Court Opinion

ID: 4589712
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:02:02.408883+00
Date Added: 2024-06-11T07:50:19.864386
License: Public Domain

J. HOWARD PORTER, JOHN C. PORTER AND PAUL D. PORTER, TRUSTEES, IDENTIFIED UNDER THE TRADE NAME PORTER PROPERTY TRUSTEES, LTD., PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Porter v. CommissionerDocket No. 95762.United States Board of Tax Appeals42 B.T.A. 681; 1940 BTA LEXIS 966; September 5, 1940, Promulgated *966  1.  On the facts petitioner is an association taxable as a corporation.  2.  Petitioner made a lease of land though to be oil producing.  The lessee in partial consideration for the lease paid to petitioner a cash bonus.  No oil was discovered on the premises and they were reconveyed to petitioner.  Held, the bonus was not a royalty within the meaning of section 351, Revenue Act of 1934.  3.  On the facts, the fair market value of certain land payment contracts transferred to petitioner, as of the time of transfer, was the face amount of the balances due thereon.  4.  Amount paid by petitioner as an assessment on bank stock owned by it is not deductible as a loss in the year of payment.  Benjamin W. Henderson, Esq., and Wilford G. Edling, C.P.A., for the petitioners.  John H. Pigg, Esq., for the respondent.  KERN *681  This case involves a deficiency in taxes of the Porter Property Trustees, Ltd. (hereinafter referred to as the petitioner), resulting from respondent's determination for the year 1935, as follows: Income tax$1,458.59Excess profits tax653.06Surtax on personal holding company3,134.66Penalty of 25 percent for failure to file a personal holding company return783.67*967 *682  The petitioner raised four assignments of error in its petition, but as no evidence was presented on the claim for a deduction of legal fees, the claim having been denied by the respondent in his answer, we must assume that this claim has been abandoned.  The principal question is whether petitioner is taxable as an association under section 801(a)(2) of the Revenue Act of 1934, as respondent contends, or as a trust; and secondary questions, are whether petitioner derived income from sale contracts during the year 1935 in the amount of $1,627.10, as respondent determined, and whether it is entitled to a deduction, denied by respondent, for tis payment of $2,202.50 in that year because of an assessment levied against the stockholders of a certain defunct bank.  The facts were stipulated in part and in part developed from testimony at the hearing.  FINDINGS OF FACT.  J. Howard Porter, John C. Porter, and Paul D. Porter, are the trustees of the petitioner, Porter Property Trustees, Ltd., an express trust, created by a written instrument dated February 28, 1935.  Before February 28, 1935, the entire outstanding capital stock of the James Porter Investment Co., a Delaware*968  corporation, consisting of 2,808 shares, was owned and held by James Porter and Katie E. Porter, husband and wife, and members of their family.  The following table shows the interest and relationship of each stockholder: NameRelationshipShares heldJames PorterFather685Katie E. PorterMother1,858Paul D. PorterSon50B. F. ShumwayNominee for father65W. N. DennisonHusband of daughter (Elizabeth)50Rebecca P. WellsDaughter50James Howard PorterSon50John C. PorterSon0Elizabeth P. DennisonDaughter0Total2,808On February 28, 1935, and for some time before then, the James Porter Investment Co. was the owner of certain personal property, and also held in fee simple certain land, mainly agricultural and unimproved, and situate in Kern County and San Luis Obispo County, California, Nobles County, Minnesota, and Grundy County, Iowa.  This land was acquired by the James Porter Investment Co. at the time of its incorporation in 1930, from James Porter and Katie E. Porter in exchange for its capital stock.  Such of its personal property as was not acquired by that company in a like manner, and at the smae time, was acquired*969  by the company in the course of its ordinary business activities afterwards but before February 28, 1935.  Certain *683  of these lands had been improved before and during the period held by the company, and farming operations were carried on by leaseholders for profit on part of these lands while they were owned and held by the company.  On February 28, 1935, James Porter, Katie E. Porter, Paul D. Porter, F. B. Shumway, W. M. Dennison, and James Howard Porter, as grantors, and James Howard Porter, Paul D. Porter, and John C. Porter, as trustees (hereinafter sometimes referred to as the trustees), executed and entered into a written "Conveyance and Contract" agreement, incorporated herein by reference, the relevant parts of which are later set out, by which the trust involved herein, known as the Porter Property Trustees, Ltd., was created.  By the terms of the trust instrument, the trustees were selected and appointed by the grantors, and were therein designated and described as the board of trustees and were authorized to act under and use the trade name of Porter Property Trustees, Ltd.  There were transferred and conveyed to the trustees at the time of creation of the trust*970  1,723 shares of the capital stock of the James Porter Investment Co., which constituted all the shares shown in the table above, except the 685 shares in the name of James Porter and 400 of the 1,858 shares in the name of Katie E. Porter.  On the day of their constitution as such, February 28, 1935, the trustees, acting in their collective capacity, acquired ffom James Porter the 685 shares noted above in consideration for their assumption of his debt in the amount of $52,000.  The interests of the respective trust beneficiaries are described in the trust instrument as "expectancy fractions." Article 15 of the trust instrument provides as follows: ART. 15.  REGISTRATION & DORMANT FRACTIONS: Expectancy Fractions under this administration shall at first be allotted in the records of the Board under instructions delivered to the Board by James Howard Porter.  Should fractions appear dormant thereby, while held dormant they shall not be reckoned with when apportioning in distributions, such being computed solely by or upon the fractions registered as to beneficiaries at time of making each distribution.  Dormant fractions, their usefulness being contingent upon possible future conveniences, *971  remain subject to the discretion of the Trustees.  Pursuant to the provisions of "ART. 15" of the trust instrument, under instructions from James Howard Porter, expectancy fractions were allotted in the records of the board of trustees as follows: NameExpectancy fractionsPaul D. Porter290/1000John C. Porter290/1000Rebecca P. Wells65/1000Elizabeth P. Dennison65/1000James Howard Porter290/1000Total1000/1000*684  Immediately after the trustees had acquired the 2,408 shares of the James Porter Investment Co. on February 28, 1935, as set forth above, they exchanged them with that company for all its assets (except one parcel of real estate situate in Grundy County, Iowa, known as the Porter Homestead), subject to its then outstanding liabilities.  Shortly thereafter the company was liquidated and dissolved.  Included among the assets of the company thus acquired were certain land sale contracts which provided for future payments by the purchasers, some of them not becoming due and payable until after their acquisition by the trustees.  At this time the company was treating with the Standard Oil Co. for the lease by the latter*972  of a part of these lands situate in Kern County, California.  The negotiators had by then reached an agreement for the execution of a lease which was to be executed by the James Porter Investment Co. for the use and benefit of the Porter Porperty Trustees, Ltd., and then to be assigned to the trustees.  This was accordingly done.  Under its terms the lessee was obligated to explore, develop, and drill certain wells on the leased land for oil or gas of commercial quality and in commercial quantity.  This was done but no oil or gas was found, and the lessee quitclaimed its interest to the trust in the year 1938.  Under the terms of this lease agreement certain oil and gas royalty interests were retained by the lessor, in addition to the bonus paid by the lessee for the execution of the lease.  The trust instrument provided for the following additional matters: (1) The trustees were given the power to sell and to convey and deliver any, all, or such of the trust properties as they might see fit, in their discretion; (2) the trustees were authorized to add to their number and to choose their successors, provided that the number of trustees should at no time exceed five; (3) the trustees*973  and/or their successors were to hold the trust properties throughout the existence of the trust; (4) the trust was to continue indefinitely for any lawful term; (5) the trustees were authorized to act together, informally over their individual signatures, or collectively, under the name of Porter Property Trustees, Ltd., through duly authorized officers of their board; (6) the trustees, acting as the board of trustees, were authorized to delegate to, by proper resolution, any member or members of the board the necessary authority to transact any and all business of the trust, including the execution of deeds, conveyances, and other instruments in writing; (7) the trustees, in whom "legal and equitable title to all estate properties are vested", were made the absolute owners of the trust properties, with full powers of management thereof; (8) provision was made for regular and special meetings of the board of trustees; (9) the trustees were authorized to engage in any lawful business; to own real estate and personal property in any of the *685  several states, without limit; to buy, sell, improve, exchange, assign, convey and deliver, and to grant trust deeds, and to mortgage*974  or otherwise encumber for obligations; to own stock in or entire charters of corporations; and to engage the trust funds and properties in any industry or investment in their discretion, hoping thereby to make gain for the trust; (10) the trustees were authorized to and did adopt a common seal; (11) the trustees were authorized to regard the trust instrument as their guide, and to supplement the same from time to time by proper resolutions written into the office records of the board of trustees, or to adopt formal bylaws or rules of business conduct; (12) the trustees were authorized to elect a presiding officer, or president, and to select and appoint a board secretary, and to delegate duties and authority to them; (13) the trustees were authorized to fix and pay all compensation of officers, agents, and employees, and to pay to themselves such reasonable compensation as might be determined by a regular act of their board; (14) the trustees were required to keep a faithful financial record of all business transactions, and the name and address of each known beneficiary; (15) all income and trust funds, when collected or paid over to the trustees, were to constitute a fund from which*975  the trustees should pay trust obligations, reinvest or distribute to the beneficiaries, in their discretion; (16) the personal liability of the trustees was limited to the value of the trust funds and properties; ( 7) the filing of a copy of the trust instrument in the public records of some designated county was to be constructive notice to the world of such specific personal liability limitations of the trustees, and that all persons, corporations, or companies extending credit to, contracting with, or having claims against the trustees must look only to the funds and properties of the trust for payment or discharge of such obligations; (18) the trustees might provide for annual or other meetings of the trust beneficiaries to hear and discuss reports and forecasts; (19) while they might adopt resolutions of protest or commendation, no act of the beneficiaries, as such, should be mandatory or interfere with the right of the trustees exclusively to manage the business affairs and control the trust funds and properties; (20) the death of a beneficiary should not entitle his legal heirs or representatives to demand any partition of or interest in or distribution from the trust funds*976  or properties, but his legal heirs might succeed to his interest; (21) changes in beneficiaries from any cause should be duly noted by the trustees on their records; (22) the trustees might at any time, in their discretion, and from any available trust funds, make partial distributions to beneficiaries, and ultimately, upon termination of the trust, should distribute the entire residual trust funds to the beneficiaries in accordance with their proportionate interests; (23) the trust was irrevocable; (24) the beneficiaries might be called by the *686  trustees to meet annually or at other times and they might adopt resolutions but no act of the beneficiaries should be mandatory on the trustees.  James Howard Porter has been, since the trust's inception in 1935, the president of its board of trustees and, with the two other trustees, has managed its business during the same period.  He has been more active than the other trustees in its management.  He confers informally with the other trustees.  Farm lands owned by the trust are leased to farmers for profit.  James Howard Porter executes all leases on behalf of the trust and he attempts to negotiate only such leases as will*977  prove profitable to the trust.  The affairs of the trust were carried on during the year 1935 in accordance with the terms of the trust instrument.  Of the amount of $63,596.29 determined by respondent to have been derived by the trust from "oil royalties" during the year 1935, $46,000 represents a bonus received by the trust from the Standard Oil Co. of California as consideration for the execution of the lease already mentioned.  The James Porter Investment Co. sold certain land on installment contracts before February 28, 1935, and on that day transferred the contracts to the petitioner.  The fair market value of these contracts at the time of this transfer was equal to the face amount of the balances due thereon.  In 1935 petitioner received payments in the aggregate amount of $5,749.50 on account of the contracts.  The James Porter Investment Co. was the owner of an undisclosed number of shares in the Morrison Savings Bank of Morrison, Iowa, before February 28, 1935, and on that day transferred these shares to the petitioner.  In 1932 or 1933 a receiver of the bank was appointed and at an undisclosed date the receiver levied an assessment on all the bank's shareholders.  Petitioner*978  paid $2,202.50 in 1935 in full satisfaction of its share of the assessment, pursuant to a notice of assessment received by it in the taxable year, which notice was the first notice given of such assessment.  In arriving at the adjusted net income of $13,061.10 for the year 1935, as shown by the notice of deficiency, the Commissioner determined that petitioner had a gross income of $74,794.64, for that year, derived as follows: Farm income$1,580.12Payments Land contracts8,652.89Oil royalties63,596.29Miscellaneous income106.19Interest859.15Gross income74,794.64In the deficiency notice the Commissioner determined that in 1935 petitioner was an association taxable as a corporation within the meaning of section 801(a)(2) of the Revenue Act of 1934 and *687  articles 801-2 and 3 of Treasury Regulations 86, and he further determined that petitioner was a personal holding compamy within the meaning of section 351(b)(1) of the Revenue Act of 1934 and article 351-2 of Regulations 86.  In his determination of the deficiencies involved, the Commissioner increased the net income as reported by the trust for the year 1935 by the amount of $1,627.10, *979  on account of land contract payments received by the trust during that year, in application of section 22(a) of the Revenue Act of 1934.  The respondent also disallowed a deduction claimed, with the following explanation of his act in the deficiency notice: Your protest contends for a deduction, not claimed in your return, for an amount of $2,202.50 stockholder's liability incurred by the James Porter Investment Company but paid by you in the taxable year, in connection with the ownership of certain stock in the Morrison Savings Bank, Morrison, Iowa.  The payment made has been disallowed as a deduction for income tax purposes for the reason that it has not been substantiated as a loss properly deductible under the provisions of Section 23(f) of the Revenue Act of 1934.  Within the time provided by law the petitioner trust filed an individual income tax return for the year 1935, under Title I of the Revenue Act of 1934, disclosing thereon a net income of $7,192.38 and a tax liability of $337.31.  No other return was filed by petitioner for the year 1935, and as a consequence respondent notified the petitioner of a penalty as follows: Inasmuch as you failed to file a return on*980  Form 1120H as required by Article 351-8 of Regulations 86, 25 per centum of the tax computed under Section 351(a) has been added thereto in conformity with the provisions of Section 351(c) and Section 291 of the Revenue Act of 1934.  OPINION.  KERN: The principal issue is whether the petitioner, Porter Property Trustees, Ltd., was an association taxable as a corporation, or a trust.  On the theory that it was an association, respondent claims the personal holding company surtax and nonfiling penalty.  The question is no longer novel, having received consideration from the Supreme Court in several cases, in the latest of which, Morrissey v. Commissioner,296 U.S. 344">296 U.S. 344, the Court reviewed at length the course of its earlier decisions and the dependent Treasury regulations seeking to interpret them, and laid down criteria which must guide us here.  Cf. Swanson v. Commissioner,296 U.S. 362">296 U.S. 362; Helvering v. Combs,296 U.S. 365">296 U.S. 365; Helvering v. Coleman-Gilbert Associates,296 U.S. 369">296 U.S. 369, all decided on the same day as Morrissey's case.  Both parties cite the Morrissey case as authority for their opposite*981  contentions.  A glance at it will suffice to show the governing principles.  The Court said: "Association" implies associates.  It implies the entering into a joint enterprise, and, as the applicable regulation imports, an enterprise for the transaction *688  of business.  This is not the characteristic of an ordinary trust * * *.  Such beneficiaries do not ordinarily, and as mere cestuis que trustent, plan a common effort or enter into a combination for the conduct of a business enterprise.  * * * But the nature and purpose of the cooperative undertaking will differentiate it from an ordinary trust.  In what are called "business trusts" the object is not to hold and conserve particular property, with incidental powers, as in the traditional type of trusts, but to provide a medium for the conduct of a business and sharing its gains.  Thus a trust may be created as a convenient method by which persons become associated for dealings in real estate * * *.  The Court then went on to mention other forms of business enterprise in which the association might be used.  It then pointed out that "The inclusion of associations with corporations implies resemblance; but it is resemblance*982  and not identity." "Mere formal procedure" was not to be made "a controlling test." The revenue act's definition embraces more than joint stock companies.  And "while the use of corporate forms may furnish persuasive evidence of the existence of an association, the absence of particular forms, or of the usual terminology of corporations, cannot be regarded as decisive." Trustees may act as directors, and the trust terms serve as bylaws.  Control by the beneficiaries, the Court pointed out, had in the earlier case of Hecht v. Malley,265 U.S. 144">265 U.S. 144, been rejected as nonessential, and, hence, meetings of the beneficiaries were unnecessary, as was likewise the transferability of beneficiary interests to constitute such a group an "association." The trust mechanism, the Court said, permitted the title to property to be held by a continuing body, with centralization of management, the ready transfer of beneficial interests without affecting the trust's continuity, the spread of these interests among many participants, and the limitation of the personal liability of the participant to the property embarked in the enterprise - all advantages which flow from the nature of*983  trusts but approximate closely those afforded by the corporation.  To insist on their nature as trust advantages would be to ignore the postulate that only those trusts were sought to be assimilated to corporations for tax purposes which "have the distinctive feature of being created to enable the participants to carry on a business and to divide the gains which accrue from their common undertaking * * *." Having laid down these principles, the Court then proceeded to examine the facts of the case before it, of a trust created for the development of a tract of land by building golf courses and club houses, surveying and selling lots, and the like, which was effected by issuing transferable certificates of beneficial interest.  The Court thought it a business enterprise, even if no new tracts were acquired: "Its character was determined by the terms of the trust instrument.  It was not a liquidating trust; it was still an organization for profit, and the profits were still coming in.  The powers *689  conferred on the trustees continued and could be exercised for such activities as the instrument authorized." The companion cases decided by the Supreme Court the same day dealt*984  with situations not unlike that of the Morrissey trust.  In Swanson's case, supra, a trust was created by two landowners, the trust res being an apartment house, and the assignable beneficial shares, although originally divided among the landowners, were held in the taxable year by their wives.  The Court held it an "association." In the Coleman-Gilbert case, supra, five coowners of about 20 apartment houses had conveyed them to trustees, with powers to improve, lease, and sell and to pay income to beneficiaries.  The Court again held the trust an "association." In Combs's case, supra, the Court thought that a trust created to finance and drill an oil well, the beneficial interest certificate holders being 13 persons, was likewise an "association." Further citations seem unnecessary in view of the fundamental test so clearly laid down by the Supreme Court.  That is, whether there is a business purpose back of the trust's creation and continuance.  A glance at the history of the present trust leaves no doubt that there was here such a purpose.  James Porter and his wife owned certain agricultural lands in California and Minnesota, some of which were actively*985  farmed.  In 1930 they created a corporation and took its shares in exchange for these lands, the only other shareholders being Porter's two sons, daughter and son-in-law, and an outside nominee.  The use of the corporate form no doubt had its advantages, but it also had certain disadvantages from the standpoint of tax rates.  In 1935 a trust was substituted for the corporation, taking over all its assets except the Porter Homestead, which apparently went to Porter's wife, for her name does not reappear among the holders of the trust's "expectancy fractions." The new trust beneficiaries are still the members of Porter's family, although their relative interests have changed somewhat since the corporation was dissolved.  All these facts show, we believe, one increasing purpose to retain the advantages of centralized control, limitation of liability, and others associated with the corporate form in carrying on actively the business of farming lands and distributing the income therefrom.  We may stop a moment here to note those provisions of the trust to which petitioner points as distinguishing it from a business association.  It is said that the trustees have exclusive management and*986  may fill vacancies, and that the beneficiaries have no voice in the trust's control; that the trustees may not sell any interests in the trust estate and that the beneficiaries' interests are nontransferable; *690  that the trustees have had no formal meetings and that the beneficiaries have never been consulted on the affairs of the trust.  The claim of nontransferability of "expectancies" has not, we think, been clearly established.  But we do not think these points are vital, for they go merely to the outward form of the trust, which, on one side, may approximate the form of a corporation or, on the other, that of a strict trust; and it is not the particular form of doing business so much as the business purpose which must determine.  In other words, the statute is intended to hit a trust even strict in form if it is at the same time conducted for profit.  Such is the teaching in Morrissey's case, as we understand it.  Outside the statute's reach lie trusts created to safeguard and conserve the property of widows and infants, or to liquidate such property, the so-called "ancestral" trusts.  Although the beneficiaries here were the members of Porter's family, there is no*987  evidence to convince us that the trust's primary purpose was to hold the farms during the children's infancy or liquidate them in the process of administration.  In so far as appears from the testimony, none of the children was an infant when the trust was created; and the only testimony pointing toward an intention to liquidate was Porter's rather vague statement that "we would have offered it [some of the trust lands] for sale or trade if we could get what we considered right for it." The family relationship of the grantors, trustees, and beneficiaries does not in itself establish the trust as "ancestral" or determine the category in which it should fall for tax purposes any more than it would affect the corporate character or tax classification of a corporation similarly constituted.  That relationship is merely evidence of the purpose of the trust, which will weigh much or little, depending on other facts and circumstances.  The other facts here indicate a family corporation which it was thought could be operated as a trust under the so-called "Hulbert Plan", without paying corporate rates.  In view of the principles later laid down by the Supreme Court, we think it unnecessary*988  to discuss or attempt to distinguish the cases of Commissioner v. Guitar Trust Estate, 72 Fed.(2d) 544 (C.C.A., 5th Cir.), and Blair v. Wilson Syndicate Trust, 39 Fed.(2d) 43 (C.C.A., 5th Cir.), upon which petitioner relies.  Active association of the beneficiaries together in creation of the trust is not an indispensable factor, as petitioner contends, in the creation of a business trust, especially where it is a family trust and the settlors are the father and mother; but if it should be thought so, we need look only beyond the creation of the trust to the prior corporation to find parents and children happily associated together under the form of a corporation in carrying on their farming operations.  In the transmutations which followed it would seem of little moment that certain members *691  of the family passed from the active role of shareholders to the passive one of beneficiaries.  We are of the opinion that petitioner was an association and therefore taxable as a corporation.  Assuming, without deciding, that because petitioner was an association taxable as a corporation it should also be considered as a corporation within*989  the meaning of section 35 (b)(1) of the Revenue Act of 1934, which defines "personal holding company", it is necessary, in order to conclude that petitioner was such "personal holding company", to find that "80 per centum of its gross income for the taxable year is derived from royalties * * *." It appears from the stipulation of the parties that petitioner's gross income for the taxable year was $74,794.64.  Of this amount respondent determined that $63,596.29 was derived from oil royalties.  However, it appears from the respondent's determination of deficiency that of this latter amount $50,800 represented bonuses paid to petitioner as lessor by the Standard Oil Co. and the Texas Co.  As to the bonus paid by the Standard Oil Co., amounting to $46,000, we have evidence in the record and stipulations to the effect that a dry hold was drilled on the property leased, that no oil or gas was produced from the leased premises, and that three years after the taxable year the lessee reconveyed the premises to petitioner by quitclaim deed.  Thus, it is apparent that the bonus received by petitioner in return for the lease in question was not paid and could not have been paid from any share*990  in the oil or gas produced under the lease reserved by the lessor, that it was not "payable proportionately to the use made of the right by the grantee", and was not "based upon the amount of mineral or oil taken from the ground", and was not "a share of the product * * * reserved by the owner for permitting another to use the property." Therefore, we conclude that such a bonus payable to the lessor in a definite sum and in no way contingent upon or payable from the production of oil or gas from the leased premises is not a "royalty" within the meaning of section 351 of the Revenue Act of 1934.  Kiesau Petroleum Corporation,42 B.T.A. 69">42 B.T.A. 69; Logan Coal & Timber Association,42 B.T.A. 529">42 B.T.A. 529. Cf. Grace M. Barnett,39 B.T.A. 864">39 B.T.A. 864. It follows that 80 per centum of petitioner's gross income for the taxable year was not derived from royalties and that petitioner was not a personal holding company within the definition of the statute.  It also follows that petitioner is not liable for any penalty on account of failure to file a return as a personal holding company.  We turn now to the next issue.  Respondent contends that petitioner derived income*991  to the extent of $1,627.10 in the taxable year from land sale contracts, and that the evidence adduced at the hearing was insufficient to establish error in respondent's determination of this *692  sum.  The respondent, in his deficiency notice, determined that petitioner received land contract payments in 1935 in the aggregate amount of $5,749.50, and he accordingly treated a certain percentage of each payment as representing a reportable profit during that year, with the result reached above.  The land held had been sold by the James Porter Investment Co. on the installment plan and the contracts were transferred by that corporation to the trust on February 28, 1935.  The question turns on the proof of fair market value of these contracts on that basic date, and respondent submits that his determination has not been overcome by adequate proof.  Petitioner introduced evidence to the effect that the land contracts were worth on the basic date an amount not less than the face amount of the outstanding balance then due on them.  James Porter testified that he had sold substantial tracts of land in Canada and about 35,000 acres in California on his own account on installment*992  contracts, although he had never discounted them or bought them.  He had, however, as a banker some knowledge of the value of such contracts put up by borrowers as collateral security.  Porter testified that he knew personally the contract purchasers and the tracts sold, and that the land contracts taken over by petitioner were worth not less in the market than the face amount still due on them.  James Howard Porter was then called by petitioner and testified as to the amounts due on various specific contracts on dates near February 28, 1935.  Respondent introduced no evidence on this point.  On this issue we sustain petitioner's contention.  The last question may as quickly be disposed of.  Petitioner claims a deduction of $2,202.50 for the taxable year in respect of the payment in that year of that amount on account of a double liability assessment levied against the shareholders of a bank.  The James Porter Investment Co. was the owner of an uncertain number of shares of the stock of the Morrison Savings Bank, of Morrison, Iowa, before February 28, 1935, which on that day were transferred to petitioner.  The bank went into receivership in 1932 or 1933, and the assessment was*993  levied on shareholders accordingly, the petitioner receiving a notice of the assessment in 1935, and it thereupon paid the sum claimed in deduction.  The petitioner trust paid the assessment immediately in 1935 on the first call made upon the bank's shareholders.  This is all the evidence and it is obviously insufficient to establish this expenditure as a deductible loss.  Ordinarily, the payment of an assessment on bank stock is to be considered as a contribution to capital, and is not deductible, any loss in such a case being incurred when the stock is sold or becomes worthless.  Rauncy v. Commissioner, 46 Fed.(2d) 283. There is no evidence here as to when, if ever, *693  this stock became worthless.  In this state of uncertainty we may not overturn respondent's determination as erroneous, and must, therefore, sustain it by denying the deduction.  No evidence being before us as to the deduction of $4,516.72 claimed for legal fees and expenses in the same year, it must also be denied.  Decision will be entered under Rule 50.