
    Northern Woodenware Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 14513.
    Promulgated April 17, 1928.
    
      Fred A. Shean, O. P. A., for the petitioner.
    
      L. 0. Mitchell, Esq., for the respondent.
   Muedock:

This is a proceeding for the redetermination of a deficiency in income and excess-profits taxes for the year 1920, in the amount of $2,902.79. It is alleged that the Commissioner erred in treating the excess of the book value of the capital assets, over the amount paid for the same, as appreciation. It is further alleged that in pursuance of this determination invested capital was erroneously reduced and the corporation deprived of depreciation on the value of its capital assets.

The petitioner is a corporation organized under the laws of the State of Maine, with its principal office in Aroostook, in that State. It was organized on July 26, 1917, for the purpose of manufacturing clothespins, wood bowls and baskets, and at .some undisclosed time it purchased from the Mattawamkeag Lumber Co. certain assets consisting of buildings, land, machinery and equipment, for $60,000 in cash.

The Mattawamkeag Lumber Co. was owned by two men, Milliken and Emerson. Emerson became treasurer of the petitioner. This company’s mill was erected in 1916 and with its machinery installed, cost $67,279.75. This original cost, plus additions through 1917, and less depreciation in 1917, was $68,991.37. The company owned nothing but the mill. Its machinery was suitable for the manufacture of soft woods only. The mill bought its supply of timber in the open market, wherever it could. The supply of soft woods in that locality was rapidly drawing to a close and under ordinary circumstances would have been exhausted in less than ten years. The Mattawamkeag Lumber Co. desired to purchase some machinery for the manufacture of hardwood and entered into negotiations with a man named Smith who owned such equipment. The Mattawam-keag Co. offered to sell its mill to a new corporation to be formed, at a price of $60,000, on January 1, 1918, or $50,000 in January, 1919. On July 1, 1917, all parties concerned agreed to organize the petitioner with an authorized capital stock of $200,000, which would pay Smith $60,000 for his hardwood machinery and pay the Mat-tawamkeag Lumber Co. $60,000 for its plant and equipment. This was done.

The petitioner thereafter entered the assets received from the Mattawamkeag Co. on its books at a value of $184,000. For the purposes of invested capital and exhaustion the Commissioner has determined that $60,000 was the value of the assets acquired by the petitioner from the Mattawamkeag Lumber Co. The petitioner contends that this value should be $134;000. But from the evidence we are unable to find that the assets in question had any greater value than $60,000. So far as the evidence discloses, the writing up of these assets from $60,000 to $134,000 was purely arbitrary and not warranted by the actual value of the assets. The evidence leaves us in doubt as to a great many facts which might be material to the issue, but we do know that the depreciated cost of these assets at the end of 1917 was $68,991.37, and that they were sold to the petitioner at some undisclosed time for $60,000 in cash.

Judgment will he entered for the respondent.  