Case Name: Appeal of WRIGHT'S AUTOMATIC TOBACCO PACKING MACHINE CO.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1925-05-27
Citations: 1 B.T.A. 1260
Docket Number: Docket No. 1837
Parties: Appeal of WRIGHT’S AUTOMATIC TOBACCO PACKING MACHINE CO.
Judges: Before Sternhagen, Trammell, Phillips, .and Love.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 1
Pages: 1260–1263

Head Matter:
Appeal of WRIGHT’S AUTOMATIC TOBACCO PACKING MACHINE CO.
Docket No. 1837.
Submitted April 30, 1925;
decided May 27, 1925.
E. S. Parker, Jr., Esq., and J. L. Elliott, O. P. A., for the taxpayer.
J. Harry Byrne, Esq., for the Commissioner.
Before Sternhagen, Trammell, Phillips, .and Love.

Opinion:
OPINION.
Phillips :
The taxpayer alleges two errors on the part of the Commissioner: (1) That the entire capital stock has been eliminated in computing invested capital; and (2) that depreciation has not been allowed on patents owned by the corporation and valued on March 1, 1913, at $225,000.
Prior to the organization of the taxpayer corporation in 1893, E. H. Wright had secured a patent upon a device for packing tobacco, which had been invented by one Eose and assigned to Wright. He had also secured a contract from Eose for the assignment by Eose to him of any improvements that Eose might make. Several machines had been made under the patent and were in operation upon a royalty basis, title to them remaining in Wright. On the organization of the taxpayer corporation Wright set over to it these machines and all other assets of the business previously conducted by him, and assigned to it this patent and all Ms interest in the contract with Eose, and in payment the company issued to Wright all its capital stock of a par value of $250,000. The cash value of the tangible assets for which the stock was issued was $25,000. It is claimed that the cash value of the intangibles at the time was $225,000 and that this should be allowed as invested capital. The only evidence to sustain this contention is that during the following twenty years the gross earnings of the taxpayer were $363,354.75, an unknown portion of which, however, was from patents perfected or purchased after 1893. In these circumstances the taxpayer should be allowed to include $25,000 in its invested capital on account of stock issued for tangible property, but nothing can be allowed for the stock issued for the patents.
Upon the question of depreciation we are again confronted with lack of proof of the cost or March 1, 1913, value. The taxpayer relies upon the gross earnings of the business from 1893 to 1913, and from 1914 to 1922. These earnings, however, were from a number of patents expiring at different times, some of which expired prior to 1913, some after 1913 and before the taxable years in question, and some of which were acquired after 1913. It appears that the taxpayer had spent considerable sums in acquiring and developing patents, but whether these sums were for patents which were still valid in the taxable years in question we were unable to ascertain, except it did appear that patent No. 620,637, issued March 7, 1899, was acquired in 1908 or 1909 at a cost of $51,370.72. This patent, however, had expired prior to the taxable years in question. The taxpayer has failed to establish any basis upon which depreciation can be computed.