
    F. T. Kuehne Flavoring Extract Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 12631.
    Promulgated October 9, 1928.
    
      Sterling P. King, Esq., and Wm. Alexander Allen, Esq., for the petitioner.
    
      J. E. Marshall, Esq., for the respondent.
   SiefkiN:

This is a proceeding for the redetermination of a deficiency in income and profits tax for th® calendar year 1921 in the amount of $2,300.67. That part of the deficiency which results from the disallowance of a deduction of $6,000, designated by the petitioner on its return as “ obsolescence,” is in controversy, all other questions having been waived by the petitioner at the hearing.

The petitioner is a Missouri corporation with its office and place of business in St. Louis,' and was organized in 1906 to manufacture and sell flavors, extracts, and fruit' syrups. On organization it purchased for $10,000 “ all the goods, merchandise, recipes, formulae, and prescriptions now belonging to and owned by Frederick T. Kuehne in conducting a flavoring extract business.” The purchase price was paid by the issuance of all the shares of capital stock of the petitioner, except qualifying shares. The tangible assets so transferred to the petitioner consisted of stocks on hand, office safe and furniture of a value of about $2,000. In its corporation excise-tax return for 1909 the petitioner reported a net income of $300; for 1910, a loss of $675; for 1911, a net income of $496.15; and for 1912 a net income of $692.01. The petitioner’s income-tax return for 1913 reported a net income of $931.60.

Included in the formulae transferred to the petitioner by F. T. Kuehne in 1906 were five formulae for rum, extract of apricot, extract of apple, extract of peach and extract of catawba grapes. Under date of August 25, 1921, the petitioner was notified by the Federal Prohibition Director of Missouri of the limitations prescribed by Prohibition Mimeograph No. 205 on the percentage of ethers or esters in flavoring extracts. The petitioner, as the result of such notification, modified the above formulae. The petitioner’s sales were $87,559.27 in 1921, and $40,738.96 in 1922.

The petitioner claimed a $6,000 deduction from gross income in its return for 1921 for obsolescence of its formulae. The respondent disallowed such deduction.

We have no satisfactory evidence either to show a value to the formulae as of March 1, 1913, or that the formulae affected by the action of the Prohibition Commissioner constituted any certain part or all of the intangibles acquired on incorporation from F. T. Kuehne. The evidence is also far from convincing either that the petitioner actually suffered a loss by reason of the changes prescribed in its formulae or the amount thereof. We approve the action of the respondent in disallowing the deduction.

Judgment will he entered for the respondent.  