Court Opinion

ID: 4598350
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:21:04.754949+00
Date Added: 2024-06-11T07:51:57.041230
License: Public Domain

POOR'S PUBLISHING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Poor's Publishing Co. v. CommissionerDocket No. 17596.United States Board of Tax Appeals14 B.T.A. 1389; 1929 BTA LEXIS 2949; January 17, 1929, Promulgated *2949 Held, that the petitioner's situation as to invested capital in the taxable year brings it within the provisions of section 327(c) of the Revenue Act of 1918, and that it is entitled to have its tax liability recomputed for the year 1920, under the provisions of section 328 of such Act.  Clarence L. Newton, Esq., and A. E. James, Esq. for the petitioner.  Bruce A. Low, Esq., and George S. Herr, Esq., for the respondent.  LANSDON *1389  The respondent asserts a deficiency in income and profits taxes for the year 1920 in the amount of $2,069.51.  The issue relates to the petitioner's invested capital for the taxable year, which is to be *1390  determined, if possible, by fixing the actual cash value of tangible and intangible assets paid in for stock in 1908 and 1919.  If it is not possible to determine its invested capital in the taxable year, the petitioner pleads as an alternative that it comes within the provisions of section 327, and that its tax liability should be computed under the provisions of section 328 of the Revenue Act of 1918.  FINDINGS OF FACT.  The petitioner is a Maine corporation, with its principal office*2950  and place of business in New York City, where it is engaged in the publication of Poor's Industrial Manual, Poor's Railroad, Banks & Insurance Manual, Poor's Public Utilities, Poor's Cumulative Reports, and Poor's Service.  It also supplies subscribers for its publications, and others, with statistical, financial and other information not included in its publications or services, and derives a material part of its income from such service.  It was originally incorporated early in 1908 as the Moody Manual Corporation, which name was legally changed to Poor's Publishing Co. subsequent to the year 1918.  Upon its incorporation in 1908, the petitioner acquired from a receiver in bankruptcy, all the tangible and intangible assets theretofore owned and used by a corporation known as the Moody Manual Co., and issued in exchange therefor, its capital stock of the par value of $500,000 and its 5 per cent gold bonds of the par value of $160,000.  The property then and so acquired was made up of the following categories: (1) Files of information concerning more than 100,000 corporations.  Such files consisted of financial reports and statements, a card catalogue or skeleton file giving date*2951  of organization, amount and probable value of stock of corporations, newspaper clippings relating to corporations, bound volumes of financial and corporation publications, and much other material useful and necessary in the conduct of its business operations.  (2) The real estate, printing plant, machinery, type and accessories of the Moody Manual Co., located at Elizabeth, N.J., and all the other real property of such company wherever situated.  (3) All the copyrights, advertising contracts, lists of subscribers, choses in action and good will of Moody's Manual and the Moody Manual Co., and all the other personal property of such company except its accounts receivable, stock in trade, and supplies.  The property then and so acquired was subject to mortgages in an amount of not less than $135,000.  About the year 1860, Poor's Railroad Manual Co. began the publication of financial and industrial manuals.  In 1918 it was publishing *1391  a railroad manual, an industrial manual, a public utilities manual, a daily service of information, and issuing a card service in which it supplied data to investors, traders in securities, and others.  In 1919 it was the oldest financial*2952  publishing company in the world, and its records and files covered more years than those of any similar organization.  In 1919 the petitioner, in exchange for 3,905 shares of its stock of the par value of $390,500, acquired all the tangible and intangible assets of Poor's Railroad Manual Co.  The categories of property so acquired were identical with those purchased from the bankrupt Moody Manual Co. in 1908, but included information which had been in process of assembly since 1860.  Subsequent to the acquisition of the property of Poor's Railroad Manual Publishing Co., the petitioner changed its name from Moody's Manual Co. to Poor's Publishing Co.  In 1925 it sold its right to use the name of Moody for $100,000 in cash.  On January 1, 1914, Roy W. Porter, then vice president and general manager of the petitioner, bought 1,251 shares of the common capital stock thereof, and paid $83.33 per share therefor.  Since that date, Porter has been president and general manager of the petitioner.  Since Porter's acquisition of a controlling stock interest in the petitioner it has always paid the fixed dividends on its preferred stock and has retired substantial amounts thereof.  The*2953  petitioner took the assets acquired for stock in 1908 into its property account at a valuation of $571,021.57, which included good will, files, and copyrights.  On December 31, 1921, this item was written down to $500,000.  On January 30, 1919, it took into its property account the assets acquired from Poor's Railroad Manual Publishing Co. at a valuation of $341,839.78.  On June 30, 1919, the amount of $21,375 was written off the property account, which left the total thereof in the amount of $820,464.78 as of July 1, 1919.  This total represents the petitioner's estimate of the value at December 31, 1919, of all the tangible and intangible assets acquired as above set forth in 1908 and 1919 in exchange for preferred and common stock of par value in the respective amounts of $500,000 and $390,500.  Upon audit of the petitioner's income and profits-tax return for the year 1920, the Commissioner reduced its property account for invested capital purposes to the amount of $120,464.78, and determined the deficiency here in controversy.  OPINION.  LANSDON: The petitioner and respondent disagree as to the amount representing the petitioner's property account that should be included in*2954  the computation of invested capital for the taxable year.  *1392  The petitioner contends that the property it received in 1908 and 1919, in exchange for stock, had an actual cash value at least equal to the amounts shown on its books of account.  The respondent has included only $120,464.78, representing the value of such assets at the respective dates of acquisition in his computation of invested capital.  The petitioner has adduced much evidence in support of its contention.  Its president and general manager paid $83.33 per share for a controlling interest in the stock in 1914.  He testified that, in his opinion, the library of financial information acquired in 1908 had a value at that time in the amount of $221,000, and that the intangibles acquired at the same time had a value in the same amount, and that the similar assets acquired in 1919 had value in the respective amounts of $221,000 and $120,500.  Among the assets acquired in 1908 was the right to use the name of Moody, and such name was used until about 1920 and, in 1925, was sole for $100,000 in cash.  The vice president and financial editor also testified to the same effect.  From all the evidence we are convinced*2955  that the mixed aggregates of tangible and intangible property acquired by the petitioner in exchange for stock in 1908 and 1919 had an actual cash value greatly in excess of $120,464.78; but it is impossible to determine definitely the amount of such value.  We are of the opinion, therefore, that on the facts herein the petitioner's situation falls within the provisions of section 327(c) of the Revenue Act of 1918, and that its tax liability for the year 1920 should be computed under section 328 of such Act.  Final decision will be entered after proceeding under Rule 62.