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of 1921, has been allowed by the Commissioner as a reduction of its net taxable income for the year 1922. The net taxable income for the year 1922 computed in this manner was $9,463.13.

In computing the deficiency herein the Commissioner denied to the taxpayer the specific credit of $2,000 provided for by section 236 (b) of the Revenue Act of 1921, upon the ground that the taxpayer's net income was in excess of $25,000.

OPINION.

MARQUETTE: The petitioner's net income for the year 1922, after deducting the net loss sustained in the year 1921, is less than $25,000, and it contends that the net income so determined is the "net income referred to in section 236 (b) of the Revenue Act of 1921, and that it is therefore entitled to the specific credit of $2,000 provided by the section. The same question here presented was before this Board in the Appeal of American Varnish Co., 2 B. T. A. 201. In that appeal the taxpayer's net income for the fiscal year ended June 30, 1922, was in excess of $33,000. It had sustained a net loss for the fiscal year ended June 30, 1921, one-half of which was applied against its net income for the fiscal year ended June 30, 1922, thereby reducing its net taxable income for that fiscal year to less than $25,000. The Board, holding that the taxpayer was not entitled to the specific credit of $2,000 provided by section 236 (b) of the Revenue Act of 1921, said:

Net income is defined in section 232 as the gross income as defined in section 233 less the deductions allowed by section 234." Among the deductions listed in section 234, the net loss of the preceding year is not included. Provision is made specially for this further reduction of taxable net income in section 204. The provisions of that section material here are contained in section 204 (b), which reads in full as follows:

"(b) If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year; the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary."

The taxes on corporations are imposed under the Revenue Act of 1921 by section 230, the material portion of which reads:

there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax at the following rates: This section imposes a tax upon the net income, and net income is defined as gross income less certain deductions which do not include the net loss allowed to be deducted under section 204. In like manner section 236 grants a specific credit to corporations the net income of which does not exceed

$25,000, and denies that benefit to corporations the net income of which does exceed that amount.

The petitioner herein urges that we erred in our decision in that appeal and that it should be modified. However, upon careful consideration, we perceive no sound reason for changing our views therein expressed.

The deficiency is $250. Order of redeter mination will be entered accordingly.

APPEAL OF DELAWARE COAL & SUPPLY CO.

Docket No. 3908. Decided August 5, 1926.

Profit from sale of land, and amount of exhaustion, wear and tear of assets, determined.

J. J. O'Byrne, Esq., for the petitioner.

Robert A. Littleton, Esq., for the Commissioner.

Before MARQUETTE, MORRIS, and GREEN.

This appeal is from the determination of a deficiency in income and profits taxes for the years 1920 and 1921, in the amount of $482.25. The questions involved are as to the amount the taxpayer is entitled to deduct in computing its net income for the years 1920 and 1921, on account of the exhaustion, wear and tear of its assets in those years, and as to the amount of profit it realized on the sale of certain real estate.

FINDINGS OF FACT.

The taxpayer is a New Jersey corporation, with its principal office at Paterson.

On May 18, 1920, the taxpayer acquired the assets of a partnership, issuing therefor shares of its own capital stock. Among the assets so acquired were certain automobiles and trucks as follows:

(1) Federal Truck No. 3 purchased March 4, 1918, at a cost of
(2) Federal Truck No. 4 purchased June 20, 1918, at a cost of
(3) Broadway Truck purchased February 28, 1919, at a cost of___
(4) Federal Truck No. 5 purchased September 30, 1919, at a cost
of_____

$4,978.99 4,978.99 940.00

5, 212. 17

150.00 1,019.60

(5) Ford Truck No. 2 purchased January 30, 1920, at a cost of... (6) Buick purchased June 30, 1920, at a cost of. (7) White Truck purchased March 31, 1921, at a cost of‒‒‒‒‒‒‒‒‒ 4, 841. 00 The average life of these automobiles and trucks was four years. For the period May 18, 1920, to December 31, 1920, the amount of the exhaustion, wear and tear of said automobiles and trucks was

$2,668.11, and for the year 1921, the exhaustion, wear and tear thereof was in the amount of $5,038.85.

During the year 1920, the taxpayer acquired 15 lots or parcels of land and issued therefor shares of its capital stock of the par value of $7,000. The lots or parcels of land so acquired were entered on the taxpayer's books at a value of $7,000. In 1921 the taxpayer sold 11 of these lots for a consideration of $9,790. The cost of the 11 lots to the taxpayer in 1920 was $466.66 per lot, making a total cost price of $5,133.26. The taxpayer realized on the sale of these lots in 1921 a profit of $4,656.64. In its income and profits-tax return for the year 1921 it reported its profit from the sale as $6,790.

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OPINION.

MARQUETTE: In computing the taxpayer's net income for the year 1920, depreciation on the automobiles and trucks set forth in the findings of fact should be allowed in the amount of $2,668.11. For the year 1921, depreciation should be allowed on said automobiles and trucks in the amount of $5,038.85; and the profit from the sale of the 11 lots referred to in the findings of fact should be $4,656.64, instead of $6,790, as reported by the taxpayer in its return for that year.

Order of redetermination will be entered on 10 days' notice, under Rule 50.

APPEAL OF FARMERS & TRADERS BANK.

Docket No. 2248. Decided August 5, 1926.

1. The taxpayer credited to another corporation, which was the record owner of real property, the sum of $1,500, to be drawn upon and used by the latter to pay taxes and interest charges due on land in which taxpayer owned a beneficial interest, Held, under the facts, the amount is not deductible by taxpayer either as a bad debt or as interest and taxes paid by it.

2. An order of the State Banking Department, without further evidence of worthlessness, is not sufficient to authorize a taxpayer to deduct from gross income securities held by it and charged off in pursuance of such order.

3. A sale of securities to another corporation resulting in a profit, although sold at an inflated value, résults in taxable income to the seller, notwithstanding the fact that the two corporations were allied and had interlocking directorates.

Alexander W. Smith, Esq., for the petitioner.

A. H. Murray, Esq., for the Commissioner.

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Before STERNHAGEN, LANSDON, and LOVE.

This appeal is from the determination of a deficiency in income tax for the year 1919 in the amount of $2,163.25..

The taxpayer assigns the following errors:

(1) The disallowance of the sum of $1,500, charged by the taxpayer to profit and loss account by reason of a payment the taxpayer was compelled to make to protect its interests in real estate.

(2) The disallowance of a deduction from gross income of $9,785, representing shares of stock of corporations ordered charged off the taxpayer's books by the State Banking Department of Georgia.

(3) The computation of a profit of $9,840 on the sale of 176 shares of Bankers Trust Co. stock sold by taxpayer to a friendly connec tion through interlocking directorates.

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As associate corporations and closely connected with the taxpayer by interlocking directorates were the Bankers Financing Co., the Bankers Trust Co., and the Harper & Weathers Realty Co.

Some time about 1911 or 1912 the Bankers Financing Co. ceased functioning in an active manner and was superseded by the Bankers Trust Co., and all of its stock was taken over by holders of the stock of the Bankers Trust Co., which subsequently performed the functions theretofore performed by said financing company.

In 1914 a certain piece of real estate was purchased and title to same taken in the name of Harper & Weathers Realty Co., in which company the taxpayer was the holder of a majority of the stock. The initial cash payment consisted of $13,250, paid by Harper & Weathers Realty Co., and $9,250, paid by the taxpayer, under an agreement that each of the corporations should share the equity in said property in proportion to payments made. The property was purchased subject to a large encumbrance.

In January, 1919, the taxpayer carried on its books an overdraft against the Harper & Weathers Realty Co. of $632.87.

In 1919 interest on the said real estate debt, as well as taxes on same, matured and the Harper & Weathers Reatly Co. was unable to pay said obligations.

The taxpayer deposited to the credit of said realty company $1,500, against which it checked in payment of said taxes and interest claims, and at the close of the year 1919 there was an overdraft charge of $759.40. Said real estate was closed out by sale at a loss in 1921 to 1923.

In 1919 the taxpayer owned 45 shares of the stock of the Interstate Securities Co. and 17 shares of the stock of the Harper & Weathers

Realty Co., which shares were carried on the books at a valuation of $9,785 and were ordered charged off the books by the State bank examiner.

In order to comply with the order of the bank examiner and at the same time preserve its surplus fund unimpaired, it sold to the Bankers Financing Co. 176 shares of the Bankers Trust Co. at an inflated value, to the extent of $9,840 above the March 1, 1913, valuethat is, it sold said stock at $215 plus, per share. The market value of said stock in 1919 was $165 per share.

The taxpayer received at date of said sale for said stock the sum of $38,000, payment being made as follows:

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Deferred payments were to draw 7 per cent interest, payable semiannually. The record discloses the payment of notes one and two. Whether or not note three was paid is not disclosed.

OPINION.

LOVE: There are three distinct points contended for by the taxpayer:

(1) That the sum of $1,500 which was credited to the account of Harper & Weathers Realty Co. and with which the latter company paid its interest and taxes should be allowed as a deduction from gross income, either as a bad debt or as interest and taxes paid during the year 1919.

In the year 1914, as set forth in the findings of fact, the Harper & Weathers Realty Co. purchased and acquired title to a certain piece of real estate. During the year 1919 interest and taxes became due and payable with reference to the real estate so purchased. The Harper & Weathers Realty Co. found itself unable to meet such demands and the taxpayer, owning a beneficial interest in the property, agreed to advance to the record owner of the property the sum of $1,500 for the purpose of meeting the matured payments for interest and taxes. The credit extended was a loan and the same did not become a bad debt in the year 1919. The assets of the Harper & Weathers Realty Co. may not have exceeded its liabilities, but the company did own tangible assets which might have at any time enhanced in value and enabled it to meet fully its outstanding obligations. It was not determined during the year that the credit extended was a bad debt such as to be deductible from gross income. The taxpayer did not pay the $1,500 as interest on its indebtedness or as taxes on its property during the year-but loaned a sum for

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