Court Opinion

ID: 6596817
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:03:31.41606+00
Date Added: 2024-06-11T15:57:52.242650
License: Public Domain

*601OPINION.
Sternhagen :
The taxpayer has by its pleadings set up the claim to the offset on account of overpayment of tax for the year 1919 as against the additional tax for the year 1920. This he may do as we have heretofore decided in Appeal of Hickory Spinning Co., 1 B. T. A. 409.
The examining revenue agent and the Commissioner, following his action, have erred in adding to net income any sum of appreciation of assets in connection with the transfer of the partnership property to the corporation. Section 331 of the Revenue Act of 1918 provides that the invested capital of the corporation may not include such appreciation but it does not affect, such appreciation for other purposes. It is nowhere provided that such appreciation *602may become income to the successor corporation. While, therefore, it is clear that the taxpayer’s invested capital both for the year 1919 and for the year 1920 must exclude the appreciation of $5,-193.45, this exclusion should not be reflected in income.
It follows that the adjustments heretofore made by the Commissioner for the year 3919 in income are erroneous in part. The adjustment on account of the inventory of tool steel in the sum of $381.96 added to income should stand. The adjustment on account of amortization in the sum of $1,175.74 deducted from income should also stand, as should the rent adjustment of $4,200. As a result of these adjustments the net income of the taxpayer reported at $4,534.64 becomes for the year a net loss in the sum of $459.14, and the entire amount of tax assessed and paid for the year 1919 in the amount of $304.16 should be applied as a credit against the tax determined for the year ended January 31, 1920.
With respect to the year 1920 the invested capital should be decreased below the $20,000 of capital stock by the sum of $5,193.45, as above set forth.
The net income for the year 1920 should be adjusted as follows: To the net income reported by the taxpayer of $5,300.74 should be added the adjustment on account of amortized property of $55.