Court Opinion

ID: 4589500
Source: CourtListenerOpinion
Date Created: 2020-11-20 18:44:20.183788+00
Date Added: 2024-06-11T07:50:17.196190
License: Public Domain

Dow Jones and Company, Inc. (Delaware) (Successor to Financial Press Companies of America and Its United States Subsidiaries), Petitioner, v. Commissioner of Internal Revenue, RespondentDow Jones & Co. v. CommissionerDocket No. 56344United States Tax Court41 T.C. 102; 1963 U.S. Tax Ct. LEXIS 29; October 29, 1963, Filed *29 Decision will be entered for the respondent.  Sec. 722, I.R.C. 1939.  -- Where the taxpayer enjoyed a period of abnormally high earnings and then suffered a depressed level of earnings which began at a time several years prior to and thus remotely related to the base period and such condition continued on during that period because of a chain of events and circumstances which were of prolonged duration throughout the 1930's and not of a temporary nature, held, that the business of the taxpayer was not depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer, within the meaning of subsection (b)(2).  Petitioner's claims for relief, denied.  J. Marvin Haynes, N. Barr Miller, and Arthur H. Adams, for the petitioner.S. Allen Winborne, for the respondent.  Hoyt, *30 Judge.  HOYT*103  The petitioner seeks redetermination of the respondent's disallowance, in full, of timely filed applications for relief from alleged excessive and discriminatory excess profits taxes for the calendar years 1944 and 1945, under section 722 (b)(2), (b)(3), and (b)(5) of the Internal Revenue Code of 1939.  1 Each of such applications made claim for unused carryovers and carrybacks provided by law.  The excess profits taxes paid and the refunds claimed are in the amounts of $ 29,166.94 for 1944 and $ 303,126.19 for 1945.  At the trial petitioner abandoned the claims for relief under section 722(b)(3) and (b)(5).The issues presented are (1) whether the taxpayer is qualified for relief in that its average base period net income is an inadequate standard of normal earnings because "the business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in*31  the case of such taxpayer," within the meaning of section 722(b)(2); 2 and, if so, (2) whether petitioner has established "what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax," as required by section 722(a).FINDINGS OF FACTSome of the facts have been stipulated and are so found.  The stipulations and exhibits attached thereto are incorporated herein by reference.Petitioner, Dow Jones & Co., Inc., is a corporation organized under the laws of the State of Delaware on November 23, 1949.  Its principal office is at 44 Broad Street, New York, N.Y.  By reason of a nontaxable reorganization consummated on December 31, 1949, the petitioner succeeded to all of the assets and liabilities, including claims for refund of Federal taxes, of Financial*32  Press Companies of America, a Massachusetts trust organized on December 30, 1930 (hereinafter referred to as Financial), and its 11 wholly owned U.S. subsidiaries, as to each of which the name, date, and place of incorporation, and the nature of the business are set forth in the stipulation.For the calendar years 1942 to 1945, inclusive, Financial kept its books and filed consolidated excess profits tax returns for itself and its 11 subsidiaries on the calendar year accrual basis of accounting with the then collector of internal revenue for the southern district of New York.*104  Financial's excess profits net income under the income credit method for the taxable years 1942 to 1945, inclusive, as finally determined, was as follows:1942$ 78,442.6219431 75,163.341944718,601.301945649,824.04Financial's actual average base period net income applicable to the years 1942, 1944, and 1945 was $ 230,354.90, and for the year 1943 was $ 200,500.48, computed as follows:For yearsFor yearBase period year1942, 1944, 194519431936$ 411,859.10 $ 411,859.10 1937413,780.29 413,780.29 1938(39,559.05)(39,559.05)1939135,339.28 15,921.56 Average230,354.90 200,500.48 *33  () indicating loss.Financial's average base period net income used in computing its excess profits tax credit for 1942, 1944, and 1945 was determined to be $ 300,305.83 computed under the income credit provisions of section 713(e).  3 Its excess profits tax credit for 1943 was determined to be $ 269,440.24 computed under the invested capital credit provisions of section 714.Over a long period of years, petitioner and its predecessors have been continuously engaged in the business of gathering and disseminating financial, business, and economic news through a daily newspaper named the Wall Street Journal and other publications, and also through the Dow Jones News Service (known as the Ticker), a news service by wire and teletype to subscribers. Mainly because of the character of the news disseminated, the business has been at all times closely associated with*34  the financial community embracing brokers, bankers, underwriters, traders, investors, and others interested in the securities markets, finance, and the overall activity of business.  The revenues of the business have been derived primarily from the circulation of and advertising in the various publications and from subscription charges for the Ticker news service.The business of petitioner and its predecessors had its origin in New York City in the 1880's when Messrs. Dow and Jones began a bulletin service of news gathered in the financial district and later in 1889 began publication of the Wall Street Journal, a newspaper published *105  6 days a week and encompassing primarily financial and business news.  In 1897 the Dow Jones News Service (Ticker) was commenced in the New York area.  In 1902 Clarence Barron bought the Wall Street Journal and its allied news Ticker and bulletin service.  Barron had commenced publication of the Boston News Bureau in 1887, embracing financial and business news primarily of interest in the Boston area, and that publication was continued throughout the years until April 1947.  Publication of the Philadelphia News Bureau was commenced in 1921, *35  embracing financial and business news primarily of interest in the Philadelphia area, and that publication was continued throughout the years until June 1940.  Publication of Barron's National Business and Financial Weekly (Barron's Weekly) was commenced in 1921, and at all times has been edited primarily to provide both institutional and individual investors with a weekly review of financial and business news, financial analyses of corporations, and other similar information for investors.The Ticker news service, since its inception in 1897, has been operated for rapid transmission of financial and business news to brokers, bankers, and other subscribers, by wire and electric teletype machines.  It has carried a limited number of quotations on securities and commodities but has not been a stock quotation service.  At various times prior to and during the 1920's the Ticker service was extended to other areas of the country, such as Chicago, St. Louis, and Cincinnati.The Wall Street Journal daily newspaper has been at all times the principal publishing and advertising media of petitioner and its predecessors since the inception of the New York edition in 1889.  The Pacific Coast edition*36  was commenced in 1929 to provide quicker delivery to the then subscribers of the New York edition and also to develop larger subscription circulation in the West Coast area.  Publication of Southwest and Midwest editions were commenced after the taxable years involved.  Because of both its name and authoritative specialized news content, the Wall Street Journal has been generally regarded as the newspaper of the financial community. It has always carried in great detail items of news and information of interest to the financial community, such as stock and bond quotations from both the organized exchanges and over-the-counter markets, corporate reports, new security offerings, and other financial and corporate information.  In addition, and from time to time in varying amounts, it has carried information and news of general interest to the business community as a whole.Prior to and during the base period years 1936-39 the Wall Street Journal's major class of advertising was the so-called financial advertising placed by the financial community. During those years, its various other classes of advertising (hereinafter set out in detail) were directed mainly to persons and concerns*37  in the category of *106 Journal subscribers and thus more limited in scope than the general types of advertising carried in the usual daily newspapers for the general public.  During the 1930's the Wall Street Journal suffered a substantial decline in advertising linage and revenue, especially in the category of financial advertising due to certain adverse conditions affecting the business activities of the financial community, as more particularly hereinafter set forth.  During the last half of the 1930's the Journal instituted a program to expand its coverage of national and business news to obtain broader reader appeal and increased subscription circulation among businessmen and others as a basis for securing increased linage in its national, institutional, and other classes of advertising in addition to its then major class of financial advertising and, also, to replace any of the latter that may have been permanently lost.  Such program did not change the essential character of the Wall Street Journal as a financial newspaper or its continuing close association with the affairs of the financial community.Stated in broad general terms, the business activities of the financial*38  community are dependent, inter alia, upon the activity and volume of transactions in stocks and bonds listed on the securities exchanges; the market prices of securities traded; the issuance of new securities (both stocks and bonds) and refunding securities; the condition of business in general; and the mood of institutional and individual investors.  Those and other related factors determined the earnings and prosperity, or lack thereof, of the investment bankers, underwriters, brokers, dealers, traders, and others engaged in the business of the financial community. During the 1920's and beginning in 1922 there was a general annual upward trend in the number of individual issues, the annual volume of trading, and the January 1 market value of stocks and bonds listed on the New York Stock Exchange.  During 1927, 1928, and 1929, speculation brought about an increasingly exaggerated volume of trading and market values of stocks which reached their peak in the summer and fall of 1929.  In September 1929, the Dow Jones average of prices on industrial stocks reached a then alltime high of 381.2.  The violent stock market crash occurred in October 1929, and by November the Dow Jones*39  average of industrial stocks had fallen to 198.7, a decline of approximately 48 percent from the September high.  Thereafter the Dow Jones industrial average showed a successively new low for each of the years 1930-32, reaching (for the 1900's) an alltime low of 41.2 in July 1932, when the Nation was in the midst of a severe depression.The annual volume of stock trading reached a high of 1,125 million shares in 1929 and thereafter showed a sharp declining trend during the years 1930-1932, and irregular up-and-down trends during the remainder of the 1930's.  New and refunding capital issues reached *107  a high of $ 11,592 million in 1929, thereafter showed a steep declining trend during the years 1930-33, and irregular up-and-down trends during the remainder of the 1930's.  With respect to market prices of stocks, the trends are reflected in the Dow Jones industrial high and low average for each of the years 1929 and 1930-39, inclusive, including the base period years involved herein, as follows:YearAverage1929High381.2Low198.71930High294.1Low157.51931High194.4Low73.81932High88.8Low41.21933High108.7Low50.21934High110.7Low85.51935High148.4Low96.71936High184.9Low143.11937High194.4Low113.61938High158.4Low99.01939High155.9Low121.4*40  The following schedule combines the data for the indicated years as shown on several stipulated joint exhibits: (1) The number of individual issues listed; (2) the annual volume of trading; and (3) the market value on January 1 of each year, of stocks and bonds listed on the New York Stock Exchange.New York Stock Exchange(1)(2)(3)Number of individualAnnual volume ofMarket value on Jan. 1issues listedtradingYearStocksBonds (parStocksBondsStocksBondsTotal(millionsvalue in(millions(millionsof shares)millions ofof dollars)of dollars)dollars)19206911,1141,805227$ 3,97719217561,1151,8711733,32419227921,1561,9482594,37019237781,2342,0122362,79019248891,2622,1512823,80419259271,3322,2594543,384$ 27,072$ 33,61219261,0431,3672,4104512,98734,48935,50919271,0811,4202,5015773,26938,37637,16819281,0971,4912,5889202,90349,73636,87519291,1761,5342,7101,1252,98267,47847,37919301,2931,5432,8368102,76464,70846,89219311,3081,6072,9155773,05149,02047,38519321,2781,6012,8794252,96726,69437,84819331,2371,5492,7866553,36922,76831,91819341,2091,5682,7773243,72633,09534,86119351,1871,5402,7273823,33933,93440,66019361,1851,4632,6484963,57646,94639,39919371,2121,4092,6214092,79359,87845,05419381,2591,3762,6352971,86038,86942,78219391,2371,3932,6302622,04647,49147,05319401,2331,3952,6282081,66946,46849,92019411,2301,2952,5251712,11241,89150,83119421,2321,1732,4051262,31135,78655,03419431,2381,1362,3742793,25538,81270,58419441,2371,0962,3332632,69547,60790,27419451,2591,0632,3223782,26255,512112,621*41  The following schedule shows the new and refunding capital issues in the United States, as per Joint Exhibit 12-L, for the years 1920-45.  *108 [In millions of dollars]YearTotalNewRefundingissuescapitalcapital1920$ 4,010.0$ 3,634.8$ 375.219214,203.83,576.7627.119225,235.94,304.4931.519234,989.74,304.4685.319246,352.55,593.2759.319257,126.06,220.2905.919267,430.36,344.11,086.119279,933.77,791.12,142.619289,991.88,114.41,877.5192911,592.210,182.81,409.419307,677.07,023.4653.719314,022.93,115.5907.419321,730.31,192.2538.01933$ 1,053.7$ 709.5$ 344.219342,212.31,386.3825.919354,752.31,412.13,340.219366,254.31,973.34,281.019374,001.32,100.71,900.619384,459.22,355.02,104.119395,853.12,298.43,554.719404,805.91,950.52,855.419415,545.92,853.92,692.019422,114.51,075.11,039.419432,228.2643.51,584.719444,295.9936.43,359.519458,046.21,774.76,271.5The following schedule shows the annual sales of stocks and bonds on all registered U.S. exchanges and on the New York Stock Exchange, *42  as per Joint Exhibit 16-P, for the years 1934-45.[In millions of dollars]All registered exchanges,New York Stock Exchange,market valuemarket valueYearAll salesStocksBondsAll salesStocksBonds1934$ 12,211$ 8,820$ 3,391$ 10,483$ 7,740$ 2,743193519,11115,3723,73916,13313,3332,800193627,27723,6163,66123,32720,3902,937193723,70921,0102,69920,76918,4682,301193813,92612,3371,58912,30611,0161,290193913,34711,4261,92111,4889,9701,51819409,7268,4121,3148,2237,1711,05319417,6036,2401,3636,4085,2571,15119425,5704,3091,2614,7963,6741,122194310,9869,0241,9629,4577,6721,785194411,7809,7991,98110,0898,2551,834194518,11216,2701,84215,19013,4741,716The initial margin requirements established by the Federal Reserve Board pursuant to section 7 of the Securities Exchange Act of 1934 for the purpose of regulating the extension of credit by brokers and banks for the purchase of securities, as per Joint Exhibit 23-W, for the period from October 1, 1934, to July 5, 1945, were as follows:InitialEffectivemargindaterequirementOct. 1, 193425 to 45Feb. 1, 193625 to 55Apr. 1, 193655Nov. 1, 193740Feb. 5, 194550July 5, 194575*43  The following schedule (1) shows the average of purchase prices paid for New York Stock Exchange memberships for the years 1922-45 and the ratio to the 1922-39 average, as per Joint Exhibit 13-M; and, also, the following schedule (2) shows the number of *109  member organizations and number of member organization offices at the end of the indicated years, as per Joint Exhibit 41-OO:Schedule (1)New York Stock Exchange membershipAverageRatio toYearpurchase1922-39priceaveragePercent1922$ 93,00053.69192388,00050.80192488,50051.091925124,50071.871926154,00088.901927187,500108.241928442,500255.451929487,500281.431930342,500197.221931223,500129.031932126,50073.031933170,00098.141934130,00075.051935102,50059.171936$ 131,50075.91193797,50056.29193868,00039.26193960,50034.933,118,000(Average, 1922-39)173,222100.00194046,50026.84194127,00015.59194223,50013.57194337,50021.65194457,50033.19194572,00041.57Schedule (2)Number of member organizations and officesNumber ofNumber ofEnd of yearmembermemberorganizationsorganizationoffices189952169719095811,13619195631,22519296652,32319306492,14119316211,96819326101,78119336211,83619346211,71419356441,73619366471,82919376521,83719386271,70719396031,66019405911,56919415571,42519425371,28219435401,31319445621,35919455861,427*44  Stipulated Exhibit 43 shows the consolidated profit (or loss), before Federal income taxes, of the New York Stock Exchange and its affiliated companies, New York Stock Exchange Building Co., New York Quotation Co., Stock Clearing Corp., New York Stock Exchange Safe Deposit Co. (dissolved in 1942), and 39 Broad Street Corp. (dissolved in 1941), for the years 1933-45, was as follows:Year endedProfitDec. 31(or loss)1933($ 199,121)1934(1,060,890)1935(209,325)1936172,768 1937(140,377)1938(1,548,417)1939(1,149,373)1940($ 981,348)1941(2,229,561)1942(815,972)1943676,509 1944776,478 19451,486,047 As reported in Statistics of Income, U.S. Treasury Department, 1946, pages 356-361, the compiled net profit (or loss) (1) as reported, *110  (2) less tax-exempt income, and (3) less tax-exempt income plus interest paid, of all corporations filing tax returns during the years 1920 through 1945, as per Joint Exhibit 9-I, was as follows:Compiled net profit (or loss)[In $ 1,000,000]LessLesstax-exemptYearAstax-exemptincomereportedincomeplusinterestpaid1920$ 6,625 $ 5,611 $ 8,446 19211,156 255 3,396 19225,967 4,770 7,839 19237,634 6,308 9,586 19246,795 5,363 8,808 19259,316 7,621 11,238 19269,510 7,504 11,493 19278,669 6,510 10,885 192810,667 8,227 12,808 192911,870 8,740 13,665 19304,649 1,552 6,413 1931(777)(3,288)1,204 1932(3,829)(5,643)(1,600)1933($ 930)($ 2,548)$ 963 19342,970 94 3,516 19355,423 1,695 4,956 19367,771 4,369 7,450 19377,830 4,407 7,410 19384,131 1,608 4,479 19397,178 4,509 7,306 19409,348 6,543 9,244 194116,675 13,593 16,217 194223,389 21,120 23,579 194328,126 25,468 27,799 194426,547 23,425 25,713 194521,345 17,911 20,219 *45  As shown by Joint Exhibit 29-CC, the Federal Reserve Index of Industrial Production, October 1943; June 1954, for the years 1920-45 based on the 1935-39 average = 100, is as follows:YearIndex1920751921581922731923881924821925901926961927951928991929110193091193175193258193369193475193587193610319371131938891939109194012519411621942199194323919442351945203As an aftermath of the above-mentioned excessive speculation in securities and the stock market crash of 1929, a series of congressional investigations and hearings were had, beginning in 1932 and continuing into 1933 and 1934, in regard to the operations of securities exchanges and over-the-counter markets and also the practices employed in offerings of new corporate securities, with a view to the necessity for legislation requiring appropriate regulation thereof for the protection of the investing public.  The hearings called forth a parade of witnesses including prominent persons in the financial community. Widespread publicity was given to the hearings and the witnesses; to the laxities in the rules governing the operations of the securities*46  exchanges; to the revelations of instances of manipulations of securities *111  prices through various techniques of pools, wash sales, matched orders, and so-called "insider" dealings in securities and, also, to the revelations of instances of the offerings of new issues of securities without full and honest disclosure of the financial condition of the issuing corporations.  The publicity given those hearings and revelations had an unfavorable and depressing effect upon the confidence of the investing public in the securities markets and in the financial community generally.As a result of investigations and hearings, Congress enacted certain regulatory legislation, namely, the Securities Act of 1933 to regulate registration of securities in interstate and foreign commerce and through the mails and to prevent fraud in the sale thereof; the Securities Exchange Act of 1934 to regulate national securities exchanges and over-the-counter markets operating in interstate and foreign commerce and through the mails and to prevent inequitable and unfair practices on such exchanges and markets; and the Public Utility Holding Company Act of 1935 to regulate and in many instances eliminate*47  certain holding company structures of the public utility industry.The Securities Act of 1933 provided, inter alia, in the case of all new security issues, that there be filed with the Federal Trade Commission a registration statement setting forth detailed information about the security and the issuing corporation.  The Commission had authority to examine the statement, require amendments thereto, hold hearings thereon, and to permit or refuse to permit the registration to become effective.  Also, the prospectus used in connection with the sale was required to carry certain detailed information.  Further, civil liabilities were provided for false statements or the omission of material facts.The Securities Exchange Act of 1934, inter alia, established the Securities and Exchange Commission with broad regulatory powers; provided for registration with that Commission of any exchange as a national securities exchange; empowered the Federal Reserve Board to prescribe rules and regulations with respect to credit extended and margin requirements on any security registered on a national securities exchange; provided for restrictions on borrowing by members of national securities*48  exchanges and brokers and dealers; provided for prohibition against manipulation of security prices and the use of certain deceptive devices and practices; provided for segregation and limitations of the functions of members of national securities exchanges and brokers and dealers; and provided for prohibition against any transaction in any security on a national securities exchange unless effectively registered with such exchange upon the issuer filing an application setting forth detailed information as prescribed by the act and rules and regulations of the Commission, with duplicate originals of such applications, annual reports, etc., *112  of the issuer filed with the Commission.  Further, certain civil liabilities were provided for false and misleading statements with respect to any material fact made in any application, report, or document filed pursuant to the act or regulations thereunder.  That act also made certain amendments to the Securities Act of 1933.The enactment of the Securities Act of 1933 and the Securities Exchange Act of 1934, the regulatory mechanisms and prohibitions provided thereunder, and the civil liabilities imposed thereby, had a far-reaching permanent*49  impact upon the methods of issuing new securities and upon transactions in all securities registered and listed on national securities exchanges and, also, upon the over-the-counter markets.  There was a concomitant impact upon the business of the financial community. A combination of factors including the stock market crash of 1929, the general business depression of the early 1930's, the congressional hearings and publicity of devious and dishonest practices in the securities markets, and the 1933 and 1934 securities regulatory legislation, altogether had a depressing effect upon the activity of the business of the financial community which continued in varying degrees throughout the 1930's including the base period years involved herein, as evidenced by the statistical data hereinabove set out.The above-mentioned regulatory legislation was designed to protect the investing public and to promote honesty and integrity in the marketing of corporate securities through the long-established facilities and services of the financial community embracing stock exchanges, over-the-counter markets, brokers, dealers, investment bankers, etc.  Upon enactment of the legislation the members *50  of the financial community were confronted with necessary accommodations to regulations never before experienced, which initially affected their business because of a slowdown on the issuance of new securities and also a decline in the volume of trading during 1934 and 1935.  Further, the business of the financial community was adversely affected over a period of years extending into 1938 by a bitter controversy within the New York Stock Exchange organization and more particularly between the leaders of the exchange and the Securities and Exchange Commission with regard to the latter's desired changes in the organization, management, and rules of the exchange.  The controversy waxed hot in the fall of 1937 with attendant wide publicity and a coincidental sharp decline in market prices of stocks during the period from September to December 1937.  Late in 1937 the Chairman of the Securities and Exchange Commission publicly threatened to reorganize the exchange and provide it with rules *113  written by the Commission.  In March 1938 the exchange announced the suspension of Richard Whitney & Co. from all trading on the floor of the exchange because of misappropriation of customers' *51  securities and Whitney was expelled as a member of the exchange and later sent to jail, which events were given wide publicity.  In March 1938, the governing body of the exchange adopted the reorganization, rules, and regulations insisted upon by the Securities and Exchange Commission.  The controversy ended, but its adverse effects upon the business of the financial community lingered on for some months.  Also, during 1938, the business of the financial community was affected by the general business recession which occurred during that year.A large portion of the capital funds put into the securities market comes from the investing public.  The occurrence of events which shake the public confidence in the securities market at any given time, has a direct bearing upon the issuance of new and refunding securities and upon the volume of trading and market prices of securities.  The exaggerated volume of 1,125 million shares of stocks traded in 1929 was partly accounted for by security holders' liquidations following the 1929 stock market crash and the successive declining volume for each year down to 425 million shares for 1932 also embraced continued liquidations by security holders. *52  The sharp decline in new and refunding capital issues during the years 1930-33 showed a lack of new capital investment.  The irregular trends in the securities market during the remainder of the 1930's reflect the economic conditions and events occurring during those years.  The volume of new security issues, the volume of trading, and market prices of securities are factors having a direct bearing upon underwriting fees and commissions on sales and purchases of securities which constitute principal sources of earnings of investment bankers, security brokers and dealers, and others engaged in the business of the financial community. During the 1930's some investment bankers and brokers suffered losses or had meager earnings, some large brokerage firms closed branch offices, and some small brokerage firms merged in order to reduce operating expenses.  The various depressing events and economic conditions affecting the financial community in varying degrees throughout the period of the 1930's resulted in a substantial curtailment in the total volume of financial advertising linage during those years.  The New York edition of the Wall Street Journal, which was generally regarded as*53  the newspaper of the financial community and was the principal publishing and advertising media of petitioner's predecessor affiliated companies, suffered a substantial decline in financial *114  advertising linage and revenues therefrom during the 1930's, including the base period years involved herein.The following schedule sets forth the consolidated net income of petitioner's predecessor affiliated companies for the years 1922-45, inclusive, adjusted for excess profits tax purposes and, also, for the years 1922-39 the net income index with average for 1922 - 39 = 100 as per Joint Exhibit 18-R, together with totals and averages for certain periods.  The base period 1936-39 average earnings were depressed as compared with the long-term 1922-39 average earnings, the former amounting to approximately 38.75 percent of the latter.Net income indexaverage for 1922-Consolidated39 = 100,Yearnet incomepercent1922$ 576,753.14 97.0 1923320,544.50 53.9 1924375,548.21 63.2 1925502,548.48 84.3 1926687,053.69 115.6 1927839,309.67 141.2 19281,147,445.19 193.0 19291,915,994.25 322.3 19301,473,070.17 247.8 1931667,674.30 112.3 1932273,646.67 46.0 1933402,092.98 67.6 1934386,049.19 64.9 1935209,447.87 36.2 1936411,859.10 69.3 1937413,780.29 69.6 1938(39,559.05)(6.6)1939135,339.28 22.8 Total 1922-3910,698,597.93 1940244,252.30 1941125,173.38 194278,442.65 19431 75,163.00 1944718,601.00 1945649,824.00 Total 1940-451,891,456.33 Total 1936-39921,419.62 Average 1922-39594,366.55 Average 1936-39230,354.90 Average 1940-45315,242.72 *54 The following schedule sets forth the net incomes for the indicated years (before taxes per revenue agent's reports) of the subsidiaries which published the New York edition and the Pacific Coast edition, respectively, of the Wall Street Journal which, as above mentioned, was the principal publishing and advertising media of petitioner and its predecessors: *115 Dow Jones &Dow Jones &YearCo., Inc.,Co., Ltd.,New YorkPacific Coasteditionedition1922$ 549,763 1923306,838 1924364,739 1925517,971 1926814,592 1927816,381 19281,195,893 19291,878,117 ($ 1,075)19301,557,254 15,166 1931279,314 (45,008)1932138,727 (30,608)193385,308 2,462 1934$ 171,659 ($ 8,444)1935100,548 (7,748)1936250,701 4,554 1937202,897 6,386 1938(26,766)(30,248)1939125,360 (19,294)1940181,046 (16,488)194173,890 (12,367)194277,400 (19,897)1943447,082 45,557 1944356,070 102,224 1945274,679 115,276 The following schedule sets forth on a consolidated basis a summary of operating *55  revenues from advertising, circulation, ticker and bulletin, and miscellaneous sources; total operating revenue; operating expenses; and net operating profit of petitioner's affiliated predecessor companies for the years 1922-45, inclusive, as per Joint Exhibit 4-D, together with totals and averages for certain periods.  With respect to the base period 1936-39 averages as compared with the long-term 1922-39 averages the most significant changes indicated are a substantial decrease in both advertising revenue and total operating revenue, a moderate increase in operating expenses, and a substantial decrease in net operating profit:Summary of consolidated operating revenue, expenses,and net operating profitAdvertisingCirculationTicker andMiscellaneousYearrevenuerevenuebulletinrevenuerevenue1922$ 683,295$ 593,411$ 1,009,983$ 28,0671923649,392602,4571,000,65411,0451924749,840636,0301,010,30413,06119251,021,871790,5701,086,88422,73719261,131,653825,6131,212,41328,11819271,283,390903,3551,359,17649,58919281,623,6681,061,4211,776,95228,75819292,504,9751,339,8082,583,12945,59719302,197,5711,243,5062,939,27147,82719311,550,9001,020,7002,347,37541,7391932948,277811,1671,684,20731,2841933757,070729,9371,719,80832,8331934781,767705,9191,715,41530,2731935826,677686,5531,463,20222,1011936986,853827,2741,693,38438,84119371,025,976888,7421,808,93435,8341938729,017885,7971,477,73935,1111939769,037833,0701,459,99639,781Total 1922-3920,221,22915,385,33029,348,826582,5961940821,403795,2551,435,50738,0671941848,159781,7231,217,92634,7511942820,025888,7181,051,02429,08819431,258,8041,105,6051,019,58129,27819441,621,6521,177,5821,086,85631,00419451,716,7931,349,9621,227,11423,780Total 1940-457,086,8366,098,8457,038,008185,968Total 1936-393,510,8833,434,8836,440,053149,567Average1922-391,123,402854,7401,630,49032,366Average1936-39877,721858,7211,610,01337,392Average1940-451,181,1391,016,4741,173,00130,995*56 Summary of consolidated operating revenue, expenses,and net operating profitTotalOperatingNetYearrevenueexpensesoperatingprofit1922$ 2,314,756$ 1,816,924$ 497,832 19232,263,5482,027,082236,466 19242,409,2352,115,237293,998 19252,922,0622,501,601420,461 19263,197,7972,629,543568,254 19273,595,5102,806,179789,331 19284,490,7993,413,2031,077,596 19296,473,5094,649,8771,823,632 19306,428,1755,256,1601,172,015 19314,960,7144,262,182698,532 19323,474,9353,129,875345,060 19333,239,6482,791,912447,736 19343,233,3742,844,661388,713 19352,998,5332,793,643204,890 19363,546,3523,155,997390,355 19373,759,4863,378,340381,146 19383,127,6643,187,878(60,214)19393,101,8842,970,090131,794 Total 1922-3965,537,98155,730,3849,807,597 19403,090,2342,840,986249,248 19412,882,5622,756,530126,031 19422,788,8582,725,91262,945 19433,413,2702,756,784656,486 19443,917,0963,067,427849,668 19454,317,6513,648,519669,131 Total 1940-4520,409,67117,796,1582,613,509 Total 1936-3913,535,38612,692,305843,081 Average1922-393,640,9983,096,132544,866 Average1936-393,383,8473,173,076210,771 Average1940-453,401,6122,966,026435,585 *57 *116   The following schedule sets forth the total advertising revenue and advertising linage of petitioner's affiliated predecessor companies for each of the years 1922-45, and also the advertising revenue and linage for the Wall Street Journal, New York edition; Barron's Weekly; Boston News Bureau; and the Wall Street Journal, Pacific Coast edition (but omitting the comparatively small amounts of advertising revenue from other publications), as per Joint Exhibit 6-F.  The principal one of those publications in the amounts of advertising linage and advertising revenue was the Wall Street Journal, New York edition, and its advertising linage and revenue for 1938 were the lowest for any of those years since 1923:Advertising revenue and linageWall Street Journal,TotalsNew York editionBarron's WeeklyYearRevenueLinageRevenueLinageRevenueLinage1922$ 683,2952,338,958$ 505,6711,679,971$ 15,915105,1861923649,3922,225,366484,7251,606,92517,332114,5561924749,8402,640,189569,2721,929,79019,778130,72519251,021,8713,178,436784,8102,288,51629,159192,68119261,131,6533,352,855868,8932,443,33444,022225,37519271,283,3903,312,577980,7272,491,63967,642166,14119281,623,6684,028,8171,309,7563,173,23667,378167,20519292,504,9755,734,4172,059,5064,501,888100,016252,43219302,197,5714,950,8191,595,0533,362,141107,450241,30119311,550,9003,580,4531,139,3132,424,54583,072186,0971932948,2772,221,511705,4461,491,58043,843104,5401933757,0701,920,425538,6321,215,91452,012121,5051934781,7671,993,461570,9471,260,44045,882117,9201935826,6772,079,695600,2101,331,20643,160105,4051936986,8532,464,261709,9031,533,48162,026131,84219371,025,9762,340,258731,5591,440,28454,640116,4921938729,0171,731,353507,5861,045,84453,824103,3481939769,0371,797,891545,4041,098,30350,780108,1791940821,4031,886,950588,3441,160,40961,093114,4511941848,1601,993,676598,5021,197,58261,346117,4541942820,0261,896,199578,4301,142,10559,663106,32319431,258,8043,128,862874,9351,744,92891,979174,99319441,621,6524,018,3091,119,9802,230,993124,375233,60719451,716,7934,318,0101,167,2672,353,897145,990272,895*58 Advertising revenue and linage(C. W. Barron)Wall StreetBoston NewsJournal, PacificYearBureauCoast editionRevenueLinageRevenueLinage1922$ 161,709553,8011923147,335503,8851924160,790579,6741925207,902697,2391926218,738684,1461927235,021654,7971928246,534688,3761929300,556836,003$ 28,642144,0941930263,364703,111217,756644,2661931176,863495,755135,934474,0561932115,111302,92073,938322,471193390,677256,52669,521326,480193484,998247,17473,936367,927193595,307263,97382,243379,1111936100,983282,960111,135515,9781937113,232270,302123,623513,180193873,527191,21691,432390,945193967,698178,411102,394412,998194070,607185,13199,746426,959194180,901208,957107,411469,683194288,808221,31093,125426,4611943115,625297,545176,265911,3961944139,057355,860238,2401,197,8491945147,049449,975256,4871,241,243Prior to and during the base period years 1936-39, the principal class of advertising carried by the Wall Street Journal, New York edition, was the financial advertising*59  linage consisting of advertisements by brokers, investment bankers, over-the-counter dealers, commercial and savings banks, trust companies, and corporations.  It also included corporate security offerings, the announcement of private placement of new security issues, dividend notices, redemptions, annual corporate reports, notices of corporate meetings, and a variety of announcements by brokerage firms.  The second largest class of advertising carried by the New York edition of the Journal*117  prior to and during the base period years 1936-39 was the national advertising consisting of corporate and institutional type of advertising of products and/or services without regard to particular geographical areas.  The following schedule sets forth the annual linage of the several classes of advertising appearing in the Wall Street Journal, New York edition, for the years 1927-45:Wall Street Journal, New York edition, advertising linage byclassesYearTotalFinancialAutosAmusementsLegal19272,491,6191,457,543228,37350,51119283,173,2361,858,823233,88444,5138,25819294,501,8882,569,352225,36464,969135,06019303,362,1411,713,276151,98660,177135,11819312,424,545993,289153,41543,422163,42319321,491,580490,045113,10337,037204,14019331,215,928398,221114,02117,888155,12419341,260,440413,920124,13916,311116,29219351,331,206468,975145,56524,561120,47219361,533,481587,208135,89832,25779,75319371,440,284538,951126,67638,32345,48919381,045,844379,64265,76532,09269,31419391,098,303416,55769,11920,23985,19119401,160,409440,91477,91024,67482,65119411,197,582444,58474,56027,31781,44119421,142,105384,34221,55125,11690,44519431,744,928473,50053,35630,62480,55319442,230,993640,26639,79337,45358,86919452,353,897825,38021,99569,31255,542*60 Wall Street Journal, New York edition, advertising linageby classesLocalPublicYearClassifiedretailLocalNationalutilitiesstores192784,900186,93870,479412,875192891,247281,885179,418419,58655,6221929163,463436,299167,050578,740161,591193085,657383,334132,074557,869142,650193148,256259,880108,605540,791113,464193222,638183,89765,421316,18359,116193317,310103,82470,714296,47142,355193413,043105,35557,631387,46826,281193510,88698,41268,774366,70926,852193622,464181,09160,177428,9095,724193726,034227,31261,179369,6266,694193817,088136,74443,830293,5567,813193914,45696,39541,262343,52711,557194011,49973,39337,283391,47820,60719418,99883,22626,206432,74618,504194210,88182,53240,264471,69615,278194318,56897,31854,482920,70115,826194426,068169,30060,3581,172,97125,915194513,359194,89553,2871,091,49128,636While the financial and national advertising linages reached their lowest levels in 1938, 1936 and 1937 were both fairly good years when*61  compared with other years in the decade.As demonstrated by the schedule, for the period 1927-35, the Wall Street Journal, New York edition, carried an average of 1,151,494 lines of financial advertising, which represented 49 percent of its total advertising linage. If, however, the abnormally active financial years 1927-29 are eliminated from the computation, the average linage for financial advertising in the New York edition of the Journal for the 6-year period 1930-35 was 746,287, which was 40 percent of its total advertising linage for that period.  If 1930 is also disregarded because it, too, was an abnormally high year, the average linage of financial advertising for the 5-year period 1931-35 was 552,890, 36 percent of the total for the period.  During the base period years 1936-39, the Journal's financial advertising linage dropped to an average of 480,589 lines but it represented 38 percent of the Journal's total advertising linage for those years.  For the 6-year period immediately following the base period years the financial *118  advertising average linage increased to 534,831 lines, but the percentage of that class to its total advertising for those years dropped*62  to 33 percent.The following schedule sets forth the total annual advertising linage and also the annual linage for only two classes of advertising, namely, financial and general (the latter including national advertising), for representative daily newspapers published in 52 cities for the years 1928-45 as reported in statistics compiled by Media Records, Inc., showing newspaper advertising trends.  During the period 1928-35, the financial linage amounted to only 3 percent of the total advertising linage carried by such papers:[000 omitted]YearTotalFinancialGeneraladvertisingadvertisingadvertising19281,802,48266,005289,77919291,897,21374,177338,87519301,654,24659,255303,05119311,464,86840,984261,81719321,164,77023,680201,83019331,065,51520,179188,04519341,178,88019,128211,38419351,246,94221,309216,97619361,380,12125,025251,51019371,409,66622,480247,15519381,225,16619,170191,94819391,243,55020,308191,85919401,268,63219,424188,62919411,313,23320,478194,05319421,241,67217,623196,65319431,396,41817,758247,42419441,361,24418,365250,92619451,391,62922,090246,052*63  The following schedule sets forth the total annual circulation revenue of the several publications of petitioner's predecessor affiliated companies for each of the years 1922-45 (omitting certain minor debit and credit adjustments to the total revenue column as shown on Joint Exhibit 8-H) and, also, the annual average circulation revenue and circulation units of each of those publications for the indicated years.  With reference to the Wall Street Journal, New York edition, circulation and circulation revenue increased substantially for the 4-year period 1928-31 over prior years; decreased substantially and continuously during the next 4-year period 1932-35; increased materially in both 1936 and 1937 as compared to 1935; but again decreased materially in both 1938 and 1939 as compared to 1937.  Barron's Weekly showed a somewhat similar pattern except for the years 1938 and 1939.  Boston News Bureau showed a continuous decline after 1930 and throughout the base period: *119 Circulation revenue and circulation unitsThe Wall Street JournalNew York editionPacific-coastTotaleditionrevenueRevenueCirculationRevenueCirculationunitsunits 11922$ 593,412$ 353,18511923602,457335,70721,0511924636,031376,70822,7601925790,570475,96628,2311926825,614499,50230,2251927903,355555,70832,04519281,061,421681,22839,56219291,339,809843,58949,396$ 28,94019301,243,506708,87753,19849,68219311,020,700576,39641,61947,9981932811,167462,14831,19537,3921933729,937448,39728,69636,8431934705,919446,78628,21437,9401935686,554424,20826,04140,9051936827,274513,90931,7622 29,67852,0301937888,742525,88435,5512 33,23857,4511938885,798473,46232,4002 30,68257,9993,7921939833,070450,00329,7422 28,27057,3123,7081940795,255447,67929,2232 27,98559,9883,5211941781,723474,15330,0042 28,88656,0023,3061942888,719573,94333,6512 32,55957,6163,39219431,105,606746,7532 40,41586,07919441,177,582781,4902 45,668110,59519451,349,963858,3602 52,096164,346*64 Circulation revenue and circulation unitsBarron'sBoston NewsOtherWeeklyBureaupublicationsRevenueCirculationRevenueCirculationRevenueCirculationunits 1units 1units 11922$ 73,611$ 166,6161923106,47317,907160,27710,375177192499,37815,704159,94510,0171741925141,91221,078172,69210,6201841926158,46422,356167,64811,1952601927175,20226,356172,44511,1934651928193,26326,558186,93011,7955081929273,47536,328193,80512,8548681930303,39440,937181,55311,6576501931255,72633,424136,0079,694$ 4,5734141932201,28523,303107,2636,7643,0793171933157,36818,90384,9435,4712,3862451934143,06217,25876,0034,8042,1282191935152,36319,04669,0784,2512671936194,62524,70469,1604,4231,8632581937235,16430,32868,4584,8471,7672541938290,21737,63362,4444,0111,6742241939274,69032,72749,5153,4731,5502051940241,67328,58845,1343,2322151941210,18125,46141,3872,8741942216,74726,55140,4132,9121943221,81850,8561944229,50955,9881945255,99271,265*65 Joint Exhibit 5-E, which is too voluminous to set forth and is included herein by reference, shows a detailed breakdown of major operating expenses of petitioner's predecessor affiliated companies.With respect to the New York edition of the Wall Street Journal we have heretofore set forth schedules showing statistical data on units of circulation and total circulation revenue and, also, advertising linage and total advertising revenue.  The following schedule as a matter of convenience embraces several items of related data with respect to the Journal's circulation expense, advertising revenue and expense, and cost of newsprint for the years 1927-45.  The first two columns pertain to circulation mechanical expense and show the total amount and the portion thereof constituting wages for each of those years.  The next two columns pertain to advertising revenue and expense and show the average gross revenue (in cents) per line and total*66  advertising expense per each of those years.  The revenue per line as shown was less than the flat rates of 60 cents a line for financial and 50 cents a line for other advertising during 1927 and 1928, and 75 cents a line for all classes of advertising for the years 1929-45 because the rates actually charged varied with the amount of linage *120  contracted for by advertisers in the course of a year.  The total advertising expense as shown was for the advertising department embracing the major items of salaries, commissions, and wages, plus various other items of promotion and production expenses, etc.  The last three columns pertain to the number of issues, the average number of pages per issue, and the annual cost of newsprint for each of those years.  For the years material herein 1 page of the Journal carried 6 columns with each column providing space for 296 lines of advertising, so that a single page could accommodate a total of 1,776 lines of advertising and, further, it would have required about 2 additional pages in each of 300 issues, on the average, to carry 1 million lines of advertising per year, in addition to what was actually carried.Wall Street Journal, New York editionCirculationAdvertising revenueNumber of issues, pages permechanical expenseand expenseissue, and annual cost ofnewsprintYearAverageTotalNumberAverageAnnualTotalWagesrevenueadvertisingofnumbercost ofper lineexpenseissuesof pagesnewsprintper issueCents1927$ 380,905$ 163,53939.36$ 92,07530116.54$ 140,1571928446,322196,11241.28200,18830118.48174,1831929548,105236,00945.75349,04730120.68223,0801930548,962242,36947.44309,64930118.90212,5631931477,995222,66946.99249,88730116.41158,6971932311,278193,18042.30163,66330314.4380,4471933252,843174,54444.30157,15430014.3454,2601934266,495181,77745.30161,13630116.0559,0051935256,248174,05945.09158,32430216.1652,4561936283,545190,19746.30201,34230217.1669,4601937309,949192,10450.79231,72730117.2389,6931938269,384173,89648.53147,63930115.7172,8951939269,424169,65349.66143,24330015.8277,8331940269,933175,85650.70139,39530415.4968,6271941276,086176,68649.97140,55830615.8673,9601942281,337169,92950.65136,28030615.0886,5561943299,174196,53350.14132,74030514.2186,0891944306,208209,24450.20181,34430212.7 81,0831945367,830237,51349.58230,61330412.7 93,4421936-39average283,075181,46248.73180,98830116.4877,470*67  The company which published the New York edition of the Wall Street Journal retained the services of a number of longtime employees although not needed during the first half of the 1930's, with the expectation of an early recovery from depressed conditions, and thus during the base period years 1936-39 that company was in a position to handle substantial increases in circulation and advertising linage with very little additional manpower.The average daily circulation of daily newspapers in the United States for the years 1920-45, as per Joint Exhibit 21-U, was as follows: *121 YearCirculation 1192027,790,656192128,423,740192229,780,328192331,453,683192432,999,437192533,739,369192636,001,803192737,966,656192837,972,488192939,425,615193039,589,172193138,761,187193236,407,689193335,175,238193436,709,010193538,155,540193640,292,266193741,418,730193839,571,839193939,670,682194041,131,611194142,080,391194243,374,850194344,392,829194445,954,838194548,384,188*68  While the average daily circulation of all daily newspapers showed a material increase for each of the base period years 1936-39 over their average circulation for the period 1923-35, the New York edition of the Wall Street Journal circulation was below its 1923-35 average in every base period year except 1937.  The following schedule shows the annual circulation of the Journal and of all daily newspapers for each of the base period years together with an index of such circulation based on the average annual circulation for the period 1923-35=100:Wall Street Journal, NewAll daily newspapersYork edition (average(average annual circulationannual circulation 1923-351923-35 of 36,488,991=Yearof 33,249=100)100)AnnualIndexAnnualIndexcirculationcirculation193631,76295.5340,292,266110.42193735,551106.9241,418,730113.51193832,40097.4539,571,839108.44193929,74289.4539,670,682108.72The officers of the company which published the Wall Street Journal, New York edition, regarded the depressed condition of the financial community and the Journal's declining revenues especially from financial*69  advertising, during the 1930's, as temporary conditions from which there would be a recovery.  However, sometime prior to 1934, the Journal's management began studying ways and means to increase total advertising linage and, also, to replace any financial advertising linage which had been permanently lost.  It was decided that the Journal's news coverage should be broadened in scope for greater reader appeal in order to build up circulation, especially in the general business community, as a basis for attracting an increased volume of national or general advertising. Studies and efforts for increased circulation and advertising were continued throughout the 1930's and thereafter.  The first step was the introduction of a front-page *122  "What's News" column to provide highlights of both business and general news of the day.  In 1936 the Journal joined the Audit Bureau of Circulations to provide verification of circulation figures to prospective advertisers, and in 1937 it contracted for Associated Press news service for broader general news coverage.  During each of the years 1936-39, respectively, the Journal received various research reports, some from outside concerns and*70  some by its own promotion personnel, concerning subscriber reading and buying habits, the income brackets of readers of various publications including the Journal, and data on comparative advertising rates of other publications.  Such reports were used in selling advertising in the Journal.  Also, during the period 1937-39 the Journal developed special news columns such as the "Washington Wire," the "Business Bulletin," the "Tax Report," and the "Commodity Letter," to attract the interest of a wider circle of readers.  Such innovations did not change the essential character of the Journal as a financial newspaper, but only broadened the scope of its coverage of business and general news as a necessary adjunct to the creation of a larger market for increased sales of subscriptions and of advertising linage. Those various efforts and changes took time to jell, and did not produce effective results until about 1943.We have hereinabove found that the base period 1936-39 consolidated average net income of petitioner's predecessor affiliated companies, was severely depressed as compared with the taxpayer's long-term 1922-39 consolidated average net income. However, we conclude and find*71  also that said long term included several years, 1927-30, of exceptional and abnormally high earnings, not usual in the business or experience of the taxpayer, and that therefore long-term average earnings, standing alone, are not a fair and reasonable test of an adequate standard of normal earnings during the base period. Further, we conclude and find as ultimate facts that while the business of the taxpayer was depressed during the base period, it was also depressed for several years prior thereto, and that such extended depressed condition was caused by the occurrence throughout the 1930's of prolonged rather than temporary economic circumstances and events.The average base period net income of petitioner was an adequate standard of normal earnings and petitioner's business was not depressed in the base period because of temporary economic circumstances unusual in the case of the taxpayer.Petitioner's excess profits tax for each of the years involved was not excessive and discriminatory and petitioner is therefore not entitled to relief pursuant to section 722 of the Code for any of the years involved.*123  OPINIONSection 722 of the Internal Revenue Code of 1939, 4 as*72  amended, provides under subsection (a) the general rule that in any case in which a taxpayer establishes that its excess profits tax (computed without the benefit of that section) is excessive and discriminatory and further establishes what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax, the tax shall be determined by using such CABPNI in lieu of the average base period net income otherwise determined.  Section 722 further provides.  under subsection (b)(2), that the excess profits tax shall be considered to be excessive and discriminatory if the taxpayer's average base period net income is an inadequate standard of normal earnings because "the business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer."*73  The claims involved herein for relief from excess profits taxes for the years 1944 and 1945 are predicated upon alleged qualifying factors within the ambit of only that portion of subsection (b)(2) of section 722 pertaining to a base period depression of taxpayer's business.  No issue is presented herein as to the alternative portion of that subsection pertaining to a depression of the industry of which the taxpayer was a member.Contrary to the respondent's argument on brief, the petitioner does not take the position that the taxpayer was a member of a depressed financial community or industry and patently it was not a member of *124  such industry.  5 The record clearly shows that the taxpayer was basically a member of the newspaper publishing industry and that its principal news and advertising medium was the Wall Street Journal, a financial newspaper, which was closely associated with the financial community as a principal source of news, advertising, and subscriber circulation. The taxpayer's Ticker Service was an allied news service furnished by wire and teletype.  The petitioner takes the position that certain events caused a temporary and unusual depression of the financial*74  community with the direct result that the taxpayer thereby suffered a temporary and unusual loss of advertising customers of the Wall Street Journal (as distinguished from any cause attributable to ordinary business hazards) which constituted temporary economic circumstances causing a base period depression of the taxpayer's business.The taxpayer contends that its excess profits taxes are excessive and discriminatory in that its average base *75  period net income is an inadequate standard of normal earnings because of the following alleged qualifying factors:(1) That the taxpayer's business was severely depressed during the base period as evidenced by its low average base period earnings of $ 230,354 as compared to its long-term 1922-39 average earnings of $ 594,366.(2) That those base period depressed earnings were caused by the economic circumstance of the loss of a substantial part of the Wall Street Journal's financial advertising linage and revenue and by depression of its circulation.(3) That such economic circumstance resulted from the repercussion of an acute depression in the financial community caused by the convergence, prior to and during the base period, of a series of events which were both unusual in nature and temporary in their effect upon the financial community.(4) That the economic circumstance affecting the taxpayer was unusual in that no such loss of advertising and depressed circulation, comparable in cause and effect, has ever occurred previously in the Journal's history.(5) That the economic circumstance affecting the taxpayer was temporary as evidenced by the facts that by 1943*76  the Journal had recaptured or replaced its lost advertising customers and circulation *125  showed a substantial increase, and, also, that by 1943 the taxpayer had regained a level of earnings (before an ordinary loss deduction of $ 598,293 on sale of property used in the business) approximating its long-term average earnings.The petitioner relies upon the comparison of base period averages with long-term averages in regard to various aspects of the taxpayer's business to establish that it was depressed in the base period because of the alleged temporary economic circumstance of the Wall Street Journal's substantial loss of advertising customers and revenues and, also, depressed subscriber circulation. The petitioner relies upon the facts of record in regard to various events adversely affecting the closely associated financial community to establish the external cause of the taxpayer's alleged temporary and unusual loss of a principal group of customers subsequently replaced with new customers. The petitioner cites Southern California Edison Co., 19 T.C. 935">19 T.C. 935 (1953); Ainsworth Manufacturing Corporation, 23 T.C. 372">23 T.C. 372 (1954);*77  and Boonton Molding Co., 24 T.C. 1065 (1955), as authority for the granting of relief in the instant case.In considering the petitioner's contention that the business of the taxpayer was "depressed in the base period," we must look beyond a mere comparison of low average base period earnings to long-term average earnings, for, as we said in Harlan Bourbon & Wine Co., 14 T.C. 97">14 T.C. 97, 104 (1950), "a mere failure to maintain a given level of earnings does not establish a depression of earnings within the meaning of section 722." Also, as we recently pointed out again in Orangeburg Manufacturing Co., 37 T.C. 251">37 T.C. 251 (1961), the term "depressed" involves comparison with that which is standard and normal.  Petitioner here places too much reliance on the abnormal earnings it enjoyed during the late twenties when the financial community, its customers, enjoyed an unparalleled and extraordinary prosperity.  Those levels of business and earnings were admittedly not normal in the experience of petitioner or its customers, and cannot, therefore, control our determination here.  If the years 1927-30 are eliminated*78  as abnormal ones, the revenues, advertising, circulation, and earnings of the base period years all appear to be within normal limits in the light of the circumstances which prevailed throughout the rest of the thirties.A study of the whole record convinces us that a comparison of base period averages to long-term averages is not all that is required to resolve the questions presented here.  Accordingly, we have made rather extensive and detailed findings of fact in order to present the full picture of the condition of the taxpayer's business and the activities and financial situation of its customers during many years prior to, during, and after the base period. In our view, the taxpayer suffered *126  a comparatively low level of earnings not only during the base period, but over an extended period of time, which embraced several years prior to the base period and continued uninterruptedly during that 4-year 1936-39 period and even thereafter until about 1943.  It is apparent that the taxpayer lost a substantial group of subscribers, circulation revenue, advertising customers, and advertising revenue long prior to the base period and that the cause thereof may not be characterized*79  as temporary.This is dramatically illustrated by the following figures showing the Wall Street Journal's financial advertising linage for the base period and other years indicated:1931993,2891932490,2451933398,2211934413,9201935468,9751936587,2081937538,9511938379,6421939416,5571940440,9141941444,5841942384,342The same is true of circulation, the evidence being as follows:193141,619193231,195193328,696193428,214193526,041193631,762193735,551193832,400193929,742194029,223194130,004194233,651Petitioner's principal argument that its base period income was depressed and does not accurately reflect normal earnings because of temporary economic circumstances -- to wit: The loss of revenue from circulation and financial advertising because of the unusual situation in the financial community -- does not stand up.  In two of the base period years, 1936 and 1937, the financial advertising linage in the New York edition of the Wall Street Journal was substantially greater than it was in the immediately preceding 3 years or in the immediately succeeding 5 years.  In 1938 there was a general business recession*80  which adversely affected the business of the petitioner and all of its customers. In the last year of the 4-year base period, 1939, the said linage was greater than in 2 of the 3 years immediately preceding the *127  base period, greater than 1 of the 3 years immediately succeeding it, and approximately equal to the average financial linage for the last-mentioned 3-year period.  The average financial advertising linage for the 4 base period years was approximately 480,000 as compared to only 425,000 for the other 6 years of the decade from 1933 to 1943.  Financial advertising in the base period years was therefore approximately normal for the petitioner when compared to the rest of the decade, and not substantially less than the average of 520,000 for the 9 years 1931-39, the period immediately following the abnormally high linage of the late 1920's and 1930.  The same conclusions are justified with respect to circulation of the Journal.  The base period average of 32,000 units is slightly more than the average for the period 1931-39 of 31,000.  Any deficiency in earnings during the base period was therefore not due to temporary economic circumstances unusual in the case*81  of the taxpayer during the base period, but rather to the extended and long-lasting recovery of the financial community from the palmy days of the late twenties, the 1929 market crash, and the acceptance of the newly enacted SEC legislation.The circumstances involved herein clearly distinguish the instant case from Southern California Edison Co., supra;Ainsworth Manufacturing Corporation, supra; and Boonton Molding Co., supra, wherein customers were lost only in the base period because of events which occurred suddenly and unexpectedly.The record shows that due to speculation there was an abnormally high degree of activity in the various aspects of the securities markets during the late 1920's which was reflected in greatly increased business of the financial community. Also, during the late twenties the taxpayer experienced an abnormally increased amount of financial advertising linage and revenue as compared to earlier years.  The business of the financial community continued to be depressed after the market crash by the general depression of the early thirties and thereafter from about*82  1934 to 1939 was more or less continuously and adversely affected by the resultant effects of investigations, adverse publicity, and the innovation of governmental regulation with regard to the issuance and marketing of securities.  The lack of public confidence in the financial community prolonged the entire recovery process.  The earnings of the members of the financial community (which are affected, inter alia, by volume of trading, number of new issues of securities, and market prices) were generally depressed during the entire decade.  We need not speculate on the degree of such depression in any particular year or years since it is clear that the financial community curtailed its financial advertising linage for many years after 1930, and in turn the taxpayer sustained a loss of financial advertising customers and revenues throughout the thirties and into the early forties.*128  The crucial facts in this case are that, as compared to a very high level of earnings during the late twenties, the taxpayer sustained varying degrees of depressed levels of earnings beginning in 1931 (a year remotely related to the base period) and continuing throughout the thirties because*83  of a series of circumstances and events which were of prolonged duration throughout the thirties and not of a temporary nature in the base period years.  As we have already pointed out, the record shows clearly that financial advertising linage in the base period was not substantially less than for the immediately preceding 5-year period 1931-35, or the immediately following 3-year period 1940-42.  This demonstrates that as compared to the several abnormally high years prior to 1931, the amount of the Journal's financial advertising and revenue had reached a lower level which continued for over a decade under all of the circumstances then obtaining.  The tremendous popularity of financial advertising of the late twenties just did not survive the twenty-nine crash or revive during the following decade.In numerous prior cases in which there was a showing of low base period earnings or even losses, this Court has denied relief where there was a failure to establish that the business of the taxpayer was depressed in the base period because of temporary and unusual economic circumstances within the meaning of section 722(b)(2).  See Monarch Cap Screw & Manufacturing Co., 5 T.C. 1220">5 T.C. 1220 (1945);*84 El Campo Rice Milling Co., 13 T.C. 775">13 T.C. 775 (1949); Harlan Bourbon & Wine Co., supra;Toledo Stove & Range Co., 1125">16 T.C. 1125 (1951); Dr. P. Phillips Canning Co., 1222">17 T.C. 1222 (1952); Kentucky Whip & Collar Co., 19 T.C. 743">19 T.C. 743 (1953); Mitchell & Co., 20 T.C. 110">20 T.C. 110 (1953); Seeck & Kade, Inc., 28 T.C. 971 (1957); and Emporium World Millinery Co., 32 T.C. 292 (1959).In one of our most recent decisions, A. Finkl & Sons Co., 38 T.C. 886 (1962), denying 722(b)(2) relief, we reviewed the authorities and discussed the applicable principles, concluding as follows:In any event, where taxpayers seek to prevail under 722(b)(2) they must identify the alleged "temporary economic circumstance" and demonstrate its causal connection with the depression in base period earnings. Trunz, Inc., 15 T.C. 99">15 T.C. 99, 103 (1950); George Moser Leather Co., supra at 840; Miami Valley Coated Paper Co., 28 T.C. 492">28 T.C. 492, 498 (1957).*85 The event usually relied upon is the loss of one or more members of a small group of major customers. Southern California Edison Co., supra;Ainsworth Manufacturing Corporation, supra;Boonton Molding Co., supra;Empire Construction Co., 31 T.C. 857 (1959). See S. N. Wolbach Sons, Inc., 22 T.C. 152">22 T.C. 152 (1954), for other possible (b)(2) events.  Under all these cases it is clear that the reason for such loss must be some unusual, drastic, nonrecurring event and not simply the operation of normal competitive forces.  For example, in Ainsworth Manufacturing Corporation, supra, the majority of the taxpayer's business was derived from the sale of *129  brakeshafts to Ford and adjustable windshields to Ford and Chrysler.  Both were excellent customers. With little advance warning both customers discontinued use of these products.  The taxpayer's plant had been built especially to mass-produce these articles.  We granted relief with the observation (23 T.C. at 375): The evidence indicates*86  rather clearly that the earnings of the petitioner, in all probability, would have fluctuated during the base period about in proportion to the average earnings of the industry of which it was a part if the discontinuance of the use of the brakeshafts and adjustable windshields by Ford and Chrysler had not occurred during that period; the earnings of the petitioner fell off to a much greater extent during 1938 and 1939 than they otherwise would have; the unusual falling off of those earnings was due primarily to the loss of the brakeshaft and adjustable windshield business formerly received from Ford and Chrysler; that falling off was temporary and peculiar to the petitioner and perhaps one or two other manufacturers subjected to the same blow; and it was unusual in that nothing even closely comparable in cause, magnitude, and effect had ever occurred in the petitioner's history. * * *If the taxpayer can show only a general depression and is unable to isolate the particular causative external economic event the inference to be drawn is that the decline is due to normal competitive or cyclical factors and therefore relief will be denied. Miami Valley Coated Paper Co., supra;*87  see also Overland Corporation, 34 T.C. 1001">34 T.C. 1001, 1048 (1960) where we said: Not every external cause of depressed earnings is a ground for relief under section 722.  The existence of a general business recession in 1938 is not sufficient to justify excess profits tax relief under section 722(b)(2). Brown Paper Mill Co., 23 T.C. 47">23 T.C. 47; Industrial Yarn Corporation, 16 T.C. 681">16 T.C. 681; Bulletin on Section 722, p. 17.Petitioner served a diversified group of customers, there being no one or few customers upon whom it was especially dependent.  Thus it is highly dubious that the loss of any particular customer due to unusual factors cognizable under (b)(2) would have had any serious repercussions upon the overall profitability of petitioner's business.  On this point, cases such as Southern California Edison Co., Ainsworth Manufacturing Corporation, and Boonton Molding Co., all supra, are distinguishable.  Moreover, petitioner has not produced the slightest evidence that any customers were lost due to unusual events nor has there been demonstrated, of record, any other factor apart from the*88  operation of the normal rules of supply and demand and the usual fluctuations in the business cycle which could have caused a temporary depression in 1936-1939 earnings and thus lead us to conclude that petitioner's base period earnings were an inadequate standard of normal earnings.Petitioner's situation seems indistinguishable here.  The financial community suffered a prolonged decline in its business activities throughout the thirties and with it the petitioner's business inevitably suffered, too.  No showing of particular, external economic events has been made from which we might conclude that petitioner's base period earnings are an inadequate yardstick of its normal earnings. As our findings clearly indicate the loss of earnings suffered by petitioner *130  because of a decline in circulation and financial advertising in the base period years was merely the inevitable consequence of a prolonged period of doldrums in the business of the whole financial community. Petitioner has not shown a loss of one or more members of a small group of important customers, and it disavows any claim that it belonged to a depressed industry.  All of its customers, being affected by the*89  long-term financial sluggishness of the thirties, cut down on their advertising, services, subscriptions, and other business done with petitioner.  As we study the record presented here, this was long standing, protracted, and general rather than unusual, temporary, nonrecurring, or peculiar to the base period years of this petitioner.The reliance of petitioner on our decision in Dyer Engineers, Inc., 10 T.C. 1265">10 T.C. 1265 (1948), is misplaced.  That case is readily distinguishable on the facts.  There, we recognized a distinction between changes in conditions brought about by legislation, which we have long held do not give rise to relief under section 722, and changes brought about by temporary reactions to legislation which depress a taxpayer's earnings. In Dyer the taxpayer proved that labor was vigorously antagonistic to its business operations and opposed the introduction and use of the Dyer systems in plants of its employers.  It was this direct reaction of labor, following enactment of the Wagner Act, against the taxpayer's business that was held to be a temporary economic circumstance that depressed the base period business of the petitioner there. *90  Such temporary reactions following legislative action are distinguishable from the situation disclosed by the record here.  Cf.  Orangeburg Manufacturing Co., supra;Kentucky Whip & Collar Co., supra.Upon a consideration of the whole record in the instant case, we conclude that the business of the taxpayer was not "depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer" (emphasis supplied) within the meaning of subsection (b)(2) of section 722.  The taxpayer has been allowed the relief provided for under section 713(e)(1) whereby the actual average base period net income was increased by substituting for the 1938 deficit an amount equal to 75 percent of the average for the other base period years.Since we have concluded that the taxpayer has failed to qualify for relief, there is no need to discuss the petitioner's proposed constructive average base period net income.The respondent's determination of disallowance, in full, of petitioner's claims for section 722 relief and for refund of excess profits taxes for the years 1944 and 1945, is sustained.Reviewed by*91  the Special Division.Decision will be entered for the respondent.  Footnotes1. Unless otherwise noted, all Code references are to the Internal Revenue Code of 1939, as amended.↩2. Petitioner specifically disavows on brief any claim to relief on the ground that it was a member of a depressed industry, i.e., the financial community or industry.↩1. After deduction of an ordinary loss of $ 598,293 on sale of property used in trade or business.↩3. Under sec. 713(e)(1)↩ the actual ABPNI was increased by substituting for the 1938 deficit, an amount equal to 75 percent of the average for the other years.1. After deduction of an ordinary loss of $ 598,293 on sale of property used in trade or business.↩1. Calendar year averages as of end of year per audit reports of Clifford Yewdall, petitioner's certified public accountant.  Reports not made after 1942.↩2. Average of 4 quarters of each calendar year as audited by Audit Bureau of Circulations.↩1. Figures as of Oct. 1 of each year.Sources: Historical Statistics of the United States, Colonial Times to 1957, p. 500, Series R 169-172.↩4. SEC. 722.  GENERAL RELIEF -- CONSTRUCTIVE AVERAGE BASE PERIOD NET INCOME.(a) General Rule.  -- In any case in which the taxpayer establishes that the tax computed under this subchapter (without the benefit of this section) results in an excessive and discriminatory tax and establishes what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax based upon comparison of normal earnings and earnings during an excess profits tax period, the tax shall be determined by using such constructive average base period net income in lieu of the average base period net income otherwise determined under this subchapter.  In determining such constructive average base period net income, no regard shall be had to events or conditions affecting the taxpayer, the industry of which it is a member, or taxpayer generally occurring or existing after December 31, 1939, * * *.(b) Taxpayers Using Average Earnings Method.  -- The tax computed under this subchapter (without the benefit of this section) shall be considered to be excessive and discriminatory in the case of a taxpayer entitled to use the excess profits credit based on income pursuant to section 713, if its average base period net income is an inadequate standard of normal earnings because --* * * * (2) The business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer or because of the fact that an industry of which such taxpayer was a member was depressed by reason of temporary economic events unusual in the case of such industry.↩5. Regulations 112, sec. 35.722-2(b)(8), after stating that no exclusive definition of the concept "industry" can be constructed, provides in part: In general an industry may be said to include a group of enterprises engaged in producing or marketing the same or similar products or services under analogous conditions which are essentially different from those encountered by other enterprises.  * * *Also, see Crane Co. of Minnesota, 25 T.C. 727">25 T.C. 727, 760, and Pabst Air Conditioning Corporation, 14 T.C. 427">14 T.C. 427, 428↩.