
    S. S. WHITE DENTAL MANUFACTURING CO. OF PENNSYLVANIA v. THE UNITED STATES
    
    [No. D-537.
    Decided November 9, 1925]
    
      On the Proofs
    
    
      Taxes, income and profits; dedtwtion for loss; enemy sequestration. — Where property of the plaintiff was sequestrated by the Imperial German Government in March, 1918, so as to deprive plaintiff of its control and title for that year, the plaintiff was entitled to deduct in its income and profits tax return for 1918 the value of the property so sequestrated.
    
      
      The Reporter's statement of the case:
    
      Messrs. John F. McCarron and John Hampton Barnes for the plaintiff.
    
      Mr. Fred K. Dyar, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant.
    The court made special findings of fact, as follows:
    I. The plaintiff, The S. S. White Dental Manufacturing Co. of Pennsylvania, is a corporation organized and existing under the laws of the State of Pennsylvania, with its principal offices at Philadelphia, in said State, for the purpose of manufacturing and selling artificial teeth, dental tools, instruments, and articles of all kinds, and preparations, apparatus, and articles useful or convenient in the science and practice of dentistry and oral surgery.
    II. The S. S. White Dental Manufacturing Co. of Pennsylvania, parent corporation of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, made an income and profits tax return, and also an amended income and profits tax return, to the United States Commissioner of Internal Revenue of its income for the year 1918, as shown by copies of said returns in Exhibit A to petition and hereby made a part hereof by reference, and deducted as a loss in its said United States income and profits tax return the sum of $110,164.34, and in its amended income and profits tax return it deducted $130,164.34 for the year 1918, made to the said United States Commissioner of Internal Revenue, being the value of all the assets of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, which were shown on the books of The S. S. White Dental Manufacturing Co. of Pennsylvania in 1918 and which is called its Berlin loss, for the reason that under date of March 19, 1918, Herman Ubert, resident manager of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, was notified by one Emil Meyers, a representative of the then German Imperial Government, that he had been appointed sequestrator by the then German Minister for Commerce and Manufacturers, and by said authority, copy of which is as follows:
    
      Exhibit B (Copy)
    TRANSLATION
    Meyers & Co.
    Import-Exp ort- Commission.
    Telephone: Centrum 5110.
    Cable address: Meyers Comp. Wilhelmstr, 42b.
    ■ ABC code, 5th edition, used.
    Berlin W. 66. Mar. 19, 1918, Wilhelmstr. 42B. Mr. Herman ITbert.
    Berlin-Scheneberg, Sponholzstr. 1:
    Hereby I wish to inform you and request you to take note of it that I have been appointed by the minister of commerce and manufactures as sequestrator of the concern The S. S. White Dental Manufacturing Company, m. b. h.
    At the same time I wish to inform you hereby that from this day on further purchases in any articles are not allowed any longer and deliveries and sales are to be made from the stock on hand. Orders for which no goods are on hand must remain unfilled. The other business transactions shall be continued until further in the same manner as heretofore. About the business in general I wish to be advised every two days; about special matters at once.
    As to the incoming money and the depositing of same with the bank, all necessary signatures must be given by me. Eventually I will give you power of attorney to receive money. The bank has also been advised of the above.
    Yours truly,
    (Signed) Emil Meters,
    
      In the -firm of Meyers c& Go.
    
    did on March 19, 1918, seize and sequestrate the property of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, for the use of the then Imperial German Government. The property seized and sequestrated by the sequestrator consisted of fixtures, cash, book accounts, merchandise stock, and accounts due and owing the said company. Because of the aforesaid sequestration of property, which belonged to The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, the amount of $130,764.34 was charged off the books of the parent corporation, The S. S. White Dental Manufacturing Co. of Pennsylvania, in the year 1918, as that was the exact amount of the parent corporation’s investment in The S. S. White Dental Mann-factoring Co., m. b. h. of Berlin, Germany, as shown by the books of the said The S. S. White Dental Manufacturing Co. of Pennsylvania in 1918.
    III. The last statement received by The S. S. White Dental Manufacturing Co. of Pennsylvania from The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, prior to sequestration of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, by the German sequestrator, showed the value of the tangible and intangible assets of The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, books on January 1, 1917, to be $149,217.01 in United States currencju Due to the fact that all lines of communication for commercial transactions between the United States and Germany had been discontinued as a result of the war then pending between the United States and Germany, it was not possible to reconcile the $130,764.34, representing the amount of $149,217.01 contained in the last statement received from The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, and, therefore, at the time of filing its income and profits tax return for 1918, The S. S. White Dental Manufacturing Co. of Pennsylvania was restricted absolutely in making said deduction in its United States income and profits tax return for the year 1918 on account of its so-called Berlin loss to the amount of $130,764.34 appearing on its books as a loss.
    IV. The S. S. White Dental Manufacturing Co., m. b. h., of Berlin, Germany, was organized on January 20, 1896, upon which date the said corporation was entered of record in the Berlin Trade Register under No. 1211. The capital of the said company at the time of organization consisted of 60,000 marks, and the names of the stockholders and the amount of stock held by each at the time of organization are as follows:
    Marks
    The S. S. White Dental Manufacturing Co., of Pennsylvania_ 50, 000
    H. M. Lewis_ 2, 000
    W. H. Gilbert_ 2, 000
    J. Clarence White_ 2, 000
    Sam J. Jones_ 2, 000 '
    Sam S. White, jr_ 2,000
    Marks- 60,000
    
      In the course of time there were several changes in the register of the original stockholders enumerated above, due to death, and the stock of a number of the aforesaid parties after death was acquired by The S. S. White Dental Manufacturing Co., of Pennsylvania, the parent corporation. Under date of February 10,1911, the Berlin Trade Register, at Berlin, Germany, was officially notified by The S. S. White Dental Manufacturing Co. of Pennsylvania that it had acquired the outstanding shares of the other parties in The S. S. White Dental Manufacturing Co., m. b. h., of Berlin, Germany, and from said date of February 10, 1911, the parent American corporation became the sole owner of all the stock of the said The S. S. White Dental Manufacturing Co., m. b. h., of Berlin, Germany, and was the sole owner of said stock of said corporation at the time of said sequestration by the Imperial German Government on March 19,1918.
    V. The object of The S. S. White Dental Manufacturing Co. of Pennsylvania, the parent corporation, in organizing The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, was for the purpose of developing a market for the products of the said parent company in Germany and other countries of northern and central Europe. The said The S. S. White Dental Manufacturing Co. of Pennsylvania is and was engaged at the time of the organization of its said German company, The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, in the manufacture of dental goods.
    VI. Under date of January 15, 1921, Mr. W. W. Tomb, internal revenue agent of the Bureau of Internal Revenue, Treasury Department, submitted a report to the United States Bureau of Internal Revenue of an investigation made by him of the income and profits tax liability of the parent corporation, The S. S. White Dental Manufacturing Co. of Pennsylvania, for the years 1916, -1917, and 1918, and in said report he disallowed the amount which plaintiff contends was the loss sustained by it in 1918 and shown in its original United States income and profits tax return for the year 1918 as $110,764.34 on account of the amount invested by it in The S. S. White Dental Manufacturing Co.,
    
      m. b. h. of Berlin, Germany, which amount is increased to $130,764.84, as shown by its amended income and profits tax return for 1918, by reason of the fact that said agent, Tomb, restored to the assets the sum of $20,000 charged off as depreciation in value by The S. S. White Dental Manufacturing Co., of Pennsylvania in its 1916 United States income tax return.
    In the said report of Internal Revenue Agent Tomb, at page 16, he states why he has disallowed the item relating to the loss claimed by plaintiff and called its Berlin loss on account of the sequestration of its property, by the German sequestrator in The S. S. White Dental Manufacturing Co., m. b. h. of Berlin, Germany, which is as follows:
    “ The loss of $110,764.34 on account of the Berlin store has been disallowed as a deduction, for the reason that the taxpayer has a good claim against the German Government, which is thought will be paid eventually. The Berlin store is operated by a German corporation formed expressly for such purpose and owned entirely by the taxpayer. The taxpayer argues that when the German Government seized this property the war was going on without any assurance at that time that the Allies would win, and therefore it was a loss, as definitely ascertained as any loss could be ascertained. However, pending the outcome of the war, the loss would appear to be indefinite, and now the recovery of such claim seems to be only a question of time. According to correspondence in the taxpayer’s file, this property was seized early in the year 1918.”
    And, again, in his report, on page 23, Agent Tomb states :
    “ The Berlin business was practically suspended during the years 1917 and 1918 on account of the war and the seizure of the property by the German Government, as heretofore stated.”
    VII. Subsequent to the filing of an affidavit on October 19, 1921, by plaintiff in the Bureau of Internal Revenue in regard to the amount claimed by it as a loss and known as its Berlin loss, a hearing was held in the Income Tax Unit of the Bureau of Internal Revenue between representatives of the Income Tax Unit and claimant, and said item claimed as a loss and known as its Berlin loss in the dispute between the Bureau of Internal Revenue and plaintiff was gone into in the said conference or hearing and the matter was again referred to a field agent of the Bureau of Internal Revenue for further investigation. Said field agent was A. Goldstein, of the Bureau of Internal Revenue, who completed his report under date of November 12, 1921, and that part of it relating to plaintiff’s so-called Berlin loss is as follows:
    “ On March 19, 1918, the sequestrator appointed by the German Government took over the taxpayer’s property and investment in its branch in Berlin. (Copy of the seques-trator’s letter is attached.) This sequestration apparently corresponds to the taking over of the property of enemy aliens in the IT. S. by the Alien Property Custodian.
    “ The investment in the Berlin branch at Dec. 31, 1915, at which time the last authentic report was received, stood as follows:
    General investment_$108, 718. 08
    Capital stock_ 15, 000. 00
    Furn. & fix_$7, 829.16
    'Less rept. clepr_ 782. 90
    - 7, 046. 26
    Total_ 130, 764. 34 ”
    VIII. Under date of December 28, 1921, another hearing was held between representatives of the Bureau of Internal Revenue and plaintiff in the Bureau of Internal Revenue and there were submitted by plaintiff certified copies of excerpts of the minutes of The S. S. White Dental Manufacturing Co. of Pennsylvania as follows:
    The S. S. White DeNtal Meg. Co.
    [Extracts from minutes]
    Stated meeting, board of directors, November 25, 1918.
    The S. S. White Dental Mfg. Co., m. b. h.
    The president reported he had referred to our counsel the matter of filing claim with the proper department of our Government for the repayment to us of our loss in connection with this property arising out of its confiscation by the German Government.
    
      The S. S. White Dental Meg. Co.
    [Extracts from minutes]
    Stated meeting, board of directors, July 29, 1918. The S. S. White Dental Mfg. Co., m. b. h., Berlin
    Whereas The S. S. White Dental Mfg. Co., m. b. h., Berlin, represents the following investments in this company’s assets as of December 31,1917:
    A — 19, capital stock_$15, 000. 00
    B — 28, furniture & fixtures- 7, 016. 26
    B — 17, open accounts_$127, 670. 75
    Less formerly adjusted- 18, 952. 67
    - 108, 718. 08
    130, 764. 34
    and
    Whereas in 1916 there was charged as a reserve against this amount the sum of $20,000; and
    Whereas under continued condition of war the loss will, in the judgment of this board, soon be complete:
    Resolved, That additional reserves be set up on the following basis, viz, $15,000 quarterly, beginning March, 1918, until liquidated.
    ‡ ‡ ‡ $
    IX. After a hearing on December 28,1921, in the Internal Revenue Bureau between representatives of plaintiff and representatives of the Income Tax Unit, the matter of plaintiff’s so-called Berlin loss was again referred to a field agent, Paul D. Helfrich, of the Bureau of Internal Revenue, and under date of August 16, 1922, said field agent submitted his report and referred to claimant’s so-called Berlin loss as follows:
    Schedule 10 (A)
    EXPLANATION OE ITEMS CHANGED
    “ (a) Loss Berlin branch is fully explained in report of Nov. 18, 1921, and disallowed, since no evidence has been submitted to show that the stock or investment was worthless.”
    X. In a letter of the Income Tax Unit of the Bureau of Internal Revenue, dated December 21, 1922, plaintiff’s claim for its so-called Berlin loss was disallowed, and under date of January 5, 1923, another letter was addressed to plaintiff by the said Income Tax Unit explaining why plaintiff’s so-called Berlin loss, deducted in its United States income and profits tax return for 1918, was disallowed, stated the following:
    “ As pointed out to your representative in conference, the major portion of the tax is attributable to the disallowance of the loss of $110,764.34, claimed on account of the sequestration of your property located in Berlin, Germany, by the German Government. Careful consideration has been given to statements made both orally and in your briefs respecting the deduction in question. This office has reached the conclusion, however, that the loss was not definitely determined or ascertained during 1918, and for that reason does not meet the requirements of the statute. Property sequestered by this country and Germany during the recent war has been in most cases returned to its former owners. In the instant case the property has already been returned to you by the German Government. In view of the above, this office has disallowed the loss claimed.”
    XI. The plaintiff under date of January 24, 1923, appealed from the decision of the Income Tax Unit of the Bureau of Internal Revenue to the committee on appeals and review of the Bureau of Internal Revenue and pressed its claim for deduction of its so-called Berlin loss in 1918 before that body, both orally and in writing, and under date of May 12, 1923, said committee on appeals and review sustained the decision of the Income Tax Unit denying the so-called Berlin loss of plaintiff and in its decision said, in part:
    “Upon careful consideration of all the evidence and argument presented orally and by brief, the committee finds itself unable to sustain the appellant’s contention on the first point. It is the committee’s opinion that the act of seques: tration in 1918, in and of itself, did not result in an actual sustained loss in that year, which loss was susceptible of being measured in dollars and cents. It is also the committee’s opinion, and this seems to be borne out by subsequent-events, that by such act the appellant was temporarily dispossessed of property and investment in the Berlin branch with a consequent cessation of business and inability to realize possible profits during the indefinite period of sequestration. It is apparent that concurrent with the act of sequestration there arose a right or claim against the German Government for loss or damage resulting therefrom, which right or claim at the time could not be estimated as to value by any reasonable process of calculation. Losses to be deductible must ordinarily be evidenced by a completed, or closed, transaction. Before a loss sustained during a taxable year and not compensated for by insurance or otherwise may be deducted it must usually be evidenced by such a transaction. (Article 141? Begulations 45.) In the instant case the appellant had in 1918 a reasonable expectancy of the return of the Berlin property and business at the expiration of the period of sequestration; it became repossessed of the Berlin property and business in 1920; it sold such property and business in 1922; and it has now on file a claim for reimbursement due to loss occasioned by such sequestration.”
    XII. Under date of September 5, 1923, plaintiff received notice of assessment of $83,813.59 from J. G. Bright, Deputy Commissioner of Internal Bevenue, as tax on its so-called Berlin loss, as shown by copy of letter in petition (Exhibit C), which is made a part hereof.
    XIII. Amended notice and demand, dated November V, 1923, for payment to the United States of income and profits taxes in the amount of $83,818.59 was received by plaintiff from Blakely D. McCaughn, United States collector of internal revenue at Philadelphia, Pa., and under date of November 14, 1923, said amount of $83,813.59, covering tax on plaintiff’s so-called Berlin loss, was paid to said United States collector of internal revenue, Blakely D. McCaughn, by check B-24937 of claimant, accompanied by written protest of plaintiff, copy of which is attached to petition and made a part hereof (Exhibit D), dated November 14, 1923, on the ground that said payment was in no way voluntary, and that plaintiff was compelled by the United States to pay said $83,813.59 in taxes on its so-called Berlin loss under duress and coercion.
    XIV. Immediately after paying said amount of $83,-813.59 as taxes on its so-called Berlin loss, accompanied by its written protest, plaintiff filed a claim for refund of the said amount of $83,813.59 paid as taxes by it on its so-called Berlin loss before the expiration of five years from the date when the income and profits tax of 1918 of plaintiff was due, on the proper form of the Bureau of Internal Revenue (Form 843), copy of which is attached to petition and made a part hereof (Exhibit E), and which was filed under date of November 24, 1923, in the Bureau of Internal Revenue, and in said refund claim demanded that said amount of $83,813.59 paid by it under protest should be refunded by the United States to it for the following reasons *
    “ Said amount of $83,813.59 paid to the United States as shown by internal-revenue receipt attached hereto should be refunded to this taxpayer, as said amount paid is based upon an erroneous and illegal assessment, as said assessment is based upon committee on appeals and review recommendation No. 3075 of the United States Internal Revenue Bureau, that losses of this corporation in 1918, amounting to $130,764.34, by reason of sequestration of its property, ‘ The S. S. White Dental Manufacturing Company m. b. h., of Berlin, Germany,’ by the Imperial German Government, be disallowed. This taxpayer contends that it should not have been required to pay said assessment based on said losses as set forth in Bureau of Internal Revenue’s letter of September 5, 1923, signed by J. G. Bright, deputy commissioner, initialed IT: CA: M-2.
    “ CEO-2114 — 4—App. This taxpayer insists that it has shown to the Bureau of Internal Revenue its loss in 1918 under subsection 4 of section 234 of the revenue act of 1918, and therefore the amount of $83,813.59 is refundable to it.”
    XY. The Commissioner of Internal Revenue, under date of May 15, 1924, rejected the said refund claim, as shown by copy of his letter attached to petition and made a part hereof (Exhibit F), which has been filed by plaintiff on November 24, 1923, for the recovery of the $83,813.59 paid as taxes by it under protest on its so-called Berlin loss.
    XVI. No action upon plaintiff’s claim has been had before Congress. The said refund claim, in the amount of $83,813.59, based on plaintiff’s so-called Berlin loss, was presented to the United States Commissioner of Internal Revenue, Treasury Department, and the total amount of said refund claim of $83,813.59 was rejected by the United States Commissioner of Internal Revenue, and plaintiff, prior to filing refund claim, protested against the payment of the said amount of $83,813.59 to Blakely D. McCaughn, United States collector of internal revenue at Philadelphia, Pa., in writing at the date of payment of the said amount of $83,813.59, and the said United States Commissioner of Internal Revenue adheres to his said action of rejection.
    XVII. The S. S. White Dental Manufacturing Co. of Pennsylvania has filed a claim with the Mixed Claims Commission against Germany on account of sequestration of The S. S. White Dental Manufacturing Co. m. b. h., of Berlin, Germany, as follows:
    Item No. 1. Investment in German company as of March 18, 1918, date of sequestration, $167,033.03 less proceeds of sale of German company, $6,000-$161, 033. 03
    Item No. 2. Normal estimated earnings from March 18,
    1918, to December 31, 1918, $23,519.93.
    Item No. 3. Normal estimated earnings from January 1,
    1919, to December 31, 1919. $30,560.01.
    Item No. 4. Normal estimated earnings from January 1,
    1920, to March 14, 1920, date of release, $6,366.65- 60, 446. 59
    Item No. 5. Gash balance on deposit in London branch
    of Dresdner Bank_._ 887.30
    Item No. 6. Consequential injury and damage by loss of
    development in foreign field and otherwise- 145, 966.40
    368, 333. 32
    XVIII. Frank H. Taylor, president of The S. S. White Dental Manufacturing Co. of Pennsylvania, has filed an affidavit with the Mixed Claims Commission with respect to his company’s claim against Germany, as follows:
    Exhibit I
    State op PeNNStlvaota,
    
      County of PMladelftiia, ss:
    
    I, Frank H. Taylor, on oath depose and say that I am president of the S. S. White Dental Manufacturing Company, a corporation organized and existing under the laws of the State of Pennsylvania, the claimant in the memorial to which this affidavit is attached, and that I make this affidavit in support of the said claim.
    ' In 1881 The S. S. White Dental Manufacturing Company was organized to succeed to and acquire the business founded by Samuel Stockton White in the city of Philadelphia in 1844, and has successfully continued it since that date. The company has branches in the city of New York, Boston, Chicago, Atlanta, and San Franscisco, and has subsidiary corporations in Canada, Great Britain, Brazil, and Germany. More than ninety-nine per cent of the capital stock is owned by citizens of the United States.
    For seventy-five years the company has produced dental goods of the highest merit and is recognized as the leading manufacturer in its line in the world. It has maintained this position in the face of intense competition, both domestic and foreign, much of it being based on low-priced imitations of its creations. These imitations have been produced in America, in England, and in Germany.
    Its foreign business has grown by reason of a demand on the part of the leaders in the profession for reliable and precise appliances and supplies, so that its product reached practically every country.
    After a long period of canvassing Europe by travelers, the company established a definite branch house in Berlin twenty-five years ago, and in the face of the competition above recited, this branch has operated at a profit until the events hereinafter stated, its interests having been looked after by highly trained specialists.
    When The S. S. White Company of Pennsylvania entered the foreign field in central Europe by the establishment of its Berlin branch in 1896, it carried with its original investment of $15,000 in the German company a much larger investment represented by fifty years’ experience as the leading producer of practically a full line of standard dental material, supplies, and equipment in the world, together with its patents, trade-marks, and good will, owned by the parent concern. With Berlin as its center, the German company, as the chief selling company in central Europe for the S. S. White products, expanded its business gradually to Poland, Russia, Austria-Hungary, the Balkans, and other countries of central and southern Europe, This company was successful, and a statement of its annual earnings shows that its progress was regular and steady, and that in no year, with the single exception of 1914, from the time of its organization until it was taken over by the sequestrator did it show a loss. A statement showing the invested capital and net earnings from the time of its organization to 1917, inclusive, by years is contained in Exhibit F.
    In 1921 I went to Germany to make a personal investigation into the condition and prospect of the German company following an unsuccessful trip in 1919. After inspecting the office and salesroom, conversing with the employees and the leaders of the dental business in Germany, examining in detail the books and records of the German company, I reached the conclusion that the value of the business and good will built up during a period of more than twenty years of successful operation had been completely dissipated as a result of the destructive policy of the German seques-trator, and being convinced that the condition of the German company was hopeless I sold its tangible assets and its lease for the sum of $6,000, this amount being, in my judgment as a man experienced for 40 years in corporate management, a fair maximum value of the business under the conditions then existing. During my visit to Germany I learned the following facts :
    The business of The S. S. White Company in Germany and central Europe and the moral force that it had built up as a result of our twenty years’ operation were finally and completely ruined during the period of German sequestration by the character of the administration to which it was subjected by the German sequestrator and by his general misconduct.
    First. The sequestrator began his administration in the spirit indicated in his letter declaring himself sequestrator. Exhibit C (page 23). “From this day further purchases of any articles are not allowed any longer, and delivery and sales are to be made from the stock on hand; orders for which no goods are on hand must remain unfilled.” In explaining this position to the force, he repeatedly emphasized that it was not the intention, or that he was not permitted, to conduct the business in a profitable manner.
    Second. Following this, he ordered the cancellation of all advertising contracts.
    Third. From the company’s working capital in the Dresdner Bank was withdrawn by the sequestrator:
    
      (a) 50,000 marks, which were invested in German war bonds on April 19, 1918.
    (5) 40,000 marks were deposited with the Treuhauncler, fuer das feindliehe Vermoegen, June 29,1918.
    These withdrawals resulted in the depletion of the working capital of the German company, so serious that the business was unable to continue as before.
    Fourth. The sequestrator, being short of adequate working capital as a result of No. 3, discontinued the wholesale business of the company and confined the company’s activities in its retail sales. This wholesale department had been important and profitable, employing traveling representatives and experts, who brought the S. S. White American products definitely before traders in all central Europe.
    Fifth. The retail business was continued, requiring the employment of a large staff involving a heavy overhead charge on the business, which in turn dwindled because of the cancellation of all advertising contracts by the seques-trator, and thus became necessarily unprofitable.
    Sixth. The sequestrator bought merchandise from German manufacturers and other factors and resold the merchandise to the business under his control upon debit memo-randa without details payable to himself. I personally was shown some of these short memorandas. This practice was followed without any detailed explanation of the transactions and is contrary to sound business principles not only in Germany but throughout the world. The prices paid to Mr. Meyers individually for acting as purchasing agent by himself as official sequestrator left only a small margin to cover the cost of handling and selling dental supplies, while it would have been possible, if the transactions had been handled in a regular manner at the price at which purchased from the manufacturers, to have conducted this business at a profit. Suspicion naturally attaches to this method of handling purchases, for the reason that any ordinary buyer dealing in good faith with the business for which he is acting submits the manufacturers’ invoices in detail as vouchers to justify the amounts paid. The claimant believes upon credible general information and the circumstances surrounding these transactions that they were for the benefit of the German agent, who thus derived unlawful profits therefrom. No account has ever been rendered by him of these transactions, and claimant is not now and may not hereafter be able to definitely prove the same because of the concealment of the acts and the destruction of evidence thereof naturally incident thereto.
    Seventh. In addition, Mr. Meyers, without authority from the claimant, took from the funds of the Germany company marks 4,948 and made a subscription to the German war loan of marks 5,000, which is a complete loss, thus further depleting the capital.
    Eighth. He removed furniture from the office of the German company, some to his own office and some to the Enamelline Works at Hoech st a. Main, where his son was employed, paying inadequate prices therefor.
    Ninth. Toward the end of the period of official control a burglary occurred under suspicious circumstances, and it was impossible to hold the insurance company for the loss because the sequestrator had failed to keep the burglar alarm in efficient operating condition, as provided by the terms of the insurance policy.
    Tenth. The course followed by the sequestrator to destroy the German company could not have been better devised.
    The result of this administration was to dissipate the physical property of the German company, to finally destroy the good will, and the entire value of the business as a going concern, which had existed in Germany for more than twenty years prior to its sequestration for the sole purpose of selling the S. S. White products.
    
      This result can only be attributed to the official misconduct of the representative of the German Government. The sources of information as to the amount of the assets and the losses due thereto hereinafter stated are from the books and accounts rendered by the German company to the home office in Philadelphia and from statements made by H. Ubert.
    From the beginning all transactions between the German company and the parent corporation were in dollars. All prices were quoted in dollars and all financial reports from the German company to the parent corporation were made in dollars; and the statements of values, earnings, and losses are all stated in dollars in the claim presented by the com]3 any.
    The claim of The S. S. White Company may be summarized as follows:
    Item No. 1. This item of $161,033.03 represents the value of the physical assets of the German corporation as of March 18, 1918, the date of sequestration as shown by certified reports from the German company and reconciled with the books and records of the American company less the sum of $6,000 salvage from the sale of the German company in February, 1922. It consisted of — •
    Cash_
    Accounts receivable_
    Bills receivable_
    Furniture & fixtures_
    Merchandise inv_
    Expenditures made by American Co. for German Co. not on German Co.’s books_
    $60, 565. 80 50, 739. 75 6, 485.46 5, 709. 59 47, 910. 69
    914. 49
    172, 325. 78
    Bess accounts payable_1 5, 292. 75
    167, 033. 03
    Less salvage of German Co_ 6, 000. 00
    161, 033. 03
    The balance sheet of the German company as of March 18, 1918, is appended as Exhibit D. The reconciliation statement is given in Exhibit G.
    The president of the claimant company went personally to Germany in January and February, 1922, and as herein-before stated negotiated the sale of the physical assets and leasehold of the German company for $6,000, excepting the funds deposited in the London branch of the Dresdner Bank. (See Exhibit E.)
    No claims for patent rights, trade-marks, or premiums on war risk insurance are included in this item. No part of this investment has been returned to or received by claimant.
    
      Item No. 2. This item of $23,519.93 represents the normal profits of the German company from March 18, 1918, the date of sequestration, to December 31, 1918. Of this year’s operation, the first two and a half months were under the control of the former agent of the American company and the other nine and one-half months under the sequestrator. This profit of 1918 should at least have been equal to the profit of 1917, and therefore the amount shown represents the estimated earnings for nine and one-half months of 1918 based on the actual of the prior year. In 1917 business conditions were less favorable than in 1918.
    No accounting for or payment of any of these profits has been made to the claimant.
    Item No. 3. This item of $30,560.01 represents the normal estimated profits of the German company for the calendar year of 1919, which was an enormously active year in the dental trade. The business should have produced from 25% to 50% more than in 1918. The 1917 figures increased by $6,112.00 would amount to $30,560.01.
    No accounting for or payment of any of these profits has been made to the claimant.
    Item No. 4. This item of $6,366.65 represents the normal estimated profits from January 1, 1920, to March 15, 1920, the date on which the sequestration ceased and the property was returned to the agent of the American company. It is based on the 1919 estimated earnings for a period of two and one-half months.
    No accounting for or payment of any of these profits has been made to the claimant.
    Item No. 5. This amount of $887.30 represents a cash balance of £182 11 5 on a deposit in the London branch of the Dresdner Bank to the credit of The S. S. White Dental Manufacturing Company, m. b. h., which was excepted from the sale of the assets of the German company to Ubert, Reifenstahl & Company. This amount was composed of deposits in English money on sales made by the German company in England, and paid for in English money. According to letters from the Dresdner Bank in Berlin (Exhibit E), this amount has been remitted to the main office of the bank in Berlin, and under date of October 22, 1922, a letter was sent to the former office of the German S. S. White Company offering to settle this amount, but the offer was not accepted. No part of this amount has been paid to or received by the claimant.
    Item No. 6. This item of $145,966.40 represents the consequential injury and damage by loss of development work referred to as good will in tbe central European, field due to the sequestration policy of its representative in charge of the property. This item is established as follows:
    The average invested capital and the average actual net profits for a ten-year period from 1904 to 1913, inclusive, are used for the reason that this is the last decade of normal peace-time operation. A charge of 6% per annum on the average investment for ten years is first made against the average net earnings for that period and the balance of the earnings is capitalized on a ten-year basis, thus ascertaining the consequential injury and damage to the claimant through its loss or a valuable selling subsidiary in a foreign field. The detailed computation showing the invested capital and the net earnings is herewith set forth:
    Invested capital Earnings
    1904_ $239, 897. 78 $19, 661.15
    1905_ 237, 916. 04 26, 474. 82
    1906_ 220, 099. 98 60, 304. 75
    1907_ 209, 646.17 25, 435. 56
    1908_ 230, 658.20 6, 365. 86
    1909_ 246, 886. 43 41, 005.16
    1910_ 217, 224. 65 35, 834. 72
    1911_ 277, 431. 56 62, 635. 42
    1912_ 228, 303. 80 4, 914. 99
    1913_ 192, 262. 83 1, 353. 55
    2, 300, 327. 44 283, 985. 98
    Average invested capital 230, 032. 74
    Average net earnings_ 28, 398. 60
    6% of average invested capital_ 13, 801. 96
    Average earnings in excess of 6%- 14, 596. 64
    Balance of earnings capitalized on 10-year basis_ 145, 966. 40
    The ten-yéár term is used because the good will of the German company was its chief element of value. It had been in successful operation as a profitable and going concern for more than twenty years; it had built up a reputation in Germany and other parts of Europe for the S. S. White dental products in the face of cheaper and inferior goods; and as a result of the acts of misconduct of the sequestrator, heretofore enumerated, and of his management of the property this element of value was completely destroyed, and had it not been for the sequestration and for the improper and illegal acts of the sequestrator the German company could have been operated at a profit and its good will preserved.
    At the time of the interference of the German Government with the business of the German company by the appointment of a sequestrator the company was conducting its business successfully, and its claim is based upon that act of interference and the character of the administration of the business by the sequestrator as above stated.
    The business of the company was self-sustaining and during the war period would not have, had it remained in its own control, been affected by the limitation of the ability to import its articles. It would have continued to be a self-sustaining business dealing temporarily in German articles. If, therefore, there had been no interference with the control of the business by the company, or if after such interference it had been fairly and properly managed by the sequestrator, the company would have been able, when conditions became normal, to reestablish its business and to maintain the good will of its American products without material loss.
    State oe Pennsylvania,
    
      County of Philadelphia, ss:
    
    I, Frank H. Taylor, do solemnly affirm that I am president of The S. S. White Dental Manufacturing Company, a corporation organized and existing under the laws of the State of Pennsylvania, the claimant in the foregoing petition ; that I have executed this affidavit and signed my name as president under due and sufficient authority for and on behalf of said corporation; that I have read the foregoing petition and know its contents; and that all and singular the statements therein made are true to the best of my knowledge, except those made on information and belief. As to the statements made on information and belief, they are made as a result of personal inquiry from persons having first-hand knowledge of the facts, and I am advised that they are accurate and believe them to be true.
    FRANK H. Taylor, President.
    
    Subscribed and affirmed to before me this twentieth day of April, 1923, in the city of Philadelphia, State of Pennsylvania. I certify that I have no interest in the claim to which the foregoing petition relates; that I am not the agent or attorney of any person having an interest in said claim, and that I am not related to the said subscriber.
    William J. Nttssell,
    
      Notary Public.
    
    XIX. Alfred L. Geiger, attorney for The S. S. White Dental Manufacturing Co., of Pennsylvania, in the matter of its claim before the Mixed Claims Commission, has received the following letter from the Mixed Claims Commission :
    Mixed Claims Commission United States & Germany,
    United States Agency,
    
      911 Fifteenth St., Washington, January SO, 19%h.
    
    Sik : This is to notify you that the Mixed Claims Commission, United States and Germany, has granted an award in the case of The S. S. White Dental Manufacturing Company, claimant, which provides that the Government of Germany is to pay to the Government of the United States, on behalf of the claimant, the sum of $70,000.00, with interest thereon at five per cent per annum from February 1,1920, to the date of payment.
    Of course, you will understand that an award does not mean immediate payment, as no fund has yet been provided for the satisfaction of these claims.
    I have the honor to be, sir,
    Your obedient servant,
    Robert W. Bonynge, Agent.
    
    Mr. Alfred L. Geiger,
    
      Albee Bldg., Washington, D. O.
    
    The court decided that plaintiff was entitled to recover.
    
      
       Writ of certiorari granted.
    
   Hay, Judge,

delivered the opinion of the court:

It is shown from the findings of fact that the plaintiff made an original and amended income-tax and profits-tax return for the year 1918 to the Commissioner of Internal Revenue in which it deducted the sum of $130,764.34 for the year 1918, this sum being the value of all the assets of The S. S. White Dental Manufacturing Co., m. b. h., of Berlin, Germany, which were shown on the books of The S. S. White Dental Manufacturing Co. of Pennsylvania in 1918, which the plaintiff designated as its Berlin’loss, because on March 19, 1918, the German sequestrator seized and sequestrated its property in Berlin, which consisted of fixtures, cash, book accounts, merchandise, stock, and accounts due and owing the said company.

The plaintiff was the sole owner of The S. S. White Dental Manufacturing Co., m. b. h., of Berlin, Germany, at the date of the sequestration by the Imperial German Government of the property aforesaid, and at said date the amount of the investment of the plaintiff in its German property, as shown by its books, was $130,764.34. On account of this sequestration of its property the plaintiff charged off its books in the year 1918 the said sum of $130,764.34, which sum appeared on its books as a loss. The effect of the sequestration of plaintiff’s property was to destroy and to cause a loss to the plaintiff, which was absolute in 1918. Afterwards in 1921 the plaintiff sent an agent to Gérmany to investigate the condition and prospect of the German company, and becoming convinced that its condition was hopeless the said agent sold the tangible assets and its lease for the sum of $6,000. This sum was duly returned as income for the year 1921. The plaintiff also filed a claim with the Mixed Claims Commission, .United States and Germany. That commission has allowed said claim to the extent of $70,000, with interest at 5 per cent per annum from February 1, 1920, until paid. But no part of said $70,000 had been paid to the plaintiff and no fund has been provided for the satisfaction of said claim.

Under date of May 15,1924, the Commissioner of Internal Revenue rejected the refund claim of the plaintiff, filed under date of November 24, 1923, for the recovery of the sum of $83,813.59 paid as taxes by it under protest.

The plaintiff’s property was sequestrated in 1918; the loss suffered thereby was charged off the books of the plaintiff as a loss in 1918; the plaintiff deducted its loss in its income and excess-profits tax return for 1918, the year in which it was sustained.

The Commissioner of Internal Revenue seems to have based his action in rejecting the claim of the plaintiff upon the idea that it had a good claim against the German Government, which claim he thought would be eventually paid. The following extract from the decision of the committee on appeals and review, which was approved and adopted by the commissioner, will more fully explain his view of the case:

“ It is the committee’s opinion that the act of sequestration in 1918, in and of itself, did not result in an actual sustained loss in that year, which loss was susceptible of being measured in dollars and cents. It is also the committee’s opinion, and this seems to be borne out by subsequent events, that by such act the appellant was temporarily dispossessed oi property and investment in the Berlin branch with a consequent cessation of business and inability to realize possible profits during the indefinite period of sequestration. It is apparent that concurrent with the act of sequestration there arose a right or claim against the German Government for loss or damage resulting therefrom, which right or claim at the time could not be estimated as to value by any reasonable process of calculation. Losses to be deductible must ordinarily be evidenced by a completed or closed transaction.”

The parts of the revenue act of 1918, 40 Stat. 1057, which are pertinent to this case are as follows:

“ Sec. 232. That in the case of a corporation subject to the tax imposed by section 230 the term ‘ net income ’ means the gross income * * * less the deductions allowed by section 234, * *

Sec. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:

Hi * * * . * * *

“ (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise.”

As there is no controversy with respect to the correctness of the amount of tax assessed and collected, the only question for determination is whether or not the plaintiff suffered a deductible loss during- the calendar year 1918 within the meaning of the statute above quoted.

It must be admitted that the effect of the action of the German Government was to cause the plaintiff to lose control of and title to the property in March, 1918; it followed that the property was lost to the plaintiff, and there was no means open to it by which it could or did regain control of or title to the property during the year 1918.

The loss was complete for the year 1918; it could be and was determined; the transaction for that year was closed and completed. The loss has continued down to the present time with the exception of $6,000 salvaged from the property in 1921. It seems the commissioner loses sight of the fact that the plaintiff will only receive from Germany the sum of $70,000 and when it will receive that is wholly problematical ; so that according to his own reasoning the commissioner should have at least allowed the plaintiff the sum of $60,764.34, the difference between the sum originally charged to the plaintiff and the amount which has been allowed on its claim.

The loss sustained by the plaintiff was in our opinion a loss deductible during the calendar year 1918 within the meaning of the statute. Because the plaintiff has a claim which may or may not be paid does not alter the fact that it suffered this loss in the year 1918 and has continued to suffer it down to the present time. The Government can not continue indefinitely to hold its taxpayers to account upon the idea that something may happen in the future which will change existing conditions. Losses, which are deductible, it is said, “ must be evidenced by closed and completed transactions.” Certainly this transaction was closed and completed in 1918; it remains completed so far as the loss of the plaintiff is concerned. That is surely complete and has continued to be complete from that time to this. In the construction of statutes common sense must at times be applied, and the facts in this case lead to but one conclusion, which is that the plaintiff suffered such a loss as the statute contemplated when losses were made deductible by its terms.

Judgment will therefore be awarded the plaintiff in the sum of $83,813.59, with interest.

It is so ordered.

Graham, Judge; Downey, Judge; Booth, Judge; and Campbell, Chief Justice, concur.  