
    Appeal of THE FIBRE CONDUIT CO.
    Docket No. 5001.
    Decided September 30, 1926.
    Evidence held insufficient to show that certain expenditures involved herein should be capitalized.
    
      Edward T. Perine, O. P. A., for the petitioner.
    
      W. Franh Gibbs, Esq., for the Commissioner.
    This appeal is from the determination of a deficiency in income and profits taxes for the year 1919 in the amount of $1,506.64. The deficiency arises from the refusal of the Commissioner to include in the taxpayer’s invested capital for the year 1919 the amount of $52,591.91, claimed by the taxpayer to represent capital expenditures made by it in prior years.
    FINDINGS OP PACT.
    The taxpayer is a New York corporation with its principal office and place of business at Orangeburg, N. Y., and is engaged in the manufacture of conduits.
    The only evidence presented is a copy of a report made by a revenue agent under date of November 19, 1924, of his examination of the taxpayer’s books.
    
      Tlie pertinent parts of the report are as follows:
    Tlie point at issue is wlietlier tie amount of $52,591.91 disallowed in 1909, should be restored to invested capital. In the Company’s protest dated June 4, 1924, it was claimed that in 1909 they were disallowed depreciation amounting to $35,900.69 which was claimed as an addition to invested capital. The Department had at first disallowed their entire deduction of $52,591.91 and then allowed them the amount of $16,691.22.
    As explained under Exhibit A-l, the amount of $52,591.91, was disallowed not as depreciation but as “prior year expense.” Taxpayer has admitted that their claim for restoring the amount of $35,900.69 to invested capital as “ depreciation disallowed ” was incorrect. They now claim that it should be restored under Article 841, as the amount of $52,591.91 was a capital item on their books headed as “ improvements ” which they wrote off in 1909 and disallowed by the Department.
    However, the amount of $52,591.91 was correctly disallowed in 1909 as “ prior year expense ” and as such should not be restored to invested capital. This is shown by the analysis below of the “ Improvement Account.”
    
      Improvement aect.
    
    DEBITS. CREDITS.
    1-1-1896:
    Alterations and repairs- $1, 028.47 Library_ 26. 65 Interest and discount- 5, 963. 67 1- 1-1896, Depreciation_$5, 000. 00 2- 1-1896, Pitch_ 120. 00 12-19- 07, Depreciation_ 3, 500. 00
    Office expense_ 3,100.13 Laboratory_ 677. 54 1- 1- 08, Balance_ 52,591.91
    Alterations and repairs- 80. 39
    Library_ 20. 00
    Wages_ 10,373.68
    Salaries_ 7, 553. 30
    Insurance_ 125. 03
    Interest and discount_ 143. 86
    Office expense_ 4, 879.34
    Factory expense_ 18, 654. 77
    Freight and express_ 1, 306. 50
    Manufacturing_ 7,160. 83
    Legal_ 117.75
    61,211.91 61,211.91
    The company was organized in 1893 and all expenses incurred up to December 31, 1895 were capitalized in the above account with the following journal explanation.
    January 1, 1896: Balances of above accounts represent labor and expenses of installing machinery and fitting plant, alterations and repairs, exploitation and laboratory work, including profit and loss and .all expenses incidental to organization and development.
    In 1909 company deducted $52,591.91 as depreciation — actually there was no depreciation charged oil the books that year at all. The amount of $52,591.91 really represented all expenditures of the company from the time of incorporation in 1893 up to the year 1896, all of which were capitalized under the heading of “ Improvements ” in 1896. In 1909 this item was written off to profit and loss, but for the purpose of the corporation Excise Tax Return it was termed “ Depreciation.”
    When the return for the year 1909 was examined the total amount was disallowed as it represented expenses properly chargeable to prior years. However, since no depreciation had been taken that year and company made a claim for same, it was computed by examining officer and was allowed in the amount of $16,691.22. The year 1909 was closed on the following basis:
    Prior year expense disallowed_$52, 591. 91
    Depreciation allowed_ 16, 691.22
    Additional Income_ 35, 900. 69
    Since the amount of depreciation allowed for this year was never put through the books, it has been mad^ part of the above adjustment.
    The Commissioner, upon audit of the taxpayer’s income and profits-tax return for the year 1919, refused to include in the taxpayer’s invested capital the amount of $52,591.91 mentioned in the revenue agent’s report, or any part thereof, and determined that there is a deficiency in tax in the amount of $1,506.64.
   OPINION.

Marquette

: The taxpayer alleged in its petition that the amount of $52,591.91 involved herein represents expenditures made by it prior to the year 1896 for organization, experimental and laboratory work and in development necessary to establish the company and its business; that these expenditures were of a capital nature and that the amount thereof should be included in its invested capital for the year 1919.

The Commissioner in his answer denied the material allegations of the taxpayer’s petition, and it is therefore incumbent upon the taxpayer to establish by competent evidence the facts alleged in order to entitle it to the relief sought. The only evidence presented is a copy of a report of an investigation of the taxpayer’s books made by a revenue agent, the material part of which is set forth in the findings of fact. Assuming all of the statements made in the report to be true, it nevertheless falls short of showing that the $52,591.91 in .question should be included in the taxpayer’s invested capital. There is nothing in the pleadings or the evidence which would warrant us in disturbing the Commissioner’s determination.

Judgment for the Commissioner.  