
    L. B. Menefee Lumber Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 2851.
    Promulgated January 17, 1928.
    
      Charles E. McCulloch, Esq., and Ivan D. Phipps, Esq., for the petitioner.
    
      Warren F. Wattles, Esq., for the respondent.
   OPINION.

Arundell :

The petitioner does not question the action of the Commissioner in excluding from invested capital the value of shares of stock in the Baldwin Sheep Co. and the Northwestern National Bank of Portland on the ground that they are inadmissible assets in determining invested capital under the statutes. Nor does the petitioner contend that borrowed money, as such, is an admissible asset for invested capital purposes. What is questioned is the action of the Commissioner in excluding from invested capital the item of $163,886.17 prior to June 10, 1918. As set forth in the findings of fact, petitioner was indebted to its principal stockholder, Menefee, in the sum of $163,886.17, which indebtedness was .liquidated by turning over to him shares of stock in the Baldwin Sheep Co. and the Northwestern National Bank. Inasmuch as the settlement between the parties was made effective as of January 1, 1918, although entered into on June 10, 1918, we are asked to accept the former rather than the latter date and to allow the item of $163,-886.17 in invested capital from January 1, 1918. We are of the opinion that the fact that interest was not charged after January 1, 1918, and that all dividends declared and paid on the stock of petitioner from that date shall inure to Menefee were considerations for the stock sale and did not have the effect of changing the indebtedness from an interest-bearing to a noninterest-bearing obligation, or in any way alter the fact that the fund was borrowed capital prior to June 10, 1918. The real purpose of antedating the stock sale to January 1, 1918, was to provide a date from which to determine the rights and liabilities of the parties to the sale with respect to interest on the debt and dividends on the stock. But this does not affect the fact that the indebtedness continued in existence until June 10, 1918.

Judgment will be entered for the respondent.  