Court Opinion

ID: 4609687
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:45:15.136506+00
Date Added: 2024-06-11T07:53:56.125016
License: Public Domain

OTTO BRAUNWARTH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Braunwarth v. CommissionerDocket No. 26636.United States Board of Tax Appeals22 B.T.A. 1008; 1931 BTA LEXIS 2032; March 31, 1931, Promulgated 1931 BTA LEXIS 2032">*2032  1.  Where, upon the sale of a business, title passed to the vendee and part of the purchase price was paid in cash and the remainder in Liberty bonds which were placed in escrow to be delivered to vendor in installments over a period of years upon the filing by him each year of an affidavit that he had not competed in business, held, although the transaction was closed in the year of sale, the right to the deferred payments was not the equivalent of cash and the installment payments were not income to the petitioner, the vendor, until received.  2.  Held, further, that where petitioner failed to establish the cost of the business sold, the action of the respondent in including in petitioner's income the total amount received each year must be approved.  3.  Amount of exemption from surtax of interest upon Liberty bonds determined.  J. S. Y. Ivins, Esq., and F. E. Youngman, Esq., for the petitioner.  James L. Backstrom, Esq., and P. A. Sebastian, Esq., for the respondent.  MCMAHON 22 B.T.A. 1008">*1009  This is a proceeding for the redetermination of deficiencies in income taxes for the years 1922, 1923, and 1924 in the respective amounts of1931 BTA LEXIS 2032">*2033  $8,400.86, $6,467.61, and $21,298.05.  It is alleged in the petition that: (1) The respondent erred in taxing as profit or income for the years 1922, 1923, and 1924 any part of the proceeds from the sale of Liberty bonds received from the Lawyers Title & Trust Company of New York under the terms of a contract entered into on January 8, 1920, with Dunlop America, Ltd.  (2) If any part of the proceeds of the Liberty bonds received by the petitioner from the Lawyers Title & Trust Company of New York during the years subsequent to 1920, and particularly the years 1922, 1923, and 1924, pursuant to the contract were properly taxable as profit or income, the respondent erred in taxing such proceeds in the year received by the petitioner instead of the year of the execution of the contract.  (3) If any part of the proceeds of these Liberty bonds received by the petitioner during the years 1922, 1923, and 1924, pursuant to the agreement of January 8, 1920, is taxable as income or profit to the petitioner, the respondent erred in failing to allow as a deduction therefrom an amount representing the proportionate part of the 1913 value, or value at date of acquisition, of the tangible and1931 BTA LEXIS 2032">*2034  intangible assets sold under said agreement of January 8, 1920.  (4) If any part of the proceeds of these Liberty bonds received by the petitioner is taxable as profit or income in the years of receipt, the respondent erred in computing the tax under sections 210 and 211 of the Revenue Acts of 1921 and 1924 instead of computing the tax under section 208 of such acts.  (5) The respondent erred in including in taxable income for the years 1922 and 1923, respectively, the amounts of $6,375 and $9,562.50, and for the year 1924, any part of the sum of $12,750, representing accumulated coupon interest received on Liberty bonds delivered to the petitioner during those years by the Lawyers Title & Trust Company.  22 B.T.A. 1008">*1010  (6) The respondent erred in including in taxable income for the year 1924 any part of the Liberty bonds and accumulated interest amounting to $88,218.25 received by the petitioner during the taxable year in trust for Hooven Realties, Inc.FINDINGS OF FACT.  The petitioner is an individual and a resident of the City and State of New York.  In December, 1905, the petitioner purchased for $350 a tire-vulcanizing business at 63rd Street and Broadway, New York1931 BTA LEXIS 2032">*2035  City.  The tangible assets of the business consisted exclusively of equipment which could have been replaced at a cost of approximately $50.  The name of the business was changed by the petitioner to Broadway Rubber Tire Works, but was not incorporated.  The only business engaged in by the petitioner's predecessor was that of vulcanizing automobile tires and tubes.  The business, however, soon expanded after petitioner acquired it and petitioner began to buy and sell tires and tubes.  In 1907 the petitioner caused his business to be incorporated under the name of the Broadway Auto Accessories Company.  Louis R. Whittemore purchased one-half of the capital stock for $10,000.  In 1908 the petitioner sold his interest in this company to Whittemore for $3,000.  Whittemore continued the business at the same place.  The petitioner then formed a new corporation, the Braunwarth-Weiss Company, into which he paid the $3,000 received from Whittemore and operated in competition with Whittemore.  The authorized capital stock of the Braunwarth-Weiss Company was $2,000.  Its business was confined largely to dealing in tires and tubes and it carried only such accessories as were necessary.  The1931 BTA LEXIS 2032">*2036  place of business of the new company was on 8th Avenue between 57th and 58th Streets, in New York City.  In 1911 the petitioner induced the Sanger Brothers and John Kline, who owned all the capital stock of the Premier Tire Company, to consolidate that corporation with Braunwarth-Weiss Company.  As a result, the Ressian Tire Company was incorporated with an authorized capital stock of $30,000 and it acquired for stock the assets of Braunwarth-Weiss Company and Premier Tire Company, including a contract for distribution of a Bussian tire known as the Prowodnick Tire.  The certificate of incorporation shows that it began business with a capital of $5,000.  The petitioner soon after the incorporation borrowed some money and with it bought out the interest of the other stockholders and a new company, The Russian Tire Sales Company, was incorporated.  22 B.T.A. 1008">*1011  As the business then needed money, one H. Ray Page was induced to purchase 51 per cent of the stock and to loan the company some money.  The petitioner owned the remaining 49 per cent of the stock, and this Page kept as collateral for the loan.  A little later the petitioner disposed of his interest in this company to Page, 1931 BTA LEXIS 2032">*2037  who continued the business for a short while.  The petitioner, in July, 1913, immediately formed a new corporation under the name of Otto Braunwarth, Inc.  Its certificate of incorporation shows that it had an authorized capital stock of $10,000 and that it began business with a capital of $5,000.  This new corporation carried on its business in the same building in which the RussianTire Sales Company had been conducted.  In the summer of 1913 the petitioner opened negotiations with the Dunlop Tire & Rubber Goods Company at Toronto, Canada, as a result of which he was granted the sole and exclusive agency to represent the Dunlop Tire & Rubber Goods Company throughout the United States.  The word "Dunlop" prior to this time had meant a certain type of detachable tire known as a straight side type of tire.  The tires manufactured by the Canadian Company were also called "Dunlop" tires.  These were superior tires and cost more than other similar tires.  The petitioner desired to sell his customers a tire that they could get nowhere else in the United States.  Under the terms of this contract, the Canadian Company consigned tires to the petitioner to be paid for within 90 days after1931 BTA LEXIS 2032">*2038  he sold them.  As a result of conditions during the World War the petitioner decided it would be better to change the name of his company as the German name was not looked upon with favor in Canada.  On April 7, 1916, the Dunlop Tire Sales Company was incorporated under the laws of New York.  Otto Braunwarth, Inc., transferred all its assets to this company in exchange for the capital stock of the latter and Otto Braunwarth, Inc., did not thereafter engage in business in any form, but was not formally dissolved until 1920.  The petitioner also incorporated another company under the laws of New York, The Dunlop Rubber Company, which did no business.  At the time of the purchase of the business, in 1905, the automobile industry was in its infancy.  At that time the petitioner had not more than three competitors in the tire vulcanizing business in the city of New York.  The petitioner began business with practically no capital and only a small clientele.  He worked very hard and drew no dividends from his business, but turned back all the money, except necessary living expenses, into the companies.  As the business grew he employed salesmen, some on commission and some on a salary. 1931 BTA LEXIS 2032">*2039 22 B.T.A. 1008">*1012  In the early stages of the business petitioner had many customers outside of New York State.  The petitioner spent large sums of money in entertainment and advertising.  He attended social functions of chauffeurs and spent large sums on them and on their families.  The petitioner attracted the trade of prominent and influential people in New York.  In 1913 the petitioner had about 1,000 customers who dealt with him regularly.  As the petitioner successively severed his connection with one business enterprise and became associated with another substantially all of his regular customers continued to trade with him.  During the entire period from 1905 to 1920, the petitioner's various enterprises were situated within a circle embracing five blocks near Broadway and Columbus Circle.  On January 8, 1920, the petitioner entered into a contract with Dunlop America, Ltd., of England, a company which had no connection with the Canadian company of a similar name.  Under the terms of this contract the petitioner and Otto Braunwarth, Inc., sold the business which the petitioner was then conducting under the name of the Dunlop Tire Sales Company, to Dunlop America, Ltd., and1931 BTA LEXIS 2032">*2040  agreed that for a period of five years neither the petitioner nor any of his companies would engage in the same kind of business or engage in competition in any way.  The first part of the contract recited the representations or warranties made by Braunwarth that he owned all the stock of his companies and that he owned valuable trade-marks, etc.  Paragraph 2 recited that the corporation wished to purchase the sole and exclusive right to use the word "Dunlop" and the good will, clientele and trade connections of Braunwarth.  The contract provides, in part, as follows: AGREEMENT made this 8th day of January, 1920, between OTTO BRAUNWARTH, of New York City (herein called "Braunwarth"), party of the first part, OTTO BRAUNWARTH, INC., a New York corporation, (herein called "O.B. Inc."), party of the second part, and DUNLOP AMERICA LIMITED, a New York Corporation, (herein called "Corporation"), party of the third part, * * * * * * III.  Braunwarth at any time, and from time to time, prior to January 10, 1925, upon written request of the Corporation, its nominee or nominees, but not otherwise, shall render testimony and make affidavits so far as he may be able to do so (provided, 1931 BTA LEXIS 2032">*2041  however, that no thing herein shall be deemed to relieve Braunwarth from his obligations as a witness when duly subpoenaed), and shall execute and deliver and cause O.B. Inc. to execute and deliver to the Corporation, or its nominee or nominees, such further assignments, bills of sale or other instruments of further assurance so far as he shall be able and as may be necessary to enable the Corporation, its nominee or nominees, to acquire, maintain and enjoy the exclusive use for all time of the word "Dunlop" in connection with the business of manufacturing, advertising and 22 B.T.A. 1008">*1013  selling tires and tubes and any other business done under or in connection with the word "Dunlop," and the good will therein, and shall act in an advisory capacity so far as he may be able and to such extent as may be reasonable in order to enable the Corporation, its nominee or nominees, to acquire, maintain and enjoy such exclusive use of the word "Dunlop" and all good will therein.  Such services by Braunwarth shall only be rendered within the United States of America and shall not consume more time than is reasonably necessary.  All traveling expenses, hotel bills and other necessary expenses incurred1931 BTA LEXIS 2032">*2042  by Braunwarth in and about the performance of said services shall be repaid to Braunwarth in cash by the Corporation in addition to the payments hereinafter mentioned.  IV.  Braunwarth and O. B. Inc., shall not, as principal, agent, or otherwise, directly or indirectly, in the United States of America nor elsewhere, manufacture, advertise or sell tires or tubes, or any other article, or conduct any other trade or business of any nature whatsoever, under or in connection with the word "Dunlop," or to which the word "Dunlop" is attached, either alone or with any other word or words, or by or through any firm, corporation or association having a name including the word "Dunlop" or permit any corporation or association owned or controlled by Braunwarth or O.B. Inc. to do any of the foregoing, except with the express written permission of the Corporation, its nominee or nominees, or its successors or assigns.  V. Braunwarth and O.B. Inc. and each of them, shall not, in the City of New York as now constituted, engage or permit any corporation or association owned or controlled by them or either of them to engage as principal, agent or otherwise, directly or indirectly, in the business1931 BTA LEXIS 2032">*2043  of selling tires or tubes at retail during the period commencing upon the signing of this agreement and ending on January 10, 1925.  Anything herein contained to the contrary notwithstanding, Braunwarth and O.B. Inc. shall at all times have the right to any may engage in the business of manufacturing, advertising and/or selling automobiles and/or motor vehicles and shall have the right to sell with such automobiles and motor vehicles the customary equipment of tires and spare tires and tubes, except tires and/or tubes under or in connection with the word "Dunlop" or to which the word "Dunlop" is attached, either alone or with any other word or words, which word "Dunlop" shall not be used in any manner whatsoever, in such business, without the express written permission of the Corporation, its nominee or nominees, nor shall anything contained in this paragraph be deemed to lessen or diminish, the right, title and interest of the Corporation, its nominee or nominees, in and to the word "Dunlop" and the good will of all business heretofore done thereunder.  VI.  Braunwarth and O.B. Inc., jointly and severally hereby sell, assign and transfer to the Corporation, its nominee or nominees, 1931 BTA LEXIS 2032">*2044  all the tangible property and assets, real and personal of every kind, nature and description and wheresoever located, now owned and used by Braunwarth or O.B. Inc. in the business heretofore mentioned (except their corporate books and records and books of account) and also the good will, clientele and trade connections in the retail tire and tube business in the City of New York as now constituted, so far as now possessed or controlled by them or either of them and so far as the same can be assigned or transferred by present agreement, and covenant to complete and effectuate said transfer by the performance of the covenants hereinbefore in paragraph V set forth, said assignment includes all "trade-marks and trade rights, if any, and trade names, trade connections, good will and clientele as above defined, except the name Otto Braunwarth or Otto Braunwarth, Inc.  22 B.T.A. 1008">*1014  Braunwarth and O.B. Inc." jointly and severally, further particularly hereby assign, transfer, set over and surrender to the Corporation, or its nominee or nominees, their entire right, title and interest in, to and under the word "Dunlop" as applied to tires and tubes and any and all other articles and businesses, 1931 BTA LEXIS 2032">*2045  together with for all time the good will, clientele and trade connections of the business, and the interests of Braunwarth and O.B. Inc., respectively herein heretofore done, directly or indirectly, by Braunwarth and O.B. Inc., respectively, in tires and tubes made, advertised or sold under the word "Dunlop," and any other business done, directly or indirectly by them or either of them under the word "Dunlop." Anything, herein to the contrary notwithstanding, under no circumstances or for any cause whatsoever, or whether or not the Trust Company, hereinafter named, shall for any reason whatsoever fail or refuse to transfer and deliver the bonds as hereinafter provided, and whether or not any of the foregoing shall be caused by or be the result of any act or acts of the Corporation, its nominee or nominees, or successors or assigns, Braunwarth and O.B. Inc., respectively, shall not have the right, in any way, to hereafter interfere with, or prevent or obstruct, the full and exclusive right, use and enjoyment by the Corporation, its nominee or nominees, its successors or assigns, in, of and to all matters and things herein provided to be sold, assigned, transferred, set over, surrendered1931 BTA LEXIS 2032">*2046  and delivered to the Corporation, or its nominee or nominees, including the word "Dunlop" and the good will of any and all business done under the word "Dunlop," and the stock of Dunlop Tire Sales Company, Inc. and Dunlop Rubber Company, Inc., respectively, and the acts and services of Braunwarth as herein provided; nor shall the Corporation be liable in any way to Braunwarth and O.B. Inc., or either of them, in case the Trust Company, hereinafter mentioned, shall for any reason whatsoever, whether or not caused by or resulting from the act of the Corporation, its nominee or nominees, or successors and assigns, fail or refuse the transfer an deliver the bonds as hereinafter provided.  VII.  Braunwarth has transferred and delivered to the Corporation, upon the signing of this agreement, a certificate or certificates representing all the issued and outstanding capital stock of said Dunlop Tire Sales Company, Inc., and Dunlop Rubber Company, Inc., respectively, duly endorsed in blank, for transfer and duly stamped the receipt whereof is acknowledged.  Braunwarth agrees to pay to the Corporation within three days from the signing of this contract the amount by which the liabilities (excluding1931 BTA LEXIS 2032">*2047  capital stock) of said companies exceed their assets (excluding good will) as shown by a statement of assets and liabilities attached hereto, marked Schedule B.  VIII.  Braunwarth has upon the signing of this agreement delivered to the Corporation, the resignation of the present directors and officers of said Dunlop Tire Sales Company, Inc., and Dunlop Rubber Company, Inc., respectively, receipt whereof is acknowledged.  IX.  It is agreed that simultaneously with the signing of this agreement the Corporation has delivered to Lawyers Title and Trust Company, (herein called "Trust Company"), in the City of New York, United States Liberty Loan Coupon Bonds, Four 4 1/4% issue, with current coupons attached, of the face amount of $300,000.  It is agreed, and the Corporation has secured the covenant and agreement of the Trust Company, that the Trust Company shall and will on each of the following dates, to wit, January 10, 1921, January 10, 1922, January 10, 1923 and January 10, 1924 (or if any of said days shall be a Sunday or holiday then on the next following business day) or upon such postponed dates as shall thereafter be fixed as provided in paragraph XV hereof, transfer and deliver1931 BTA LEXIS 2032">*2048  to Braunwarth Fifteen thousand ($15,000) Dollars, 22 B.T.A. 1008">*1015  principal amount of said United States bonds, with all coupons thereto belonging received by the Trust Company attached, upon the conditions expressed in paragraph XII hereof.  Each of the said transfers and deliveries of said bonds when made shall be a further part payment and part consideration, and the final transfer and delivery shall constitute full payment and full consideration, for the items enumerated in paragraph X hereof.  X.  The Corporation has paid to Braunwarth upon the signing of this agreement, the receipt whereof is hereby acknowledged, the sum of Seven Thousand Six Hundred and eight 39/100 ($7,688.39) Dollars, in cash, as part consideration and in part payment for the right, title, and interest of Braunwarth and O.B. Inc. in and to the word "Dunlop," and the exclusive use thereof in connection with the business of manufacturing, advertising and selling tires and tubes under the word "Dunlop," and any other business done under the word "Dunlop," together with the good will for all times of such business and businesses so far as done under the word "Dunlop" possessed by Braunwarth personally or by O. 1931 BTA LEXIS 2032">*2049  B. Inc., and such rights to the exclusive use of the word "Dunlop" as are transferred and conveyed to the Corporation by virtue of the transfer and assignment to it of all the capital stock of Dunlop Tire Sales Company, Inc., and Dunlop Rubber Company, Inc., and as part consideration and in part payment for the covenants herein of Braunwarth and of O.B. Inc. to refrain for all time from the use of the word "Dunlop" in the United States of America or elsewhere in connection with the business of manufacturing, advertising or selling tires and tubes and in connection with any and all other articles or businesses, and as part consideration and in part payment for the services of Braunwarth to be rendered as specified herein in aiding and assisting the Corporation to acquire, establish, maintain and enjoy its right to the exclusive use of the word "Dunlop." Nothing contained in this agreement shall be construed as a limitation upon the damages which might be sustained or recovered by the Corporation, or its nominee or nominees, by reason of the use by Braunwarth and O.B. Inc., or either of them of the word "Dunlop." IX.  The Corporation has further paid to Braunwarth upon the signing of1931 BTA LEXIS 2032">*2050  this agreement the receipt whereof is hereby acknowledged the sum of Sixty thousand ($60,000) Dollars in cash.  It is agreed, and the Corporation has secured the covenant and agreement of the Trust Company, that the Trust Company shall and will on each of the following days, to wit, January 10, 1921, January 10, 1922, January 10, 1923 and January 10, 1924 (or if any of said days shall be a Sunday or holiday then on the next following business day) or upon such postponed dates as shall thereafter be fixed as provided in paragraph XV hereof, further transfer and deliver to Braunwarth Sixty thousand ($60,000) Dollars, principal amount of said United States Bonds, with all coupons thereto belonging received by the Trust Company attached, upon the conditions expressed in paragraph XII hereof.  Said cash payment of Sixty thousand ($60,000) Dollars and each of said transfers and deliveries of said bonds respectively, pursuant to this Paragraph XI, when made, shall be in part payment and as part consideration, and the final transfer and delivery shall constitute full payment and full consideration, for all of the following, to wit: (a) For the covenants of Braunwarth, and of O.B. Inc. herein1931 BTA LEXIS 2032">*2051  contained, to refrain from engaging in the business of selling tires and tubes at retail in the City of New York for the period beginning on the signing of this agreement and ending on January 10, 1925.  (b) For the covenants of Braunwarth and O.B. Inc. herein contained, to refrain from soliciting their present clientele and using their present trade connections for the purpose of selling tires and tubes at retail in the City of 22 B.T.A. 1008">*1016  New York for the period beginning on the signing of this agreement and ending on January 10, 1925.  (c) For the covenant of Braunwarth herein contained to complete and effectuate the transfer of the good will, clientele and trade connections of Braunwarth and Braunwarth's Companies by aiding and assisting the Corporation in acquiring, using and enjoying the good will, clientele and trade connections in the retail tire and tube business in the City of New York herein conveyed to the Corporation by the performance of Braunwarth's covenants contained in paragraph V hereof, (but not for such covenants with respect to the word "dunlop" which are elsewhere in this agreement provided for).  (d) For the transfer and conveyance to the Corporation1931 BTA LEXIS 2032">*2052  by Braunwarth and O.B. Inc. of all their tangible property and assets, real and personal, used in said businesses as conveyed herein, and their present retail tire and tube business in the City of New York and all their trade connections, good will and clientele, and for all rights herein conveyed to the Corporation through the transfer of the stock of Dunlop Tire Sales Company, Inc. and Dunlop Rubber Company, Inc. (but not for any right, title and interest to the use of the name "Dunlop" and the good will therein, which is elsewhere in this agreement provided for).  XII.  It is agreed, and the Corporation has secured the covenant and agreement of the Trust Company, that each of the transfers and deliveries of bonds to be made by the Trust Company as specified in paragraphs IX and XI hereof shall be made only in case and only upon the express condition that Braunwarth shall on each of the dates specified for each transfer and delivery, or within six months thereafter, as hereinafter provided deliver to said Trust Company an affidavit duly executed by Braunwarth on the date of delivery containing the following: (a) A statement of the place of residence of Braunwarth.  (b) A statement1931 BTA LEXIS 2032">*2053  of the place and street number at which Braunwarth is then engaged in business and the nature of said business or that he is not then engaged in business.  (c) A statement that neither Braunwarth nor O.B. Inc. has during the period between the execution of this agreement and the date of the execution of the affidavit engaged in the retail tire or tube business in the City of New York, except in so far as permitted by the terms of Paragraph V hereof.  (d) A statement that neither Braunwarth nor O.B. Inc., has used or employed the word "Dunlop" in connect on with the business of manufacturing, advertising or selling tires or tubes or in connection with any other article or business in the United States or elsewhere since the execution of this agreement, or a statement that Braunwarth or O.B. Inc. has not used or employed the word "Dunlop", except with the express written permission of the Corporation, its nominee or nominees, successors or assigns, a copy of which permission shall be attached to and made a part of the affidavit.  (e) A statement as follows: That Braunwarth has at all times during said period performed services as agreed by him to be performed under this contract. 1931 BTA LEXIS 2032">*2054  (f) A statement that Braunwarth upon the date of the execution of the affidavit still owns or controls all of the capital stock of O.B. Inc. the nature of the business done by O.B. Inc. and the location of its principal business office or that it is not doing any business or that O.B. Inc. has been dissolved.  (g) A statement showing the reason why any affidavit is filed after the expiration of the six months period above provided, providing any affidavit is so filed.  22 B.T.A. 1008">*1017  XIII.  In the event of the death of Braunwarth prior to January 10, 1925, his executor, administrator or other logal representative shall, so far as they may be able, render testimony, make affidavits, exhibit books and records and render the services herein agreed to be rendered by Braunwarth, and said executor, administrator or other legal representative shall on each of the dates specified above for the delivery of affidavits by Braunwarth execute and deliver to the Trust Company an affidavit in similar form except that no statements need be included in said affidavit as to the acts of Braunwarth personally, and the Corporation has secured the covenant and agreement of the Trust Company to the1931 BTA LEXIS 2032">*2055  foregoing.  XIV.  It is agreed, and the Corporation has secured the covenant and agreement of the Trust Company, that in the event of the death of Braunwarth prior to January 10, 1925, the Trust Company shall and will deliver said bonds then remaining in its hands to the executor, administrator or other legal representative of Braunwarth upon the dates above specified for such deliveries to Braunwarth, but only upon the express condition that said executor, administrator or other legal representative shall on each of the dates specified for the delivery of an affidavit by Braunwarth or within six months thereafter, or if such executor, administrator, or other legal representative shall not be then qualified then, within six months after qualifications, execute and deliver to the Trust Company an affidavit in similar form, the requirements of which are set forth above, except that no statements need be included in said affidavit as to the acts of Braunwarth personally.  XV.  It is agreed, and the Corporation has secured the covenant and agreement of the Trust Company, that in case the disability, sickness or unavoidable absence of Braunwarth or his executor, administrator or other1931 BTA LEXIS 2032">*2056  legal representative prevents his filing said affidavit as aforesaid, the time for filing the same shall on written notice thereof to the Trust Company signed by anyone representing or claiming to represent Braunwarth or his executor, administrator or other legal representative be thereby automatically extended until the removal of such preventative cause and the time for transfer and delivery of bonds shall be thereupon similarly extended, but that if Braunwarth or his executor, administrator, or other legal representative shall not within six months after the date specified for filing any such affidavit or within six months after the removal of any such cause, or if Braunwarth's executor, administrator or other legal representative shall not as hereinbefore provided, file and deliver an affidavit as above provided, then the Trust Company shall thereupon redeliver to the Corporation an amount of said bonds equal to the amount which it would have delivered to Braunwarth, or his executor, administrator or other legal representative, as the case may be, had the particular affidavit been filed, and all rights of Braunwarth, and his executor, administrator or other legal representative, 1931 BTA LEXIS 2032">*2057  in and to such bonds so redelivered to the Corporation and in and to the payment and consideration represented thereby, shall thereupon forthwith cease and terminate but the right of the Corporation hereunder shall be in no way lessened or diminished thereby.  * * * A contemporaneous contract was entered into at the same time between the petitioner and Dunlop America, Ltd., on the one hand and the Lawyers Title & Trust Company of New York on the other.  That escrow agreement provides in paragraph 1 that the Trust Company shall and will on January 10, 1921, and following 22 B.T.A. 1008">*1018  years deliver to Braunwarth $15,000 of said Liberty bonds upon the conditions expressed in paragraph 3 hereof.  Paragraph 2 provides that the Trust Company will on January 10, 1921, and following years, deliver to Braunwarth $60,000 of United States bonds upon the conditions expressed in paragraph 3.  Paragraph 3 provides that each of the transfers and deliveries of said bonds shall be made only upon the express conditions that Braunwarth deliver to the Trust Company an affidavit containing the following: - then follows a statement of what the affidavit shall contain, which is identical with the1931 BTA LEXIS 2032">*2058  provisions of paragraph XII of the contract between Braunwarth and the corporation.  Paragraph 4 of this escrow agreement is identical in its provisions with paragraph XIII of the contract.  Paragraph 5 of the escrow agreement contains the same provisions as paragraph XIV of the contract, and paragraph 6 contains the same provisions as paragraph XV of the contract.  Paragraph 7 is identical with paragraph XVI of the contract.  The remaining provisions of the escrow agreement relate to the liability of the Trust Company, as escrow depositary.  These contracts were carried out in all provisions, with one exception.  The contracts provided that the Trust Company should hold the bonds and deliver them with interest coupons attached.  However, after the first year or two, the Trust Company detached the interest coupons as they became due and placed the proceeds at interest for the benefit of the petitioner.  In 1922 and 1923 the petitioner either sold or authorized the bank to sell for him the $75,000 par value of Liberty bonds as he became entitled to them.  On or about January 10, 1922, he received the principal sum of $72,093.12 and accrued coupon interest thereon of $6,375. 1931 BTA LEXIS 2032">*2059  On or about January 10, 1923, he received the principal sum of $74,085 and interest thereon amounting to $9,562.50.  On or about January 10, 1924, petitioner received the final installment of Liberty bonds, which had a fair market value on that date of $74,109.38, and also received accrued interest thereon amounting to $12,750.  The respondent added to the income reported by the petitioner for the years 1922 and 1923, respectively, the amounts of $72,093.12 and $74,085, proceeds from the sale of the Liberty bonds in those years.  The respondent added to petitioner's reported income for 1924 the amount of $74,109.38 representing the market value of the Liberty bonds received in that year.  In the deficiency letter the respondent explained his treatment of the interest received as follows: 22 B.T.A. 1008">*1019  (1922) Under contract there was placed in trust for you in the year 1920, $300,000 in Liberty Bonds of the Fourth Issue 4 1/4% to be paid with all coupons attached in installments of $75,000.00, principal, on January 10, 1921, 1922, 1923 and 1924.  On January 10, 1922, you received $75,000 principal, plus coupon interest of $6,375.00.  You contend that this interest is exempt1931 BTA LEXIS 2032">*2060  from taxation.  The interest received for the year 1922 is not exempt because the amount of your holdings for both the years 1920 and 1921 exceeded the exemption allowed.  As this interest was not available to you until you received the bonds, it is taxable to you.  The total has been included in your corrected net income, indicating an adjusted net income of $51,183.42, on which there is due a total tax of $8,400.86.  As there is no tax assessed upon your original return, there is an apparent deficiency in tax for the year 1922 amounting to $8,400.86.  (1923) On the Liberty Bond Interest received on January 10, 1923, the interest accumulated on $75,000.00, principal, for the years 1920 and 1921, and $20,000.00 principal, in 1922, is not exempt from surtax.  The total holdings for the years 1920 and 1921 exceeded the exemption of $130,000.00.  For 1922 the principal exceeded the exemption by $20,000.00.  On the interest received in 1923, $7,225.00 is subject to surtax as it was not available to you until the payment of $75,000.00 was made.  The interest accrued from January 10, 1923, to the date the bonds were sold is exempt from tax because your holdings for that period did1931 BTA LEXIS 2032">*2061  not exceed the amount of exemption allowed.  (1924) On the amount of accrued interest received when you received the $75,000.00 principal, $7,225.00 is subject to surtax.  An adjustment of this item indicates a corrected net income of $99,873.45.  The petitioner destroyed all his books prior to 1913 in order to keep others from learning his trade secrets, names of customers, etc.  After execution of the contract in 1920, Otto Braunwarth, Inc., was dissolved.  Prior to the actual delivery of his business, the petitioner sold as many of the assets as possible and, at the time of his turning the business over to the new corporation, the tangible assets were worth slightly in excess of $7,000, exclusive of accounts receivable, the payment of which petitioner guaranteed.  Petitioner later was required to make good a small amount of these receivables.  The petitioner paid the accounts payable.  The petitioner, during the years in controversy, owned no Liberty bonds other than the ones to which he was entitled under the contract with Dunlop America, Ltd.  22 B.T.A. 1008">*1020  The income tax returns of the Braunwarth-Weiss Company show the following: YearGross incomeNet incomeExcess of deduction over gross income1910$26,639.49$283.43191114,224.43None$68.471931 BTA LEXIS 2032">*2062  The return of the Russian Tire Sales Company for the year 1912 shows a gross income of $7,630.14 and an excess of deductions over gross income of $1,009.47.  The returns of Otto Braunwarth, Inc., show the following: YearGross incomeNet incomeExcess of deductions over gross income1913$1,597.63$4,112.42Fiscal year ended July 31, 191425,790.19$569.44Jan. 1, 1915, to July 31, 191529,905.821,425.98Fiscal year ended July 31, 191676,557.73488.25Fiscal year ended July 31, 191738,417.713,139.24The returns of the Dunlop Tire Sales Company show the following: YearGross incomeNet incomeExcess of deductions over gross income1917$115,312.36$1,546.12191885,087.762,386.45191955,178.39$2,006.97The petitioner borrowed as much as $150,000 upon the contract entered into in 1920, upon depositing such contract with a bank as collateral to the loan.  OPINION.  MCMAHON: The petitioner alleged in his petition that the Commissioner erred in including in gross income for the year 1924 any part of the Liberty bonds and accumulated interest amounting to $88,218.25 received by the petitioner1931 BTA LEXIS 2032">*2063  during that taxable year in trust for Hooven Realties, Inc.  However, there was no evidence whatsoever on this point and in his brief petitioner stated that this contention had been abandoned.  We shall therefore disregard this assignment of error.  The first question to be decided is whether any part of the profit from the sale of petitioner's business under the contract of January 22 B.T.A. 1008">*1021  8, 1920, constituted income to the petitioner in the years in controversy.  The contract in question provided for the sale of all of petitioner's businesses, including good will, clientele, etc., to the vendee corporation for a cash payment of $67,683.39, and $300,000 par value of Liberty bonds, which were to be deposited in escrow.  The petitioner agreed to refrain from competing in business for five years and also that none of his companies would engage in a similar business.  By the terms of the agreement the escrow depositary was to release to the petitioner on January 10 of each of the years 1921 to 1924, inclusive, $75,000 par value of these liberty bonds with interest coupons attached, conditioned upon the filing by the petitioner of an affidavit setting forth, among other things, 1931 BTA LEXIS 2032">*2064  that neither he nor Otto Braunwarth, Inc., had engaged in the retail tire or tube business.  Of each $75,000 par value Liberty bonds, $15,000 par value represented salary and the remaining $60,000 par value represented the purchase price of the property.  The contract provided that in case neither the petitioner nor his legal representative filed the affidavit within the time as specified or as extended by the depositary, the depositary was to redeliver to the vendee an amount of said bonds equal to the amount which it would have delivered to petitioner and all rights of petitioner in and to such bonds should terminate.  The petitioner complied with the terms of the contract and received the amounts of $72,093.12 and $74,085 in the years 1922 and 1923, respectively, from the sale by the depositary of the Liberty bonds due him in each of those years.  In 1924 he received the final installment of Liberty bonds, which had a fair market value at the time received of $74,109.38.  The respondent has included these amounts in petitioner's income for the respective years.  At the hearing the attorney for the petitioner, in speaking of the $15,000 which was indicated in the contract as1931 BTA LEXIS 2032">*2065  compensation for services rendered, said: With respect to that there is not any issue between us; the taxpayer concedes it was taxable as taxed by the Government.  The respondent's inclusion of such amount in petitioner's income for each year before us will therefore be approved.  There still remains for determination the question whether the remainder of the principal amount received in Liberty bonds or the proceeds from the sale thereof were properly includable in petitioner's income in the years in which actually received by petitioner.  Although the year 1920 is not before us, in order to determine the correct method of computing income for 1922, 1923, and 1924, it is necessary to decide whether the transaction was a closed one in that year.  There is no evidence as to the accounting basis upon which the petitioner operated, so it must be assumed that he was on the cash 22 B.T.A. 1008">*1022  receipts and disbursements basis.  The petitioner contends that the transaction was closed in 1920, and that any profit realized was realized in that year and is not taxable in the following years.  We are not advised as to how the petitioner treated the transaction in his tax return for 1920. 1931 BTA LEXIS 2032">*2066  in 1920 for cash and stock.  The stock was then in escrow and in 1920 for cash and stock.  The stock was then in secrow and could not be released until 1921.  A receipt was given to the petitioner entitling him to the stock, but he did not receive it until 1921.  We held that the petitioner, on a cash receipts and disbursements basis, did not receive taxable income from the stock until it was released.  It seems to us that the situation in the instant proceeding is similar to that in the Merren case.  The Liberty bonds held in escrow were not available to the petitioner until the required time had elapsed in each instance, and then only if petitioner had refrained from competing in business and had filed an affidavit to that effect.  It is clear that title to the property passed to the vendee in 1920 and that the vendee took possession of the property in that year.  It is clear that the transaction was closed in that year.  It does not necessarily follow, however, that the entire profit is taxable in that year.  If property is sold for cash the entire profit, of course, is taxable in the year of sale.  If property is sold for cash and deferred payments, the entire profit is1931 BTA LEXIS 2032">*2067  taxable in the year of sale if the deferred payments have a readily realizable market value or are the equivalent of cash.  ; affirmed in ; certiorari denied by the United States Supreme Court on December 1, 1930.  But if the deferred payments do not have a readily realizable market value, the vendor is entitled to first recover his capital investment before any profit arises and any payments in excess of such capital investment constitute income in toto in the years received.  See ; ; ; and ; affirmed in . See Moore v. Commissioner, Fed.(2d) (C.C.A., 10th Cir., March 14, 1931).  The petitioner has offered no evidence to establish the readily realizable market value of his contract right to receive the Liberty bonds, if it in fact did have a readily realizable market value.  Such being the case, the entire1931 BTA LEXIS 2032">*2068  selling price was not taxable income to petitioner in 1920.  The amounts received in each of the years in controversy were income to the petitioner in those years to the extent that they exceeded the capital investment of the petitioner in the business sold.  22 B.T.A. 1008">*1023  The petitioner testifid that the value of the tangible assets sold to Dunlop America, Letd., exclusive of the accounts receivable, was slightly in excess of $7,000.  It is his contention that under the contract the sum of $7,683.39 was in payment of the tangible assets of the business and that the remainder of the purchase price was for the good will.  He, therefore, contends that if the entire profit was not taxable in the year 1920, he is entitled to recover the March 1, 1913, value of the good will before any part of the amounts received in the years in controversy constitute taxable income to him, since, he claims the good will sold in 1920 was the same good will which he purchased in 1905 and developed thereafter.  The petitioner's argument is based upon several erroneous assumptions of fact.  The contract does not attempt to allocate the total purchase price as between the tangibles and intangibles of the1931 BTA LEXIS 2032">*2069  business and we can not say what part of the purchase price was attributable to either class of assets.  Furthermore the good will sold in 1920 was not the good will purchased in 1905.  That which was sold in 1920 was primarily the business of the Dunlop Tire Sales Company, which was the successor to Otto Braunwarth, Inc.  The latter company was organized in July, 1913, and there is no satisfactory evidence that it acquired the assets and business of any preceding business.  There were at least six businesses or corporations in which the petitioner was interested from 1905 to 1920.  Some of these succeeded to the assets and business of their predecessors and some did not.  For instance, the petitioner sold out his interest in the Broadway Auto Accessories Company to Whittemore for cash and then formed a new corporation.  In July, 1913, petitioner disposed of his interest in the RussianTire Sales Company to Page for an undisclosed consideration and then formed Otto Braunwarth, Inc., which corporation was entirely unrelated to the former company.  The business sold in 1920 was that of the Dunlop Tire Sales Company which acquired all the assets of Otto Braunwarth, Inc.  It may be conceded1931 BTA LEXIS 2032">*2070  that the petitioner had built up a considerable clientele and business acquaintanceship and that this clientele followed him, to a large extent, during his various business enterprises.  But this personal following does not constitute good will within the generally accepted meaning of the term.  Good will is defined in , as follows: Good will may be defined to be the advantage or benefit which is acquired by an establishment beyond the mere value of the capital stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers on account of its local position or common celebrity, or reputation for skill, affluence, punctuality, or from other ancient partialities or prejudices.  22 B.T.A. 1008">*1024  In , we said: * * * We find no basis for including in invested capital good will in any amount.  There is no evidence that the taxpayer acquired any good will in a legal sense.  Neither of these corporations acquired any established business or property.  The stock was issued for1931 BTA LEXIS 2032">*2071  cash (although at considerably less than par) to the men who formed the corporation, and they transferred no other property to the corporation.  The only benefit received by the taxpayer bearing any resemblance to good will was Murphy's services.  He had had a long experience and acquaintanceship in selling the articles the taxpayer was engaged in marketing.  But he did not have an established business or any assets of a business which were transferred to the taxpayer; he had been employed by others.  All this corporation got was his services.  Ability, skill, experience, acquaintanceship, or other personal characteristics or qualifications do not constitute good will as an item of property; nor do they exist in such form that they could be the subject of transfer.  See also , and . Since the business sold in 1920 did not come into existence until July, 1913, the basis for determining gain or loss is its cost.  Petitioner has failed to establish the cost of the business sold in 1920 and the respondent's action in including in income the total amounts received1931 BTA LEXIS 2032">*2072  under the contract in each of the years in controversy is approved.  Another alternative contention advanced by petitioner is that if the entire profit was not taxable in 1920, the petitioner is entitled to have such profit computed under the provisions of section 206 of the Revenue Act of 1921 and section 208 of the Revenue Act of 1924.  Those sections provide in part: (a) That for the purpose of this title: (1) The term "capital gain" means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921.  However, the sale in question was consummated, within the meaning of the revenue acts, prior to December 31, 1921, and the capital gain sections do not apply.  See . The only remaining question to be decided is whether the respondent erred in taxing at surtax rates certain amounts representing interest received by the petitioner from the Liberty bonds.  The petitioner, during the years in question, did not own any United States bonds other than those he received under the contract of January 8, 1920.  Section 7 of the Second Liberty Bond Act, 40 Stat. 291, Sept. 24, 1917, is as follows: That1931 BTA LEXIS 2032">*2073  none of the bonds authorized by section one, nor of the certificates authorized by section five, or by section six, of this Act, shall bear the circulation privilege.  All such bonds and certificates shall be exempt, both as to 22 B.T.A. 1008">*1025  principal and interest from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations.  The interest on an amount of such bonds and certificates the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in subdivision (b) of this section.  The Fourth Liberty Bond Act, 40 Stat. 844, July 9, 1918, amended the Second Liberty Bond Act, but section 7 remained unchanged.  Section 1328 of the Revenue Act of 1921 which was reenacted in the Revenue Act of 19241931 BTA LEXIS 2032">*2074  as section 1028, provides: That the various Acts authorizing the issues of Liberty bonds are amended and supplemented as follows: (a) On and after January 1, 1921, 4 per centum and 4 1/4 per centum Liberty bonds shall be exempt from graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States upon the income or profits of individuals, partnerships, corporations, or associations, in respect to the interest in aggregate principal amounts thereof as follows: Until the expiration of two years after the date of the termination of the war between the United States and the German Government, as fixed by proclamation of the President, on $125,000 aggregate principal amount; and for three years more on $50,000 aggregate principal amount.  (b) The exemptions provided in subdivision (a) shall be in addition to the exemptions provided in section 7 of the Second Liberty Bond Act, and in addition to the exemption provided in subdivision (3) or section 1, of the Supplement to the Second Liberty Bond Act in respect to bonds issued upon conversion of 3 1/2 per centum bonds, but shall be in lieu of the1931 BTA LEXIS 2032">*2075  exemptions provided and free from the conditions and limitations imposed in subdivisions (1) and (2) of section 1 of the Supplement to Second Liberty Bond Act and in section 2 of the Victory Liberty Loan Act.  We have already held that the petitioner did not own the Liberty bonds until they were actually received by him.  In 1921 the petitioner became entitled to $75,000 par value of Liberty bonds and the evidence does not establish that he ever sold them.  Since the respondent, in the deficiency letter, apparently held that petitioner still owned, in 1922, 1923, and 1924, the bonds received in 1921, and there is no evidence to the contrary, we must conclude that such was the case.  Therefore, it is clear that in 1922, when he received the second installment of $75,000 par value Liberty bonds, he owned $150,000 par value Liberty bonds.  The interest on $130,000 of this amount was tax exempt and petitioner is liable for surtax only upon the interest upon the remaining $20,000 par value.  The respondent has taxed the entire amount of $6,375, accrued interest received in 1922 upon the $75,000 par value bonds received in that year.  We 22 B.T.A. 1008">*1026  have no evidence as to whether the1931 BTA LEXIS 2032">*2076  petitioner paid a tax in 1922 upon the interest received from the $75,000 par value of Liberty bonds which were received in 1921, and we must therefore conclude that no tax was paid upon the interest received from those Liberty bonds.  Even so, the petitioner is taxable only upon the interest from $20,000 par value of the Liberty bonds which he owned in 1922.  It follows that only four-fifteenths of the amount of interest received in 1922 from the Liberty bonds received by petitioner in that year is taxable at surtax rates.  Adjustment will be made accordingly under Rule 50.  In 1923, the petitioner, having sold the $75,000 par value Liberty bonds received in 1922, still owned the same aggregate par value of Liberty bonds, I.e., $150,000, since he received in 1923 an additional $75,000 par value.  These bonds were sold on or about January 10, 1923, the same time that the accrued interest thereon in the amount of $9,562.50 was received by petitioner.  The period provided in section 1328, Act of 1921, during which the interest upon $130,000 par value Liberty bonds was exempt from surtax, expired on July 2, 1923, the formal proclamation terminating the war with Germany having been issued1931 BTA LEXIS 2032">*2077  on July 2, 1921 - 42 Stat. 105.  The interest here involved was that which accrued upon the Liberty bonds during a period prior to January 10, 1923.  Therefore the petitioner is entitled to the benefit of the higher exemption.  Thus, in 1923, as in 1922, we are faced with a lack of evidence as to whether petitioner paid any tax upon the interest received from the $75,000 par value of Liberty bonds acquired in 1921.  It appears that the respondent taxed only $7,225 of the total of $9,562.50 interest received upon the 1923 installment of Liberty bonds.  However, as was the case as to the interest received in 1922, only four-fifteenths of the amount received in 1923 is taxable at surtax rates.  Adjustment will be made accordingly.  In 1924, when petitioner received the installment of $75,000 par value bonds, he still owned $150,000 par value, so far as we are able to determine from the record, having sold those received in 1923.  During this year the exemption from surtax applied only to interest received upon a maximum of $55,000 par value Liberty bonds.  The amount of interest which petitioner received in that year upon the Liberty bonds to which he was entitled in that year, was1931 BTA LEXIS 2032">*2078  $12,750, of which the respondent held that $7,225 was subject to surtaxes.  There is no evidence that the petitioner paid the tax upon the interest received from the Liberty bonds retained since 1921.  Thus, so far as the record shows, the respondent has taxed the interest upon less than $75,000 par value Liberty bonds, whereas petitioner was apparently liable for tax upon interest from $95,000 par value.  We find that the respondent has not overtaxed the petitioner in this 22 B.T.A. 1008">*1027  regard for the year 1924 and, accordingly, we approve his determination.  Reviewed by the Board.  Judgment will be entered under Rule 50.GOODRICH, MATTHEWS, and STERNHAGEN dissent.