[1022]*1022OPINION.
'MuRdock:
The respondent has not contested the jurisdiction of the Board in this case, and has determined that the three companies were affiliated during the taxable years. We assume that for each year the facts give rise to a deficiency as defined by the statute. He has admitted that he erroneously added a profit of $100,000 to the income of the Bessemer Investment Co. for 1919, on account of the purchase by it of bonds of La Salle, Inc., an affiliated company. He further admitted an error of $1,000 in computing the loss sustained by the Bessemer Investment Co. on the sale of some stock of the Kennicott Copper Co. Both of these mistakes will be corrected upon a recomputation of the petitioner’s tax liability.
The Commissioner also erred when he determined a profit from the transaction in regard to the stock of the Standard Oil Co. of New York. Apparently he considered that the entries on the books of the Bessemer Investment Co. showed the sale of 100 shares of this stock and as the company was holding shares of this stock which it had purchased at an earlier date at a lower price, the Commissioner subtracted the purchase price from the sale price and determined that the difference was a profit. We are satisfied from the evidence that the Bessemer Investment Co. did not sell any of this stock in the year 1918, and that the Commissioner’s determination was based upon a misunderstanding of two entries in the petitioner’s books, one of which was entered by mistake and the other of which was entered intentionally to correct the mistake.
The evidence leaves us in considerable doubt in regard to the transactions in New England Co. common stock as shown by the petitioner’s boobs and we hold that the presumption of the correctness of the Commissioner’s determination has not been overcome. The petitioner contends that it had an agreement with Malcolm G. Chace [1023]*1023whereby 25 per cent of the purchases of New England Co. common stock made by it after November 2,1917, up to 250 shares were to be purchased, not for itself, but for and on account of Mr. Chace; that thereafter it purchased 192% shares for Mr. Chace at an average price of $35.89; that it transferred these shares to Mr. Chace on J anuary 1, 1919, at $35.89; and that no gain resulted on account of this transaction. It further contends that it had an agreement with Mr. Moore whereby 20 per cent of its purchases of New England Co. common stock after July 30, 1917, up to $10,000 were purchased, not for itself, but for Mr. Moore; that on J anuary 1, 1919, it transferred 235% shares at $39.717 to Mr. Moore; that, it was merely complying with its agreement, and no profit resulted to it.
The ledger and journal of the Bessemer Investment Co. show no facts which are inconsistent with this contention, but on the other hand. the book entries, the only evidence before us on this issue, are inferential only and do not prove facts which are inconsistent with the contention of the Commissioner that there was a sale in 1919. No one has testified that the Bessemer Investment Co. or anyone acting for it had such, an agreement with Mr. Chace or with Mr. Moore. No one testified that either of these men ever entered into the agreements or ratified any acts of the Bessemer Investment Co. Were these alleged agreements written or oral? When were they made and by whom? We have in evidence a pencil notation on the Bessemer Investment Co.’s ledger. We know that it was made by the bookkeeper of the Bessemer Investment Co., but we do not know when, why, or by virtue of what authority he made it. The pencil notation of the alleged agreement with Mr. Moore refers to a letter dated July 30, 1917, in regard to which we have the testimony of one witness only, who says that he made a search for this letter in the files of the Bessemer Investment Co., but was unable to find it, and that apparently he did not apply to D. T. Moore for a copy of the letter and that an unsuccessful attempt was made to get testimony from Mr. Moore with reference to the transaction. It further appears that the bookkeeper who made the pencil notations on the ledger was still in the employ of the Bessemer Investment Co. at the time of the hearing, but was not called as a witness. The facts relative to the agreements, if any, which the Bessemer Investment Co. had with these two men were peculiarly within its knowledge and were not as readily available to the respondent as they were to the petitioner. Under such circumstances we do not feel that the petitioner has sustained the burden of proof which was upon it to overcome the presumption of the correctness of the Commissioner’s determination.
[1024]*1024Henry Phipps Estates during 1918 and 1919 held the following pieces of real property situated in the City of New York:
Nos. 3, 5, 7, 9, 11, 13, 15 and 14 Bast 43rd Street, West 27tA Street and 9th Avenue, and 661 to 663 Fifth Avenue.
One of these properties, called West 27th Street and 9th Avenue, was acquired from Henry Phipps on January 31, 1909, and was entered on the books of Henry Phipps Estates at a value of $170,000. The Commissioner allocated a portion of this value to the land and used the remainder as the cost or value of the improvements in computing what he determined was a proper deduction under section 234(a) (7) of the Revenue Act of 1918 for each of the years 1918 and 1919. His treatment of the other properties was similar to his action in regard to this one.
The petitioner does not object to the ratio used in the allocation of portions of the total value to land and to improvements, nor does it object to the rate of depreciation used by the Commissioner. But it contends that the basis or starting figure should have been $215,-771.07 instead of $170,000, because the former represents the cost as shown by the books of Henry Phipps,’ the previous owner, whereas the latter represents merely the tentative (later made final) assessed valuation of the property for 1909, in the City of New York.
Assuming only for the purpose of this discussion that the books of Henry Phipps showed the cost as contended, we are unable to understand how this proves error on the part of the Commissioner. The latter determined the cost of these properties to the petitioner. We are to say whether he has determined the correct cost to the petitioner. The fact that Henry Phipps acquired this West 27th Street and 9th Avenue property in December, 1905, for $215,771.07 and transferred it to the corporation on January 31, 1909, in exchange for the latter’s stock of the total par value of $215,771.07, standing alone, can not in our opinion overcome the presumption that the Commissioner has correctly determined that the cost of the property to the petitioner was $170,000. See Appeal of Kinsman Transit Co., 1 B. T. A. 552. Especially is this true in view of the other facts which appear in this case.
The acquisition by Phipps of the properties on East 43rd Street antedated the transfer of these properties to the corporation by six or seven years instead of by only three years, as in the case of the above property. So their cost to Phipps is of even less importance in determining that their value when transferred to the corporation was greater than that allowed by the Commissioner.
On January 31, 1909, Phipps was already the owner of all but probably two qualifying shares of the stock of the corporation and the transfers of that date doubled his stockholdings in this corporation without otherwise changing the stock ownership. We do not
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[1022]*1022OPINION.
'MuRdock:
The respondent has not contested the jurisdiction of the Board in this case, and has determined that the three companies were affiliated during the taxable years. We assume that for each year the facts give rise to a deficiency as defined by the statute. He has admitted that he erroneously added a profit of $100,000 to the income of the Bessemer Investment Co. for 1919, on account of the purchase by it of bonds of La Salle, Inc., an affiliated company. He further admitted an error of $1,000 in computing the loss sustained by the Bessemer Investment Co. on the sale of some stock of the Kennicott Copper Co. Both of these mistakes will be corrected upon a recomputation of the petitioner’s tax liability.
The Commissioner also erred when he determined a profit from the transaction in regard to the stock of the Standard Oil Co. of New York. Apparently he considered that the entries on the books of the Bessemer Investment Co. showed the sale of 100 shares of this stock and as the company was holding shares of this stock which it had purchased at an earlier date at a lower price, the Commissioner subtracted the purchase price from the sale price and determined that the difference was a profit. We are satisfied from the evidence that the Bessemer Investment Co. did not sell any of this stock in the year 1918, and that the Commissioner’s determination was based upon a misunderstanding of two entries in the petitioner’s books, one of which was entered by mistake and the other of which was entered intentionally to correct the mistake.
The evidence leaves us in considerable doubt in regard to the transactions in New England Co. common stock as shown by the petitioner’s boobs and we hold that the presumption of the correctness of the Commissioner’s determination has not been overcome. The petitioner contends that it had an agreement with Malcolm G. Chace [1023]*1023whereby 25 per cent of the purchases of New England Co. common stock made by it after November 2,1917, up to 250 shares were to be purchased, not for itself, but for and on account of Mr. Chace; that thereafter it purchased 192% shares for Mr. Chace at an average price of $35.89; that it transferred these shares to Mr. Chace on J anuary 1, 1919, at $35.89; and that no gain resulted on account of this transaction. It further contends that it had an agreement with Mr. Moore whereby 20 per cent of its purchases of New England Co. common stock after July 30, 1917, up to $10,000 were purchased, not for itself, but for Mr. Moore; that on J anuary 1, 1919, it transferred 235% shares at $39.717 to Mr. Moore; that, it was merely complying with its agreement, and no profit resulted to it.
The ledger and journal of the Bessemer Investment Co. show no facts which are inconsistent with this contention, but on the other hand. the book entries, the only evidence before us on this issue, are inferential only and do not prove facts which are inconsistent with the contention of the Commissioner that there was a sale in 1919. No one has testified that the Bessemer Investment Co. or anyone acting for it had such, an agreement with Mr. Chace or with Mr. Moore. No one testified that either of these men ever entered into the agreements or ratified any acts of the Bessemer Investment Co. Were these alleged agreements written or oral? When were they made and by whom? We have in evidence a pencil notation on the Bessemer Investment Co.’s ledger. We know that it was made by the bookkeeper of the Bessemer Investment Co., but we do not know when, why, or by virtue of what authority he made it. The pencil notation of the alleged agreement with Mr. Moore refers to a letter dated July 30, 1917, in regard to which we have the testimony of one witness only, who says that he made a search for this letter in the files of the Bessemer Investment Co., but was unable to find it, and that apparently he did not apply to D. T. Moore for a copy of the letter and that an unsuccessful attempt was made to get testimony from Mr. Moore with reference to the transaction. It further appears that the bookkeeper who made the pencil notations on the ledger was still in the employ of the Bessemer Investment Co. at the time of the hearing, but was not called as a witness. The facts relative to the agreements, if any, which the Bessemer Investment Co. had with these two men were peculiarly within its knowledge and were not as readily available to the respondent as they were to the petitioner. Under such circumstances we do not feel that the petitioner has sustained the burden of proof which was upon it to overcome the presumption of the correctness of the Commissioner’s determination.
[1024]*1024Henry Phipps Estates during 1918 and 1919 held the following pieces of real property situated in the City of New York:
Nos. 3, 5, 7, 9, 11, 13, 15 and 14 Bast 43rd Street, West 27tA Street and 9th Avenue, and 661 to 663 Fifth Avenue.
One of these properties, called West 27th Street and 9th Avenue, was acquired from Henry Phipps on January 31, 1909, and was entered on the books of Henry Phipps Estates at a value of $170,000. The Commissioner allocated a portion of this value to the land and used the remainder as the cost or value of the improvements in computing what he determined was a proper deduction under section 234(a) (7) of the Revenue Act of 1918 for each of the years 1918 and 1919. His treatment of the other properties was similar to his action in regard to this one.
The petitioner does not object to the ratio used in the allocation of portions of the total value to land and to improvements, nor does it object to the rate of depreciation used by the Commissioner. But it contends that the basis or starting figure should have been $215,-771.07 instead of $170,000, because the former represents the cost as shown by the books of Henry Phipps,’ the previous owner, whereas the latter represents merely the tentative (later made final) assessed valuation of the property for 1909, in the City of New York.
Assuming only for the purpose of this discussion that the books of Henry Phipps showed the cost as contended, we are unable to understand how this proves error on the part of the Commissioner. The latter determined the cost of these properties to the petitioner. We are to say whether he has determined the correct cost to the petitioner. The fact that Henry Phipps acquired this West 27th Street and 9th Avenue property in December, 1905, for $215,771.07 and transferred it to the corporation on January 31, 1909, in exchange for the latter’s stock of the total par value of $215,771.07, standing alone, can not in our opinion overcome the presumption that the Commissioner has correctly determined that the cost of the property to the petitioner was $170,000. See Appeal of Kinsman Transit Co., 1 B. T. A. 552. Especially is this true in view of the other facts which appear in this case.
The acquisition by Phipps of the properties on East 43rd Street antedated the transfer of these properties to the corporation by six or seven years instead of by only three years, as in the case of the above property. So their cost to Phipps is of even less importance in determining that their value when transferred to the corporation was greater than that allowed by the Commissioner.
On January 31, 1909, Phipps was already the owner of all but probably two qualifying shares of the stock of the corporation and the transfers of that date doubled his stockholdings in this corporation without otherwise changing the stock ownership. We do not [1025]*1025know the market value of a share of this stock at the date of the transfer. Furthermore it is apparent from the petitioner’s evidence that Phipps did not, as contended, receive stock of a total par value of $215,771.07 for the West 27th Street and 9th Avenue property and of $700,144.44 for the East 43rd Street property, inasmuch as he only received 2,500 shares of a total par value of $250,000 in exchange for properties which, if we again assume that his hooks show the cost, cost $4,911,553.74. See his journal entry as set out in our findings of fact.
We are not certain that from the evidence we can determine what took place on January 31, 1909. The resolution of the board of directors of the corporation, passed on January 12,1909, is not before us. But it seems that Phipps transferred to the corporation 10 properties, a note of the corporation in the amount of $326,000 held by him, and rents receivable. The corporation assumed a mortgage of $400,000 on the properties and issued 2,500 shares of stock to Phipps. The market value of the note for $326,000 and the market value of the stock are unknown. How can we determine either the cost of the properties to the corporation or the market value of the properties on January 31, 1909?
In addition to the difficulties already mentioned we can not assume that the entries from the books of Henry Phipps show the cost of this property. We have no information as to who kept these books. We have no proof of that person’s experience, ability or judgment as an accountant. We do not know that he properly separated current expenses from capital items. The entries are not self-explanatory and no one has explained them. The mere fact that some person who is unknown to us has set down a number of debits and has subtracted a number of credits does not disclose the cost of a property. This is even more apparent in connection with the other properties involved in this appeal than with the West 27th Street and 9th Avenue property, since in this one the principal debits are explained as hand money and cash, whereas in some of the others there are large amounts entirely unexplained, or explained merely as accounts payable. These book entries have too many inherent uncertainties and require too many assumptions on our part to be given much weight in the evidence. And even if given weight they would prove only cost to Phipps, a fact with which we are not primarily concerned.
It appears that the property known as 661-663 Fifth Avenue, New York, was not acquired in 1909, as alleged, but was acquired, if at all, in 1911, under circumstances which are not disclosed by the evidence. The entries on Phipps’ books which refer to this property would seem to show that he acquired it only about a month before he transferred it to the corporation. But inasmuch as we [1026]*1026are left completely in the dark as to any other fact except that the property was set up on the hooks of the corporation at a value of $645,000, which value was used by the Commissioner, we can not see why we should say that the Commissioner was in error and should have used a value or cost of $985,967.38.
The danger of taking unexplained book entries as evidence of cost is exemplified in this very case. The petition alleges and some of the entries seem to show that all of the properties referred to as Nos. 3, 5, 7, 9, 11, 13, 14, and 15 East 43rd Street were transferred by Phipps to the corporation on January 31, 1909. The petition alleges that these properties had cost Phipps $902,137.36; that he transferred them at this figure to the corporation for stock in 1909, and that the corporation entered them on its books at $595,000, which figure the Commissioner used. And yet other book entries in Phipps’ books offered by the petitioner indicate that Nos. 3, 5, and 7 East 43rd Street, New York, were still carried on Phipps’ books until October 1, 1910, at which date they were transferred to the corporation and the account balanced by a credit of Henry Phipps Estates stock in the amount of $201,992.92. And it further appears that on January 31, 1909, a credit of Henry Phipps Estates stock in the amount of only $700,144.44 was entered to the property No. 14 and Nos. 3 to 15 East 43rd Street, New York. It has not been explained how property which after January 31, 1909, belonged to the corporation was still adding to its cost on the books of an individual.
We must have some proof that either the cost of these properties to the corporation on January 31, 1909, the fair market value of the properties on that date, or their fair market value on March 1, 1913, was something different from the figure used by the Commissioner and such proof must be sufficiently convincing to overcome a presumption in favor of the Commissioner’s determination. Such proof is not before us and therefore on the third allegation of error as above set forth we affirm the Commissioner.
The petitioner’s final contention is that Henry Phipps Estates suffered a loss of $89,497.73 in 1919, when it sold two pieces of improved real estate, each fronting on both 17th and 18th Streets, in New York City — one known as No. 45 West 17th Street, and the other known as No. 44 West 18th Street. It acquired these from Henry Phipps on January 31, 1909, in the same transaction in which it acquired the other properties mentioned above in our discussion of another issue in this case. We have set forth in detail in our findings the method used by the Commissioner in determining that the corporation realized a profit of $279,241.80 from the sale of these two properties.
If we are to determine this issue other than by affirming the Commissioner, we must know the relation of cost (to the seller) to fair [1027]*1027market value on March 1, 1913, and we must know the amount of that one of these two figures which forms the basis of the computation of gain or loss. Fair market value at the date of acquisition might be material also, under certain circumstances.
The petitioner’s evidence consists of: (1) book entries, similar in all essentials to the ones we have just discussed in connection with another of the petitioner’s contentions; (2) the assessed values of these two properties for tax purposes in the City of New York, in 1909, 1913, and 1919; and (3) the testimony of a witness who supervised the preparation of an appraisal which was admitted in evidence over the objection of the respondent’s counsel.
The book entries can have no more weight to overcome the presumption of the correctness of the Commissioner’s determination on this point than they had to overcome a similar presumption in the other issue. Our remarks as to those entries in our discussion of that other issue apply with like force here. We are concerned with cost to the petitioner or March 1, 1913, fair market value, and cost to one who previously owned the property for several years, even if proven, is not of itself determinative of this issue.
We know the assessed values of these properties for the purposes of taxation in New York City. But no one has related those assessed values to cost or fair market values on January 31, 1909, or March 1, 1913, and yet it is a well known fact that assessed values are not necessarily indicative of fair market values. See Pitney v. Duffy, 291 Fed. 621; Appeal of American Express Co., 2 B. T. A. 498; Appeal of William A. Daly, Administrator, 1 B. T. A. 993; and Dorr v. Massachusetts Title Insurance Co., 238 Mass. 490; 131 N. E. 191.
The petitioner called as a witness an experienced appraiser, the vice president of an appraisal company. He said he had been engaged for many years in making appraisals of land, buildings, and equipment of industrial and other concerns in New York and elsewhere in the United States. He said that he was familiar with building and construction values in New York since 1909. In December, 1925, he made a physical examination of the two properties with which we are here concerned. He told how his company had been called upon to appraise these properties and how the appraisal had been made by himself and three others under his personal direction. He then gave his opinion, based upon this appraisal, that the two properties had a fair market value on January 31, 1909, of $1,300,000 and on March 1, 1913, of $1,250,000, although the report showed a March 1,1913, value of only $1,234,681.30.
This man’s testimony and the appraisal which he prepared might be very valuable for some purposes, but as offered in this case they have but slight weight in the evidence. If the witness was familiar [1028]*1028with land values in New York either in the years 1909 or 1913, or as of 1909 or 1913, the extent of his familiarity was not shown. So far as we know he saw the properties for the first time in December, 1925. It was not shown that the properties as they then existed were substantially the same as they were in 1909, 1913, or 1919, allowance being made for the changes due to passage of time and use. The witness accepted the Phipps’ books as proof of facts, whereas we have declined to accept them as proof of those facts. The appraisal report discloses that for evidence of land values it relies upon inquiries and not upon the opinion of any of the appraisers. It also discloses that many material facts not known to the appraisers were approximated. It appears that this report purports merely to check the cost of the properties to Phipps as shown by his books and to give an estimated reproduction cost of the buildings as of March 1, 1913, plus the cost of the land to Phipps. Fair market values were arrived at mathematically by deducting depreciation from the estimated cost to Phipps. t
We have discxxssed similar appraisals heretofore in many cases. See, for example, Appeal of Rockford Malleable Iron Works, 2 B. T. A. 817; Appeal of Tibby-Brawner Glass Co., 2 B. T. A. 918; and Appeal of Carrie W. Meinhard, 3 B. T. A. 612. This particular appraisal is of no assistance to us in deciding whether there was a profit or a loss to the petitioner on the sale of this real estate. The opinion of the witness is no more convincing than his report on which his opinion was based. His estimate of the life of the buildings, if different from the Commissioner’s, is of no value until we know that he was considering substantially the same buildings as existed in 1909 or 1913.
The respondent offered no evidence other than the admitted fact that he took the value or cost of these properties as shown by the corporation’s books as the basis for his calculation. In every case before us there is a presumption that the determination of the Commissioner is correct. This presumption may be overcome by proof, and where the method of arriving at his determination is unexplained or appears to be an arbitrary, improper or unreasonable method, the presumption may be overcome by very slight proof. But in any case there must be proof of some fact which tends to show the incorrectness of the Commissioner’s determination. In this case on this issue we have searched in vain for proof of any such fact and therefore affirm the Commissioner.
Judgment will be entered on notice of 15 days, under Rule 50.
Considered by Trammell, Morris, and Siefkin.