stock and cash. The nature of the assets conveyed by the California corporation to the Delaware corporation are set out in the bill of sale which reads as follows:

FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, L. J. CHRISTOPHER COMPANY, a corporation, organized and existing under and by virtue of the laws of the State of California, hereinafter referred to as the vendor, of the one part, hereby grants, conveys and assigns to L. J. CHRISTOPHER COMPANY, a corporation, organized and existing under and by virtue of the laws of the State of Delaware, hereinafter referred to as the vendee of the other part, all that certain personal property consisting of the stock of goods, wares, and merchandise, materials, manufactured articles, machinery, trucks, equipment, and all personal property owned by the vendor herein and which is now in and about those certain premises heretofore operated by said vendor on Lots 1, 2, 3, 9, 10, and 11, of Tract No. 2651, in Los Angeles City, and all property, including good will, owned by said vendor, save and except real estate (including buildings) and cash (including bills and accounts of every kind outstanding). It is understood and agreed between said parties that all of the said properties are free from encumbrances.

For these assets petitioner paid $125,000 in cash and $125,000 in preferred stock. There is no evidence as to the separate values of the property conveyed by the above quoted bill of sale. There is no evidence of the values of such property as set upon the books of petitioner.

Presumably these values were equal to the price which petitioner paid for such property, but whether that is true or not, petitioner was entitled to include the price paid for them as invested capital, subject to whatever limitations are imposed by section 326 of the Revenue Act of 1921. There is no evidence that respondent imposed any limitations under said section in computing petitioner's invested capital, and so far as the facts before us show, respondent allowed petitioner invested capital to the extent of every cent it paid for the assets which it acquired by the bill of sale.

Now it is perfectly true that if the Commissioner, because of the fact that this mixed aggregate of tangible property and intangible property was paid in for petitioner's stock, was unable satisfactorily to determine the respective values of the several classes of property at the time of payment or to distinguish the classes of property paid in for petitioner's stock, petitioner would be entitled to special assessment, as provided in section 328 of the Revenue Act of 1921. But we have searched the entire record carefully and we find nothing to show that the Commissioner labored under any such inability. On the contrary, the Commissioner appears to have allowed peti

tioner all the invested capital to which it has shown itself entitled under the law. The record shows that respondent allowed petitioner invested capital for 1921 of $279,745.85.

In the case of Cramer & King, 13 B. T. A. 399; affirmed in 41 Fed. (2d) 24, where a taxpayer was seeking special assessment on the ground that installation costs of machinery had been charged to expense but there was no evidence that such costs could not be determined, the Board denied special assessment, holding that a taxpayer should be held to a reasonable diligence in determining its invested capital and it is only after a showing of reasonable diligence and the resulting inability then to establish invested capital that the relief provisions would be applied. Special assessment was denied for the same reason in Edwin M. Knowles China Co., 9 B. T. A. 1292, and Duquesne Steel Foundry Co., 15 B. T. A. 467; affd., 41 Fed. (2d) 995; 283 U. S. 799, where no proof was submitted of invested capital allowed by the Commissioner, nor the basis used in its computation. Cf. Cohn Goldwater Co., 15 B. T. A. 970; Semon Bache Co., 20 B. T. A. 275.

All that petitioner has shown in the instant case in respect to its invested capital is that a mixed aggregate of tangibles and intangibles was paid in for petitioner's stock, but it has certainly not proved that the Commissioner was either unwilling or unable to determine the respective values of the property so paid in. We have no evidence before us showing or tending to show that the Commissioner has failed to allow petitioner all the invested capital to which it is entitled under the law. We find no evidence in the record showing either an abnormality of income or an abnormality of invested capital and this being the state of the evidence, special assessment is denied.

Reviewed by the Board.

Decision will be entered for the respondent.

ESTATE OF L. W. MALLORY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 33231. Promulgated February 13, 1933.

1. Evidence does not establish petitioner's claim for deduction of certain alleged business expenses in the taxable years.

2. Advances to a corporation by its principal stockholder, represented by unpaid corporation notes, are in the nature of additional capital contributions to the extent of the amount of such notes unpaid at the date of their surrender and cancellation in consideration for stock, and their face value, representing the amount of such advances, is the cost of the stock issued therefor.

H. S. Snyder, Esq., and M. J. Holland, Esq., for the petitioner. J. R. Johnston, Esq., for the respondent.

This appeal, which is prosecuted by the executors of L. W. Mallory, deceased, seeks to review the respondent's action in asserting income tax deficiencies of $1,458.77 and $3,822.48 against decedent's estate for the years 1923 and 1924, respectively. The petitioner alleges that respondent erred in his computation of the taxes in that he rejected as deductions from gross income certain amounts claimed as business expenses and losses sustained by the taxpayer in the years reviewed.

FINDING OF FACT.

For many years prior to and including the taxable years, L. W. Mallory was engaged in the wholesale grocery business at Sioux City, Iowa. In 1922 he voluntarily became the sole financial backer of a corporation known as the Homer Land and Cattle Company, which was organized by his son, L. C. Mallory, and two associates, C. J. O'Connor and T. L. Carrabine. The authorized capital stock of the corporation was $50,000 par value, of which $15,000 was paid in at the time of organization and stock issued to the three incorporators, 60 shares each going to L. C. Mallory and C. J. O'Connor, and 30 to T. L. Carrabine. The only cash paid by the incorporators was $2,500 by C. J. O'Connor. The balance of initial capital, to wit, $12,500, was borrowed from the Sioux City National Bank upon promissory notes which decedent guaranteed.

The Homer Land and Cattle Company began business in the fall of 1922. Its promoters realized early in the following year that losses were inevitable and that more capital would be required to carry it over into more favorable periods. In this situation O'Connor became dissatisfied and the decedent eliminated him by returning to him his cash investment of $2,500 and taking over his stock in the corporation. On August 24, 1923, upon call from the bank, the decedent paid notes given to it by the incorporators at the time of organization, amounting to $12,500, in virtue of which he became the sole owner of all the outstanding capital stock of the corporation. During 1923 the decedent advanced to the corporation money with which to buy feed, which in the aggregate amounted to $16,500, for which he held promissory notes of the corporation at the end of that year. In order to establish a deductible loss from shrinkage in value of his 150 shares of the corporation stock, the decedent, sometime in October, 1923, sold said shares to his son in consideration for the latter's demand promissory note for the sum of $1,500, secured by a pledge of the stock and other securities as

collateral. Some time in 1924 he accepted a payment of $300 on such note. On December 31, 1923, the decedent had issued to him by the corporation, 150 shares of its unissued stock, paid for by the cancellation of notes due him for loans previously made in the amount of $15,000.

During 1924 the decedent made further advances of money to the Homer Land and Cattle Company and took the notes of the corporation therefor. As business permitted the corporation made some payments on such notes, and from time to time the stock of the corporation was issued to him in consideration of the cancellation of unpaid notes. In this manner in the year 1924 the decedent acquired 350 shares of the corporation stock by the surrender and cancellation of notes of the face value of $35,000. On November 30, 1924, the decedent transferred this stock to his son in consideration for the latter's personal promissory note for $14,000, secured by a pledge of the stock certificates. No payment has ever been credited on such note.

In each of the sales of stock by the elder Mallory to his son, the price was based on the book value of such stock at the respective dates.

In his income tax returns for 1923 and 1924, the taxpayer deducted $13,500 and $21,000, respectively, from gross income for such years as losses sustained by him in sales of his stock in the Homer Land and Cattle Company, under the circumstances above stated. He also claimed $2,429.63 and $900, respectively, as deductions for traveling expenses in such years. The respondent, in his audit, disallowed all of these claims excepting the traveling expense item for 1923, which he allowed in part to the extent of $479.66.

OPINION.

LANSDON: No evidence was introduced at the trial of this cause to show that the items grouped as "traveling expenses which petitioner claims were legal deductions from decedent's income in the years reviewed. Without some proof as to what these disbursements were for we are unable to hold that the respondent erred in rejecting them as legal deductions from income for the years to which they relate and his action in reference to them is therefore approved. Barnett Weiss, 3 B. T. A. 228; E. S. Frischkorn, 7 B. T. A. 431; E. L. Potter, 20 B. T. A. 252; and Golding & Hahn Co., 15 B. T. A. 499.

The petitioner's next claim is that the taxpayer sustained losses in the respective amounts of $13,500 and $21,000 in the years 1923

and 1924, through the sale of capital stock in the Homer Land and Cattle Company. The record shows that the decedent was responsible for the organization of the Homer Land and Cattle Company, and that on August 24, 1923, he became the sole owner of its stock then outstanding. The corporation lost money from its beginning, and he paid its bills and loaned it money for which he was paid, in part, with stock at par, which he assigned to his son at book value, as set out in our findings of fact.

The evidence convinces us that the sales of stock made by decedent to his son in October, 1923, and November 1924, were bona fide transactions for adequate consideration and that after such dates the son was the owner of the stock in question. If the cost of the stock so disposed of is proved by the record, the petitioner is entitled to the deductions claimed. Paul Akers Bowden, 26 B. T. A. 1410.

The record discloses that on August 24, 1923, the decedent became the sole owner of all the outstanding stock of the corporation, to which he thereafter loaned substantial sums of money, evidenced in all instances by the promissory notes of the borrower. To the extent of $15,000 in 1923 and $35,000 in 1924, such notes were surrendered and canceled in consideration of the issuance of unissued stock of the corporation to him in the respective quantities of 150 and 350 shares, so that at November 24, 1924, he was the owner of all the outstanding stock of the corporation, except as above set out. In these circumstances we think it is clear that all the advances represented by the unpaid promissory notes of the corporation must be regarded as capital contributions and, therefore, that the stock cost the decedent $100 per share. Howard W. Starr, 1 B. T. A. 681; cf. Chicago, Indianapolis & Louisville Ry. Co., 10 B. T. A. 1143.

The petitioner contends that all the transactions through which the decedent acquired the stock of the corporation were entered into for profit. The record discloses that the elder Mallory always took notes for advances to his son and to the corporation. The notes of the son were secured by collateral and one payment of $300 was made on that which was taken in 1923. The loans to the corporation were evidenced by promissory notes, some of which were paid in cash and the balance by the issuance of stock. Decedent was a successful business man, but like most such men he sometimes embarked on enterprises that were unprofitable. In our opinion the evidence clearly disproves that he had any intention of giving his son the various amounts which he advanced to acquire the stock of the corporation and finance its operations.

Respondent also argues that, in any event, Mallory's subsequent purchase of a like number of shares of the same stock from the cor