vage value of the entire properties was approximatly $20,000. The use of the properties was abandoned in June, 1920, and later, through the efforts of the local board of trade, they were sold for $20,000. The petitioner therefore was entitled to an obsolescence deduction over the period from January 1, 1918, to June 30, 1920, of the December 31, 1917, depreciated cost of its buildings and wharf.

Judgment for the petitioner. Order of redetermination will be entered on 15 days' notice, under Rule 50.

APPEAL OF OHIO GREASE CO.

Docket No. 6023. Decided September 30, 1926.

Held, that the deduction for exhaustion, wear and tear of property during the taxable years should have been computed upon the basis of the value of the property on March 1, 1913, and upon the cost of additions subsequent thereto.

W. J. Hogan, Esq., and Rufus W. Pearson, Esq., for the petitioner. Robert A. Littleton, Esq., for the Commissioner.

The Commissioner determined deficiencies in income and profits tax for the fiscal years ending February 28, 1919 and 1920, in the amounts of $12,583.77 and $15,079.17, respectively, and overassessments for the ten-month period ending December 31, 1920, and the calendar year 1921, in the amounts of $586.12 and $389.40, respectively.

The controversy concerns the matter of exhaustion, wear and tear of lubricators. The petitioner valued the lubricators on hand on March 1, 1913, at $10 each, totaling $107,000. Thereafter it entered. upon its books the cost of additional lubricators manufactured during the years. It was the practice of the company to write down the value of the lubricators each year in lieu of entering upon its books a depreciation reserve. By this method the value of lubricators at March 1, 1918, was shown by its books to be $61,859. The Commissioner used this figure as the basis for computing the deduction for exhaustion, wear and tear of lubricators for the fiscal years at the rate of 15 per cent per annum, and computed the deduction upon the cost of additions during each year from the beginning of the succeeding year. The useful life of the lubricators and the rate of exhaustion, wear and tear is not in controversy. Petitioner claims that the lubricator account should be adjusted and the deductions for exhaustion, wear and tear for the taxable years determined by depreciating the March 1, 1913, value of lubricators at 15 per cent per annum and

the cost of additions in subsequent years at the same rate, averaged for such years. It is further alleged that the Commissioner made certain mathematical errors in computing the income for the periods in question.

FINDINGS OF FACT.

Petitioner is an Ohio corporation organized in 1909 to engage in the manufacture of lubricating grease and lubricators for the efficient use thereof. The lubricator had been patented by the petitioner. It was not manufactured for sale, but a large supply was kept on hand to lend to purchasers of its lubricant, same to be returned in the event the use of its grease should be discontinued. Ownership and title remained in the petitioner and, when a customer ceased to purchase the petitioner's lubricant, he was asked to return the lubricator. If he failed to do so within a reasonable time, petitioner made it a practice to send him a bill for $25. As a rule, the bill was either paid or the lubricator returned. A number of lubricators were lost or destroyed each year.

On March 1, 1913, petitioner had on hand 10,700 lubricators having a fair market value on that date of $10 each, or a total fair market value of $107,000. The cost of lubricators manufactured subsequent to March 1, 1913, which included materials and labor, was as follows:

Prior to 1916, the cost of labor in the manufacture of lubricators was charged to expense. For 1916 and subsequent years such labor was included in the cost of lubricators.

The additions mentioned were made regularly throughout the whole year, weekly and monthly, and accurate records were maintained, but the total cost thereof was not entered upon the regular books of account until the end of the year. Due to the fact that the cost of additions was entered on the last day of the year, the Commissioner declined to allow any deduction for exhaustion, wear and tear on such additions for the year in which made.

OPINION.

LITTLETON: The deficiencies for the fiscal years ending February 28, 1919 and 1920, should be redetermined by computing exhaustion, wear and tear of lubricators upon the basis of the March 1, 1913, value thereof, amounting to $107,000, and upon the cost of subsequent additions as set forth in the findings of fact, at 15 per cent per annum upon a straight-line basis. The deduction for exhaustion of the cost of additions made during the years should be averaged for the year in which such additions were made.

The mathematical errors complained of will be automatically eliminated upon the recomputation in accordance with this opinion. The Board is without jurisdiction to redetermine the amount of overassessments for the ten-month period ending December 31, 1920, and for the calendar year 1921. Appeal of Cornelius Cotton Mills, 4 B. T. A. 255.

Order of redetermination will be entered on 15 days' notice, under Rule 50.

APPEAL OF JOHN E. LONERGAN.

Docket No. 6441. Decided September 30, 1926.

1. Loss upon sale of stock allowed.

2. March 1, 1913, value of certain buildings determined.

R. Kemp Slaughter, Esq., for the petitioner.
Henry Ravenel, Esq., for the Commissioner.

This appeal involves a deficiency in income tax for the calendar year 1918 in the amount of $6,991.37, arising in part from the disallowance by the Commissioner of an alleged loss of $22,572 upon the sale of certain stock, and of a deduction claimed for exhaustion, wear and tear of certain rental property.

FINDINGS OF FACT.

The petitioner is a resident of Philadelphia, Pa. During the period from October 6, 1906, to February 14, 1914, he purchased 144 shares of the California Vineyards Co. at $100 a share, and the market value of such stock on March 1, 1913, was equal to the amount paid therefor. Between July 6, 1914, and November 6, 1915, he purchased 84 shares of the stock of this corporation for which he paid $100 a share, making a total of 228 shares costing $22,800. He had been a director of the company for several years prior to 1914. In that year he became president and has since occupied that position. Up to 1914 the company had operated at a profit, but due to crop failures in that and subsequent years the company became heavily indebted, and, in addition, suffered losses as follows:

In 1919 conditions improved and the company's operations showed a profit, with the result that a considerable amount of this indebtedness was paid off. In 1922 and subsequent years the company sustained operating losses.

Some time prior to December 2, 1918, the petitioner realizing that the stock which he owned in the company had greatly declined in value, and having in mind the taking of a loss in his individual income-tax return for that year, began looking for a purchaser. In this connection he consulted the accountant whom he had for several years regularly employed to audit his books and to prepare his returns, and was advised that it would be necessary for him to make a sale of the stock in order to take a loss. The petitioner stated to him that he would be willing to sell the stock for a nominal amount, and the accountant gave him the name of one Frank M. Speakman as a prospective purchaser. The petitioner did not know Speakman, and, although he was a partner of the accountant employed by the petitioner, the petitioner did not know this fact. The petitioner called to see Speakman and offered to sell him 228 shares of the California Vineyards Co. stock at $1 a share. Speakman accepted said offer and purchased said stock at that price, and on December 2, 1918, it was forthwith transferred to him upon the books of the company. The offer of the petitioner to sell the stock and the purchase thereof by Speakman was bona fide and without any agreement or understanding between the parties to the transaction that the stock would be repurchased by Lonergan.

In May, 1922, petitioner became desirous of acquiring additional stock of the California Vineyards Co., and upon inquiry he found

that Speakman was still the owner of the stock which he had sold him in December, 1918, whereupon he made an offer to Speakman to purchase the 228 shares for $1 a share. This offer was accepted by Speakman and petitioner paid him $228, whereupon the stock was transferred to petitioner upon the books of the company.

During the year 1918 the petitioner was the owner of certain dwelling houses in the City of Philadelphia which were acquired for rental purposes. These houses were purchased on the dates, at the cost, and had, on March 1, 1913, a fair market price or value, as follows:

LITTLETON: All of the evidence in this appeal relative to the sale in 1918 of the stock of the California Vineyards Co. shows that the sale was bona fide and without any reservation or understanding between the seller and the purchaser that the stock would be repurchased, or that Speakman should not sell or dispose of it in any way he might desire. Testimony to this effect is uncontradicted. The petitioner testified fully concerning the transaction and was subjected to rigid cross examination. His entire testimony is consistent with the theory that he parted absolutely with all control over the stock and that the sale was bona fide. James C. Burns, the petitioner's accountant, who had prepared his returns and who advised the petitioner that it would be necessary for him to make a sale of the stock in order to take a loss, and who gave to the petitioner the name of Frank M. Speakman as a prospective purchaser, was called as a witness by the Commissioner, but he was not questioned concerning this