its books, the following statement of its assets and liabilities:

L. J. Christopher Company, Los Angeles
Statement of Assets and Liabilities June 1, 1914.
		DETAIL	TOTAL
CASH ASSETS
1. Revolving Funds		$152.00
3. Citizens National Bank		1,615.41
			$1,767.41
CURRENT ASSETS
9. Accounts Receivable		$29,984.75
10. Notes Receivable		1,838.06
11.Accounts Receivable
(Anaheim Store) (C.R. Alling)		2,958.50
12. Stock Suscription		300.00
			35,081.31
INVENTORY ASSETS
17. Warehouse		18,744.50
18. Factory Work in Process -
Cdy	$2,686.22
IC	3,163.11
		5,849.33
19. Factory Manufactured Stock -
Cdy	$948.91
IC	1,772.59
		2,721.50
20. Store Stock		7,404.62
			34,719.95
PROPERTY ASSETS
27. Real Estate		200,000.00
28. Buildings		51,023.16
30. Outside Investments		1,212.00
			252,235.16
EQUIPMENT ASSETS
36. Cafe and Store Furniture and
Fixtures		$39,286.04
37. Factory Machinery and Equipment		43,160.41
38. Office Furniture and Fixtures		1,722.80
39. Delivery Equipment	20,741.30
40. Tubs and Cabinets		10,581.49
42. Dish Room Stock		7,433.77
			122,925.81
DEFERRED ASSETS
47. Advanced Expenses		$1,201.72
49. Unexpired Insurance		1,318.05
50. Delivery Department Supplies		502.50
53. Good Will		17,028.82
			$20,051.09
Total assets			$466,780.73
LIABILITIES
CURRENT LIABILITIES
57. Accounts Payable		$19,126.34
58. Notes Payable		10,000.00
			$29,126.34
RESERVE LIABILITIES
55. Reserve for Depreciation			37,354.39
CAPITAL LIABILITIES
72. Capital Stock			400,300.00
Total liabilities			$466,780.73

The actual cash value of the good will of the business of L. J. Christopher acquired by the California Company was $17,028.82. L. J. Christopher was at all times president of the California Company and the owner of all its shares of stock except the qualifying shares, and certain small blocks of stock held by employees all of which were taken over by L. J. Christopher prior to the sale hereafter referred to for par and interest on such par value at the approximate rate of 7 per cent. From the date of its incorporation down to and including the year 1924, the California Company made no formal declaration of dividend. During said period L. J. Christopher withdrew from the earnings of the California Company from time to time, moneys and other personalty. These amounts were charged against him on the books of the California Company. The private account of L. J. Christopher as it appears on the ledger of the California Company shows that as of February 28, 1920, said Christopher was charged with the sum of $843.36 and that during the remainder of that year he withdrew in cash and other items, $46,270.92 and that these withdrawals were credited by salary in the amount of $11,000 and other items amounting to $1,769.75, leaving a balance charged against him as of December 31, 1920, of $34,344.53. The private account of L. J. Christopher as it appears from the ledger of the California Company for the period January 1, 1921, to December 31, 1923, inclusive, is as follows:

L. J. Christopher Company, Los Angeles
Date	Description	Post ref.	Charges	Credits	Dr. or credit	Bal. amt.
Amounts	forwarded		$34,344.53			$34,344.53
1/31/21	Cash Record	R. 6	13,515.55
1/31/21	A. P	R. I	1.25
1/31/21	Salary Jan	J 727 B	47,861.33	$1,000.00		46,861.33
2/28/21	Cash Record	R. 6	20,095.60
2/28/21	P. R	R. 2	7.88
2/28/21	Sundry	J 737 A		500.00
			67,964.81	1,500.00	66,464.81
		V 740	250,000.00			316,464.81

The foregoing entries were made on the ledger of the California Company during the year 1921. All the following entries were made on the ledger of the California Company in the year 1924 and after the books had been examined by a revenue agent:

Date	Description	Post ref.	Charges	Credits
2/28/21	L.J.C. Agency. A/c	J.A. 1-5
12/31/21	L.J.C.	J.A. 1-5	$11,187.49
12/31/21	L.J.C.	J.A. 1-5	62,590.41
12/31/21	L.J.C. Inc. tax B Agency	J.A. 1-5		$29,321.28
12/31/21	L.J.C. Retirement	J.A. 1-5	25,000.00	25,000.00
12/31/21	L.J.C.P. Slk. Div. Agency	J.A. 1-5	5,468.75
			422,211.46	55,821.28
12/31/22	L.J.C. Agcy. Div	J A 1-5	7,000.00
12/31/22	L.J.C. Taxes B Agency	J A 1-5		3,124.90
12/31/22	L.J.C. Agency Rentals	J A 1-5	12,534.92
			441,746.38	58,946.18
12/31/23	L.J.C. Agency Rentals	J A 1-5	12,593.02
12/31/23	L.J.C. Pers. Del. Div. 10%	J A 1-5		40,740.00
12/31/23	L.J.C.P. Slk. Div. Agency	J A 1-5	6,270.81
12/31/23	L.J.C. Agency Retirement	J A 1-5	25,000.00	25,000.00
			485,610.21	124,686.18
12/31/23	L.J.C. Taxes paid 1921			908.93
			485,610.21	125,595.11

Dr. of credit	Balance amount
Dr	$366,390.18
	382,800.20
	360,924.03
	360,015.10

Immediately to the left of these entries and on the same page appear the following entries, which were also made in the year 1924 and subsequent to the examination of the books by a revenue agent:

Analygis
Preferred stock	Del. Co.	Agency A/c		Private A/c
				$66,464.81
$125,000.00		$125,000.00
		11,187.49	Rentals
		62,590.41	Various
			A/cs.
			$29,321.28
	$25,000.00	25,000.00
		5,468.75
$100,000.00		$199,925.37		$66,464.81
		7,000.00
			3,124.90
		12,534.92
$100,000.00		$216,335.39		$66,464.81
		12,593.02
					$40,740.00
		6,270.81
	25,000.00	25,000.00
$75,000.00	260,199.22			25,724.81
			908.93
$75,000.00	$259,290.29			$25,724.81

The income of L. J. Christopher for the year 1921 as computed by respondent was $220,999.06.

In February, 1921, the Delaware Company was organized under the laws of Delaware and thereupon the following bill of sale was executed:

FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, L. J. CHRISTOPHER COMPANY, a corporation, organized and existing under and by virtue of the laws of the State of California, hereinafter referred to as the vendor, of the one part, hereby grants, conveys, and assigns to L. J. CHRISTOPHER COMPANY, a corporation, organized and existing under and by virtue of the laws of the State of Delaware, hereinafter referred to as the vendee of the other part, all that certain personal property consisting of the stock of goods, wares, and merchandise, materials, manufactured articles, machinery, trucks equipment, and all personal property owned by the vendor herein and which is now in and about those certain premises heretofore operated by said vendor on Lots 1, 2, 3, 9, 10, and 11, of Tract No. 2651, in Los Angeles City, and all property, including good will, owned by said vendor, save and except real estate (including buildings) and cash (including bills and accounts of every kind outstanding). It is understood and agreed between said parties that all of the said properties are free from encumbrances.

L. J. CHRISTOPHER,

a California Corporation

by L. J. CHRISTOPHER, Pres.

ALFRED BEAUDRY, Secy.

L. J. Christopher was at this time president of both corporations. The consideration paid by the Delaware Company to the California Company under the above bill of sale was $125,000 cash and 1,250 shares of its 7 per cent preferred stock of the par value of $100 each. The cash was paid by the check of the Delaware Company payable to the California Company. This check was endorsed by the California Company to L. J. Christopher, who deposited it in bank to his personal account. During 1921 the Delaware Company retired $25,000 par value of its preferred stock for the sum of $25,000. The check representing this payment was payable to and received by the California Company and by it endorsed to L. J. Christopher, who deposited it in bank to his personal account. Prior to the sale to the Delaware Company, the California Company had placed orders for goods at a sale price of $12,093.46 and had paid this sum to the sellers. The goods were received subsequent to the sale and turned over to the Delaware Company, who thereupon paid to the California Company the price, $12,093.46. The California Company did not dissolve after the sale of part of its assets to theDelaware Company and is now in existence, holding and controlling its remaining assets. The income of the Delaware Company for the year 1921 as computed by respondent was $124,073.53 and its invested capital for the same period as determined by respondent was $279,745.85 computed as follows:

Capital stock $275,000; plus additions $14,626, issued on March 31, 1921, prorated for 276 days, $11,059.65; $220 par of stock issued on September 30, 1921, prorated for 93 days, $56.05; total, $286,115.70. Reductions on account of 250 shares of preferred stock redeemed on September 30, 1921, prorated for 93 days, $6,369.85.

At the hearing respondent introduced in evidence the following two instruments in writing:

INCOME AND PROFITS TAX WAIVER

For Taxable Years Ended Prior to Jan. 1, 1922

In pursuance of the provisions of existing Internal Revenue Laws, L. J. Christopher Co. of Calif., a taxpayer of Los Angeles, Calif., 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 due under any return made by or on behalf of said taxpayer for the year (or years) 1920 and 1921 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) L. J. CHRISTOPHER CO. OF CALIFORNIA,

Taxpayer.

By C. HOOKSTRATTEN

D. H. BLAIR C.A.D. Commissioner.

If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.

INCOME AND PROFITS TAX WAIVER

For Taxable Years Ended Prior to Jan. 1, 1922.

IT:E:SM

JRM:D-25761-3

In pursuance of the provisions of existing Internal Revenue Laws L. J. Christopher Company of Delaware, a taxpayer of Los Angeles, California, 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 warprofits taxes due under any return made by or on behalf of said taxpayer for the period February 16 to December 31, 1921 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.

L. J. CHRISTOPHER CO., C. HOOKSTRATTEN, Secy. Treas 21st & Los Angeles Sts.,

Los Angeles, Cal., Taxpayer.

D. H. BLAIR, J. G.

Commissioner.

Subscribed and Sworn to before me this 13th day of Feb. 1926.

WILLIAM A. TAYLOR,

Notary Public in and for the County of

Los Angeles, State of California.

If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.

At the date of the execution of the waiver in behalf of the California Company, St. Cuir Hookstratten, who signed said waiver in behalf of said company, was its secretary. St. Cuir Hookstratten, who signed the waiver in behalf of the Delaware Company, is now and since some time in 1921 has continuously been its secretary-treasurer. The waiver filed in behalf of the Delaware Company is stamped as received by respondent February 9, 1926. The waiver in behalf of the California Company bears no stamp of any kind. The deficiency letter to the California Company which is the basis of its appeal was mailed by respondent April 6, 1926. The deficiency letter to the Delaware Company which is the basis of its appeal was mailed by respondent on April 24, 1926.

OPINION.

MILLIKEN: Respondent has determined that L. J. Christopher received in the year 1921 from the California Company taxable dividends in the net amount of $192,872.67, computed as follows:

2/15/1921 - Balance due L. J.
Christopher Co. (Calif. Corp.)		$66,464.81
2/15/1921 - Cash received from L. J.
Christopher Co. of Delaware on sale of
assets by the L. J. Christopher Co. of
California to the L. J. Christopher
Co. of Delaware		125,000.00
Cash received from L. J. Christopher
Co. of Delaware in cancellation of 250
shares preferred stock, the property
of L. J. Christopher Co. of California		25,000.00
Profit realized on sale of assets to
Delaware Corp. by California Corp		12,093.46
Accrued interest on Liberty Bonds sold
Mr. Christopher during year		174.22
		228,732.49
Less:
	General expense	$3.70
	Unexpired taxes	2,022.06
	Unexpired insurance
		4,512.78
	Federal taxes paid
	by Mrs. Christopher	29,321.28
		35,859.82
		192,872.67

In the brief filed in his behalf in these proceedings, L. J. Christopher contends (1) that the above net amount, if a dividend, was a liquidating dividend and is not taxable since he has not recovered the cost of his stock; (2) that said net amount was not a dividend but was a liability to and an asset of the corporation, and (3) that if a dividend, the total net amont of $192,872.67 should be reduced by the sum of $34,344.53, the net amount received by him from the corporation prior to January 1, 1921.

With respect to the first contention, it is to be observed that the California Company has not been dissolved, that it is now in active operation controlling and managing the assets reserved in the sale to the Delaware Company, and that so far as the record discloses, this petitioner has surrendered none of his stock for cancellation. Counsel for petitioner discusses this issue as though it is controlled by section 201(c) of the Revenue Act of 1918, when in fact the deficiency should be determined under section 201 of the Revenue Act of 1921. The petinent parts of this section read:

SEC. 201. (a) That the term "dividend" when used in this title (except in paragraph (10) of subdivision (a) of section 234 and paragraph (4) of subdivision (a) of section 245) means any distribution made by a corporation to its shareholders or members, whether in cash or in other property, out of its earnings or profits accumulated since February 28, 1913, except a distribution made by a personal service corporation out of earnings or profits accumulated since December 31, 1917, and prior to January 1, 1922.

* * *

(c) Any distribution (whether in cash or other property) made by a corporation to its shareholders or members otherwise than out of (1) earnings or profits accumulated since February 28, 1913, or (2) earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, shall be applied against and reduce the basis provided in section 202 for the purpose of ascertaining the gain derived or the loss sustained from the sale or other disposition of the stock or shares by the distributee.

The first question is whether these withdrawals by this petitioner fall within the term "distribution" as used in section 201. It is contended that this must be answered in the ngative, since it appears that the California Company made no formal declarations of dividends and also because the various withdrawals were entered on the books of the California Company as charges against this petitioner.

We are dealing with a one man corporation, which so far as the record discloses, was conducted by L. J. Christopher as though it was an individual business. That portion of his personal account with the California Company which was introduced in evidence discloses that although his salary was in the amount of $1,000 per month, he did not withdraw any part of it. On the other hand, he withdrew money and other items whenever, it appears, he needed them and these withdrawals were credited by his salary and other items including Victory bonds. Another pertinent fact is that the California Company from the date of its organization to and including the year 1921, made no formal declaration of a single dividend. Since during all this time this petitioner was the owner of practically all the capital stock of the California Company and had absolute control, and since the only distribution of earnings made in these seven years was by reason of these withdrawals, we are clearly of the opinion that they were distributions made by the California Company as that term is used in section 201. See ; ; ; ; and .

There is no merit in the contention that the withdrawals created a debt in favor of the California Company. There is nothing in the record that to the slightest degree indicates that L. J. Christopher executed any notes or other evidences of indebtedness or that he paid any interest thereon or that interest was charged to his account. In a protest filed by him with respondent on July 7, 1925, he stated under oath: "That he has made no accounting to the California Company for the monies received through the sale of the assets to the Delaware Company; that no dividend has been declared by the California Company during 1921 or any subsequent years." Similar contentions as to the effect of such charges were made and rejected in Chattanooga Savings Bank v. Brewer & Co., Ltd., and Moline Dispatch Publishing Co., both supra. Since there is no evidence in the record which indicates that L. J. Christopher intended to repay these withdrawals, the mere entries made on the books of charges against him can not convert into an asset what was in fact a distribution. In 1924 and after an examination of the books of the corporation by a revenue agent, additional entries were made to indicate that the withdrawals were held by L. J. Christopher as the agent of the California Company. It thus appears that on the date of the making of the new entries the theory of personal indebtedness was abandoned and the theory of agency was substituted. The making of these later entries we regard as an afterthought and as of no importance except to te extent that they indicate a new theory to avoid tax liability.

Petitioner's contention that the amount of the distribution as determined by respondent ($192,872.67) should be reduced by the sum of $34,344.53, which is the net charge against L. J. Christopher as of December 31, 1920, is well taken. The petitioner further faintly contends that he should not be charged with the item of $12,093.46. The burden rests upon petitioner to overcome the findings of respondent on this point. Although he testified at the hearing, he gave no testimony with respect to this item. It is asserted that since this item does not appear on the transcript of his account as it appears on the ledger of the California Company, we should accept this negative evidence as sufficient to overthrow respondent's determination. To this we can not agree. It may be pointed out, however, that the entries made in 1924 contain a charge against this petitioner as of 1921 of $62,590.41 with the explanation "various a/cs." For all we know, this entry may contain the charge of $12,093.46.

It is essential to the taxation of a distribution by a corporation as a dividend under section 201 that it was paid "out of its earnings and profits accumulated since February 28, 1913." As the California Company was organized in 1914, it only remains to discuss whether, under the facts presented by the record, petitioner has met the burden of proof imposed upon him. Respondent has made his determination to the effect that the distributions were paid out of earnings and profits and petitioner has introduced no evidence whatever to the effect that they were not so paid. The books of the corporation were available (in fact adjournment of the hearing was taken to enable counsel to investigate these very books) and no attempt was made to introduce them or extracts from them relative to earnings or profits. Respondent in a statement attached to the 60-day letter sent to the California Company sets forth a surplus and undivided profits account which is in excess of the distributions as here determined. In the absence of evidence, respondent must be affirmed on this point. Subject to the deduction of the amount of $34,344.53 above referred to, respondent's action in the proceeding of L. J. Christopher is affirmed.

The California Company pleads that the assessment of the deficiency determined against it is barred by the statute of limitations. The Delaware Company makes a similar plea. These allegations were denied by respondent and respondent thereupon placed in evidence he "waivers" set forth in the findings of fact. It is not necessary for us to pass upon the validity of these waivers. See, however, ; ; and . It is sufficient to point out that there is no evidence in the record as to when the income and profits-tax returns of these petitioners were filed. The contention that everyone is presumed not to have violated the law is without merit when applied to these proceedings, since the Revenue Act of 1921 (sections 241 and 227) provides that the collector may grant a reasonable extension of time, not exceeding six months, for the filing of returns. This precise question was decided adversely to petitioner's contention in . Cf. . Since it does not appear that the assessment of these deficiencies is barred by limitations, it follows that collection is not barred. See , and

The contentions of the California Company that the transactions between it and the Delaware Company did not constitute a sale but did constitute reorganization are not pressed by petitioner, are in direct conflict with the evidence, and need not be considered further. The California Company further contends that respondent erred in excluding from cost, good will acquired by it from L. J. Christopher and by including in the purchase price the sum of $12,093.46, which it received from the Delaware Company under the conditions set forth in the findings of fact.

We are convinced that the private business of L. J. Christopher bad at the time of the organization of the California Company a good will which possessed value and that this value was included in the assets for which the stock of the corporation was issued. The question for decision is what its value was. The books of L. J. Christopher are lost and we are compelled to resort to the memories of witnesses. L. J. Christopher testified that in 1914 he was worth approximately $1,000,000, that three-fourths of this amount resulted from the business which he incorporated, and that the earnings of the business previous to incorporation ran from $30,000 to $40,000 a year. When pressed for dates and amounts, he became uncertain and contradictory. He could not state what were the net profits of his business for the years 1910, 1911, 1912, and 1913. On direct examination, he stated the value of his business in 1914 was "about $400,000 or $500,000." When asked on cross-examination what assets composed his net worth of $1,000,000, he testified that his plant, real estate alone, was worth $500,000 or $600,000 and this in the face of the fact that this same real estate was turned into the corporation at a value of $251,023.16. No paid-in surplus is or has ever been claimed by reason of the value of this real estate. On the other hand, the manager of the business prior to the organization of the California Company and thereafter of that corporation up to July, 1920, who had full charge of the business and was familiar with its activities and its books, was by no means certain what, if any, profits were made in 1913 and 1914. He stated that according to his memory no money was lost prior to 1914. If large profits had been made in these years, he certainly would have recalled them, since he testified from the same memory that the California Company lost about $30,000 in 1915 and about the same amount in 1916. Neither are we impressed with the testimony of this witness to the effect that the value of the business of any small wholesale ice cream concern over actual investment was 25 cents for each gallon sold during the year and that the value of the good will of a large established business was worth at least 50 cents for every gallon sold during the year. These statements were made without qualification - it mattered not whether the ice cream was sold at a loss or at a profit. On cross-examination, he stated that he knew of no sale comparable to the sale of the California Company to the Delaware Company. However, we are impressed by the facts that L. J. Christopher started his business with an investment of about $50,000 in 1887, that it grew in value until in 1914 it was worth approximately $400,000; that he had a trade-name that was valuable, and that he had extended his trade to outside cities and towns. We also recognize the fact that since the books involving these transactions are lost, we must resort to the memories of the various witnesses. While book value is of little weight, we accept the entries on the books of the California Company as the value placed upon the good will by the parties at the time of the transfer and fix the value of the good will as of that date at $17,028.82. In compting the profit on sale to the Delaware Company, this amount should be added to cost.

It is the contention of this petitioner that since it paid $12,093.46 for goods which were thereafter turned over to the Delaware Company, and was reimbursed by that company in precisely the same amount, no gain was made on the transaction. This is not precisely the question presented. The issues are what gain the California Company made on its sale to the Delaware Company, and whether this amount was included in the cost of that sale by petitioner in its tax return or by respondent in his determination. It may be pointed out that while the bill of sale includes "all proprty" with certain well defined exceptions, and while these goods do not fall within these exceptions, yet the "goods, wares, merchandise, and materials" sold were those then "in and about" the premises on which the plant was located and that the goods involved were not then so situated. The paper is inartificially drawn and we are impressed by the construction placed upon it by the parties at the time. It is highly improbable that the vendee would have made an additional payment for goods it had already bought and paid for, even though the same person was president of both corporations. We are of the opinion that these goods were not included in the assets sold for the approximate price of $250,000 and that no gain should be determined by reason thereof.

The Delaware Company asserts, first, that respondent erred in excluding from its invested capital good will acquired by it from the California Company. While the bill of sale recites that the good will of the California Company was a part of the assets sold to the Delaware Company, there is no evidence in the record which in any way shows the value of such good will, if indeed it had any value. The fact that the good will of L. J. Christopher had value in 1914, is no evidence of the fact that the California Company had good will of value in 1921, or if it had value, what that value then was in that year. The value of the good will acquired by the Delaware Company could easily have been proven if such value indeed existed. The books of the California Company we have pointed out were accessible. We know nothing relative to the earnings of the California Company during these years, except that its manager testified that to the best of his recollection the company lost about $30,000 in the year 1915 and about the same amount in 1916. Respondent has determined that the alleged good will of the California Company had no value in 1921, and petitioner has introduced no evidence which indicates that his finding was erroneous.

Next, this petitioner contends that it is entitled to special assessment under section 328 of the Revenue Act of 1921. There is no evidence in the record to the effect that it was impossible to determine petitioner's invested capital. In fact, respondent has determined it. Nor is there any evidence to the effect that a mixed aggregate of tangible and intangible property was paid in for stock and that the respective values of the several classes of property can not be determined. Here is no proof of any abnormal conditions affecting petitioner's capital or income. The only evidence is the amount of "income" and the amount of invested capital ad determined by the respondent.

Section 327(d) of the Revenue Act of 1921 contains the following:

This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital, * * *

Petitioner is not entitled to the benefit of section 328 of the Revenue Act of 1921. See .

Judgment will be entered under Rule 50.