Court Opinion

ID: 4490726
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:30.702772+00
Date Added: 2024-06-11T15:02:51.584834
License: Public Domain

*424OPINION.
Graupner:
The contentions of the taxpayer are stated above. Nothing was offered at the hearing in regard to the relief which the petition states was requested in a brief and we need not consider that allegation further.
The first assignment of error raises the question as to whether the taxpayer is entitled under section 326 of the Revenue Act of 1918 to include in its invested capital 25 per cent of the capital .stock issued in payment for assets acquired from the predecessor corporation, or whether the patents thus acquired should be included in invested capital at an amount in accordance with section 331 of the Act. The Commissioner disallowed the claimed value of the patents for invested capital purposes and computed the tax under section 331 on the finding that 50 per cent or more of the control or interest in the taxpayer remained in the same persons as in the predecessor corporation. No showing was made by the taxpayer that this finding of the Commissioner was erroneous. On this point we have only to determine, then, what amount the predecessor corporation might have included in its invested capital with respect to the patents which it turned over to the taxpayer. This is to be based on the cost of acquisition thereof, including development expenses.
Of the two patents acquired by the taxpayer from its predecessor, evidence was introduced as to the cost of only one. For this one the corporation paid Dammonn $7,000, and we are of opinion that this represents its investment therein for invested capital purposes.
The evidence shows that the value of $90,000 placed upon the patents by the taxpayer in its balance sheets, and in which sum it issued capital stock therefor, was merely an estimate of the money and labor expended in acquiring the patents. It also appears from an examination of the record that the taxpayer’s principal witness was somewhat in doubt as to the number of patents this claimed valuation covered. On the evidence we can not find that the cost of acquisition of the patents, including the development expenses to the predecessor corporation, was in excess of $7,000.
The second question here involved is whether the taxpayer is entitled to a deduction from gross income for depreciation of patents. Such deduction, where allowable, must be based on actual cost. On the evidence we hold that the one patent had a value at the date of acquisition of $7,000 and that, as to the other patents, the evidence is insufficient to establish value. The taxpayer is entitled to a deduction for depreciation on the basis of $7,000 as the value of this one patent at the date of its acquisition by the predecessor corporation.
On reference to the Board, ARUndell took no part in the consideration.