Case Name: Humble & Gulf Coast Oil Co., Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-10-30
Citations: 5 B.T.A. 328
Docket Number: Docket No. 1078
Parties: Humble & Gulf Coast Oil Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 5
Pages: 328–331

Head Matter:
Humble & Gulf Coast Oil Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 1078.
Decided October 30, 1926.
J. E. Niday, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.

Opinion:
OPINION.
Ceben :
The first assignment of error relates to the disallowance of five deductions claimed by the petitioner in its return.
The first deduction in controversy is an alleged loss resulting from the Hardin lease. It is obvious from an examination of the lease that the petitioner herein might, upon the making of certain payments specified therein, remain in possession during the full term of the lease. As was set forth in the findings of fact, there is no evidence as to the rental payments or as to a declaration of forfeiture or abandonment. We can not tell from the records whether the lessee's rights were ever terminated, and, consequently, we must hold that there was no loss in the year 1920.
The second deduction in controversy is an alleged loss on the Kansas leases. . The petitioner, while admitting that the loss was sustained in 1919, contends that because it failed to deduct it in that year that it is entitled to deduct it in 1920. There is no provision of the statute under which such a shifting of -losses is permissible, and, consequently, we must approve the action of the Commissioner as to this loss.
The third deduction in controversy is an alleged loss on equipment destroyed by fire. The petitioner has failed to prove the cost of the property destroyed, the insurance or salvage, if any, and the year in which the fire occurred. Under such a state of proof, we must affirm the Commissioner.
The fourth deduction in controversy is a loss due to personal injuries to an employee. In the disallowance of this we believe the Commissioner was in error. So far as the evidence discloses there was nothing to accrue in the year 1919, and, consequently ( having paid the loss in 1920, the petitioner is entitled to a deduction for the amount thereof in that year, regardless of whether it was on a cash or on an accrual basis.
The petitioner abandoned its deduction as to the expenditure of $70,075.13 which it claims the right to deduct as development and promotion expense.
The second assignment of error relates to the computation of invested capital. It is contended that the proposed excess profits tax of $1,849.26 can not be correct, since the net income was determined by the Commissioner to be $12,246.31. This contention is apparently based upon the misapprehension that the excess-profits credit is computed by taking 8 per cent of the outstanding capital stock. Such is not the law. Section 301(b) of the Revenue Act of 1918 requires the tax in the first bracket to be 20 per centum of the amount of the net income in excess of the excess-profits credit. Section 312 of the same Act provides that such credit shall consist of a specific exemption of $3,000 plus an amount equal to 8 per cent of the invested capital.
The record is wholly silent as to the invested capital of the petitioner. We do not know what was claimed or what was allowed. It is apparent that the Commissioner did not allow an invested capital equal to the par value of the outstanding capital stock, but there is nothing to indicate that his determination in this regard was erroneous.
Judgment will be entered after 15 days' notice, under Rule 50.