Case Name: Edwin B. Malone, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1927-01-27
Citations: 5 B.T.A. 1226
Docket Number: Docket No. 5225
Parties: Edwin B. Malone, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 5
Pages: 1226–1230

Head Matter:
Edwin B. Malone, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 5225.
Promulgated January 27, 1927.
Theodore E. Benson, Esq., for the petitioner.
J. L, Deveney, Esq., and John D. Foley, Esq., for the respondent.

Opinion:
OPINION.
Love:
At the hearing of this case the petitioner abandoned his assignments of error involving the life insurance policy, the Collings-worth property, and the building and loan association stock; hence those items pass out of consideration. There remain for consideration:
(1) The determination, for invested capital purposes, of the cash value of the tangible properties connected with and used in the trade or business conducted by the petitioner.
(2) Whether or not certain properties owned by petitioner, but not connected with his business and not used in the business otherwise than being included in statements of individual assets made to his bank as a basis of credit, shall be included in invested capital, and if so, at what value.
The decision in this case is controlled by section 207 of the Revenue Act of 1917, the pertinent parts of which are as follows:
That as used in this title, the term " invested capital " for any year means the average invested capital for the year, as defined and limited in this title, averaged monthly.
As used in this title "invested capital" does not include stocks, bonds (other than obligations of the United States), or other assets, the income from which is not subject to the tax imposed by this title nor money or other property borrowed and means, subject to the above limitations:

(b) In the ease of an individual, (1) actual cash paid into the trade or business, and (2) the actual cash value of tangible property paid into the trade or business, other than cash, at the time of such payment (but in case such tangible property was paid in prior to January first, nineteen hundred and fourteen, the actual cash value of such property as of January first, nineteen hundred and fourteen) .
Prior to 1907 petitioner conducted a retail lumber business under the name of Watson Malone & Sons. From 1907 to the close of 1916 he conducted the same business, at the same place, and under the same name, and had during that time a partner who was a partner only to the extent that he shared in the profits and losses. Strickler contributed nothing to the assets of the business, and none of the assets were transferred to or ever belonged to the partnership.
Petitioner contends strenuously that when petitioner dissolved the partnership and took over the business on January 1, 1917, he began a new.-business, a successor to the partnership, and that, as of that date, he paid in to that new business the property that had been used in the partnership business, and that such property must go into invested capital at its cash value as of that date, and he alleges its value at $150,000.
The Commissioner contends that there was no change of ownership, no change in business, and that such property must go into invested capital at cost, and determined that cost at $72,500.
Under the facts in this case, it is apparent that from 1906 to 1917, inclusive, there was no material change or reorganization of the business conducted by the petitioner. The partnership involved only the profits and losses, and the title and status of the assets at all times remained the same. Those assets having been acquired prior to January 1, 1914, their cash value as of that date is the value that must go into invested capital, and we have found such value to have been $170,900.
With reference to the South Atlantic City town lots, the stock and accounts receivable of the Tomahawk Lumber Co., and the Liberty bonds, the evidence is clear that none of those items, except the Tomahawk Lumber Co. item, was connected with the business, and in no way used in the business other than to be listed as assets belonging to E. B. Malone, in his statements to his bank as a basis of credit. There is no evidence of market value of the town lots. However, regardless of the question of value or no value, and accepting the Liberty bonds at their face value, those properties were not paid in to the business. It is true that all property owned by an individual is liable for his debts and in that way it may be well said that all his property is risked in any business in which he engages. The statute prescribes that it is only the cash or property paid in to the business that may go into invested capital. Neither the Tomahawk Lumber Co. items, the town lots, nor the Liberty bonds were paid in to the business, within the meaning of the statute, and hence may not be included in invested capital.
Judgment will ~be entered on Id days' notice, under Bule 60.