Court Opinion

ID: 4499998
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:43.306124+00
Date Added: 2024-06-11T14:54:17.729197
License: Public Domain

*1188OPINION.
Van Fossan:
At the hearing of this appeal, petitioner moved that the answer of respondent be stricken upon the ground that it was not filed within the time prescribed by - the rules of the Board. Buie 9 as revised to November 1, 1925, in effect at the time of filing the petition and answer herein, provided, so far as material, that
After service upon him of the petition, the Commissioner shall have 60 days within which to file an answer or 20 days within which to move in respect of the petition * * *.
The petition was filed on February 12, 1926, and was served upon the Commissioner on February 19, 1926, and the answer was filed on March 30, 1926. It is apparent that the respondent filed his answer within the time allowed. The motion to strike is denied.
Two issues are submitted for our determination, viz.: (1) depreciation, and (2) special assessment. The error alleged relating to invested capital is not relied upon as an issue in this cause, but is *1189introduced in support of petitioner’s claim for special assessment under section 328 of the 1918 and 1921 Acts.
In support of the alleged erroneous depreciation allowance made by respondent, petitioner contented itself with the testimony of two witnesses to the effect that the method of computing depreciation employed by respondent was different from that employed by petitioner and formerly accepted by respondent, together with a statement of the differences in the aggregate amount of the depreciation arrived at by the respective methods of computation. No evidence was submitted of the character, quantity, cost or useful life of the assets upon which the depreciation allowance is claimed nor is there any evidence of the details of the respective methods employed. Section 214(a) 8 of the Revenue Acts of 1918 and 1921 provides:
That in computing net income there shall be allowed as deductions:
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(8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.
Petitioner is entitled only to a reasonable allowance for depreciation. This record discloses no facts which would indicate that the allowances made by respondent are not reasonable. Indeed, no facts are submitted from which we can determine what, in this case, is a reasonable allowance. The mere fact that the computation of the respondent results in a lesser allowance than that of petitioner does not prove that respondent’s allowance is not reasonable. Petitioner has failed to prove that respondent erred in his determination of depreciation allowances.
The second issue arises from petitioner’s claim for special assessment under favor of section 327(d) of the Revenue Act of 1918, which provides relief—
Where * * * the tax if determined without benefit of this section would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without benefit of this section and the tax computed by reference to the representative corporations specified in section 328.
The statute continues:
This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital * * *.
The above-quoted sections require that before special assessment is to be decreed there shall be proof of an abnormal condition affecting petitioner’s capital or income. On the record before us, petitioner has failed to prove this fundamental fact.
Before we can find an abnormal condition in capital or income, we must know the facts with respect thereto. From the evidence we *1190know little or nothing of the amount of invested capital, borrowed capital, gross sales, cost of goods sold, merchandise inventory, or income of petitioner. Nor do we have similar evidence as to what petitioner alleges to constitute a normal condition.
Petitioner’s evidence consisted largely of the opinions of two witnesses that certain ratios worked out by petitioner’s accountant, i. e., merchandise turnover to inventory, net income to gross profit, net income to gross sales, invested capital to gross sales, and invested capital to borrowed capital, showed an abnormal condition. In the absence of a showing of unusual qualifications of the witnesses and the facts upon which their opinions are based, we can attach little weight to such opinion evidence.
Furthermore, all of these ratios might exist and yet not prove an abnormal condition under the statute. Upon analysis they are seen to be largely a restatement of the fact that this petitioner earned unusually large profits which condition the statute expressly provides shall not be a basis for special assessment. This matter is one to be best proven by the submission of facts.
Petitioner complains of the exclusion of good will from invested capital, but fails to prove either that the good will was paid in for stock or what amount, if any, was expended in its acquisition or accumulation. (See Appeal of Watt & Shand, Inc., 2 B. T. A. 1273.) He contends that salaries paid executives are low but gives us no inkling of what normal salaries are. (See Appeal of High Shoals Co., 3 B. T. A. 305; Appeal of Bader Coal Co., 2 B. T. A. 239; Pine Bluff Compress & Warehouse Co. Commissioner, 5 B. T. A. 938.)

Judgment will he entered for the respondent.

Considered by Marquette, MillikeN, and Phillips.