
    Silver King Consolidated Mining Co. of Utah, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 15153.
    Promulgated September 10, 1927.
    Invested capital may not be reduced, in determining tlie extent to which a dividend is paid from current earnings of the year, by an estimated tax theoretically set aside out of such earnings.
    
      Robert N. Miller, Esq., for the petitioner.
    
      A. II. Murray, Esq., for the respondent.
    The Commissioner has determined a deficiency in income and profits taxes for the 11-month period ended December 31, 1917, in an approximate amount of $2,000.
    The question involved is the correctness of the Commissioner’s action in deducting from current earnings available for the payment of dividends an amount on account of Federal income and profits taxes for the taxable period, which amount is generally referred to as a “ tentative tax.”
    . FINDINGS OF FACT.
    The following stipulation was entered into by the parties and filed with the Board:
    I.
    The taxpayer is a Utah corporation with its principal offices at Kearn Building, Salt Lake City, Utah.
    II.
    The notice of deficiency, a copy of which is attached to the taxpayer’s petition, was mailed to the taxpayer on February 4, 1926.
    III.
    The taxpayer duly filed its appeal with the United States Board of Tax Appeals on April 27, 1926, which was within sixty days after February 4, 1926.
    
      IV.
    The only issue before the Board is whether or not in determining the current earnings available for the payment of dividends there should be charged against the earnings during the period any amount on account of Federal income and profits taxes for the taxable period, and if such a charge should be made, whether or not the amount thereof should be the so-called “ tentative tax” hereinafter described. The determination of the current earnings available for dividends paid during the taxable period is necessary in order to determine the amount by which the invested capital for the taxable period should be reduced by reason of the payment of dividends in excess of current earnings available for the payment of such dividends.
    V.
    The taxpayer declared and paid dividends in the following amounts, which dividends were made payable as of the dates set opposite the respective amounts:
    March 31, 1917 $103,287.15
    June 30, 1917— 103,287.15
    Oct. 1, 1917_ 103, 287.15
    Dec. 31, 1917— 68,858.10
    VI.
    The net book income for the eleven months’ period ended December 31, 1917, before any charge on account of Federal income and profits taxes for the aforesaid period was $291,339.17 and was earned ratably over the period.
    VII.
    The dividends paid during the period as aforesaid in V. exceeded the available current earnings of the taxpayer corporation and it is agreed that to the extent of such excess the said dividends were paid out of prior years’ surplus and that by reason of that fact the invested capital for the eleven months' period ended December 31, 1917, should be approximately reduced.
    VIII.
    In determining the current earnings available for payment of the dividends the Oommissioner reduced the aforementioned earnings of $291,339.17 for the eleven months’ period by the sum of $84,125.71, tentative income and profits tax, and the remainder he held to be available for the payment of dividends at the dates of such payments in the proportion which the number of months and fractions thereof from the beginning of the taxable period to the dates of payments of dividends bears to the total number of months in the period.
    IX.
    There are attached hereto and made a part hereof two computations of the income and profits taxes for the period ended December 31, 1917. One computation is made by employing the adjustments on account of the “ tentative ” tax, being designated Exhibit 1; and the other is made without employing the adjustments on account of the “ tentative ” tax, being designated Exhibit 2.
    
      x.
    If, as a matter of law, the aforementioned tentative tax should he charged against earnings in determining the amount of current earnings available for the payment of dividends during the taxable period then the reduction of invested capital made in Exhibit 1 attached hereto and the deficiency therein set out are correct.
    XI.
    If, as a matter of law, the aforementioned tentative tax should not be charged against earnings for the taxable period in determining the earnings available for the payment of dividends, and if, as a matter of law, no charge against earnings of the taxable period on account of Federal income and profits taxes for the said period should be made then the computation of the deficiency set out in Exhibit 2 hereto attached is correct.
    XII.
    If, as a matter of law, there should be a charge against the earnings for *be taxable period on account of Federal income and profits taxes in determining earnings available for the payment of dividends but the tentative tax aforementioned does not represent the correct charge against such earnings then a recomputation of the deficiency will be necessary upon whatever basis or by whatever method the Board’s decision may direct.
    XIII.
    It is further stipulated that, subject to the pleasure of the Board, this case is submitted for a decision at the convenience of the Board without hearing or argument.
    Exhibit 1 referred to in paragraph IX of the above quoted stipulation contains a computation of the tax with adjustment on account of a tentative tax determined to be $84,125.71. The tax liability determined by this method is $87,498.68, of which amount $85,666.08 has been paid. There having been heretofore assessed $88,028.84, the computation provides for the abatement of $530.16 and leaves to be paid $1,832.60.
    Exhibit 2 also referred to in paragraph IX of the above quoted stipulation contains a computation of the tax without adjustment on account of the tentative tax. This computation discloses a tax liability of $84,125.71 and a payment of $85,666.03. The sum of $88,028.84 having been heretofore assessed, the computation shows the sum of $2,362.81 to be abated and $1,540.32 to be refunded.
   OPINION.

Aeundell :

The question of law raised by the stipulation of the parties has already been decided by the Board in the Appeal of L. S. Ayers & Co., 1 B. T. A. 1135. This decision has been consistently upheld. We there held that the invested capital of a corporation may not be reduced in determining the extent to which a dividend is paid from current earnings of a year by a so-called tentative tax. It follows that the tax liability herein should be computed without adjustment on account of a tentative tax. Based on the facts as stipulated the tax liability is determined to be $84,125.71. As there has heretofore been assessed $88,028.84 and a payment of $85,666.03 has been made, there is an overpayment in the amount of $1,540.32 and in addition an overassessment in the amount of $2,362.81.

Judgment will be entered for the fetitioner on the issues raised, after 15 days' notice, under Rule 50.

Considered by Sterniiagen and Murdock.  