
    Pittsburgh Valve, Foundry & Construction Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 9089.
    Promulgated March 10, 1927.
    
      Walter W. MeV ay, Esq., for the petitioner.
    
      W. H. Lawder, Esq., for the respondent.
    This is a proceeding for the redetermination of a deficiency in income and profits tax for the year 1920. The petitioner alleges error on the part of the respondent (1) in decreasing invested capital for the year 1920 in the amount of $14,549.35, which is the amount by which earnings available for the purchase of stock and/or for the payment of dividends were reduced by a so-called tentative tax which the respondent determined to have accrued as at the several dates upon which stock was purchased and/or dividends paid; (2) in decreasing surplus as at the beginning of the year in the computation of invested capital by $106,048.88, on account of the payment of $251,658.48 income taxes during 1920.
    
    FINDINGS OF FACT.
    1. In determining invested capital for 1920, the respondent indicated the correct net income for the year to be $291,099.11. From said income the respondent then deducted a tentative tax in the amount of $39,874.05. The respondent thus determined the earnings available for the purchase of stock and/or the payment of dividends to be $251,225.06. On March 31,1920, the petitioner paid a dividend in the amount of $17,250; on May 31, 1920, $5,146.50; on June 30, 1920, $17,230; August 31, 1920, $741.50; September 30, 1920, $35,073; December 31, 1920, $43,750. On June 1, 1920, the petitioner purchased its stock in the amount of $115,170, and thereafter purchased stock as follows: On June 3, $550; on June 4, $1,540; on June 10, $1,870; on. June 17, $660; on June 18, $9,900; on June 29, $99,000; on June 30, $6,270; on July 1, $14,630; on July 6, $54,340; on July 9, $2,420; on July 22, $50,050; on August 11, $5,060; on August 12, $220; on August 16, $5,500; on August 18, $2,530; on August 23, $1,111; and on August 27, $6,600. As at each of the dates of the several stock purchases and dividend payments the respondent determined the amount of current earnings available for the purchase of said stock and dividend payments, and the excess amount of stock purchased or dividend payments over the earnings available was then prorated in determining invested capital.
    2. In the determination of invested capital for the year 1920 the respondent reduced surplus as at the beginning of the year by $106,048.88, on account of the payment of $251,658.48 income taxes during 1920, covering the preceding taxable year 1919.
   OPINION.

Smith :

The respondent was in error in reducing invested capital by a tentative tax in the manner indicated in the findings of fact. Appeal of L. S. Ayers & Co., 1 B. T. A. 1135..

The Commissioner correctly reduced earned surplus in each of the years by the prorated amount of the preceding year’s income and profits tax. Appeal of Russel Wheel & Foundry Co., 3 B. T. A. 1168.

Judgment will he entered on 15 days’ notice under Rule 50.  