[1102]*1102OPINION.
ARuñdell:
Since we have no jurisdiction over deficiencies asserted under revenue acts enacted prior to the Revenue Act of 1916, we can not consider the deficiencies proposed to be assessed for the years 1909 to 1913, inclusive. Appeal of David B. Mills, 1 B. T. A. 199. Nor have we been shown any basis for taking jurisdiction [1103]*1103over the years 1916 and 1918, in which years petitioner has been advised of overassessments. Our determination will therefore be limited to the deficiencies asserted for the years 1919 and the first two months of 1920.
By stipulation of the parties the right of the petitioner to include in invested capital the actual cash value of archives, circulation, and good will acquired for stock, at the date of acquisition, is admitted. This leaves solely the question as to their value at the date of acquisition. In our findings of fact we have found that the circulation of the Despatch had a value when acquired of $4,i00. This is predicated upon a subscription list of 900 names, and the evidence convinces us that the value thereof at the date of acquisition was not less than $5 per name. As to the value of the archives and good will, the evidence is insufficient to support a finding as to what that value may have been. The invested capital as computed by the Commissioner, in the deficiency letter, should be increased by the amount of $4,500.
The second question is whether the petitioner is entitled to include in invested capital as paid-in surplus the sum of $18,237.01, representing the value of the circulation and good will of the Decatur Evening Republican, which assets were paid in by petitioner’s stockholders without any consideration therefor. Of the value agreed ivpon $15,000 was assigned to the circulation. It was further stipulated by the parties that said sum of $18,237.01 should be added to the invested capital, as shown by the deficiency letter, if the Revenue Acts of 1917 and 1918 authorize the inclusion in invested capital, as paid-in surplus, of the actual cash value of intangibles paid in to a corporation without any consideration therefor.
Section 207 of the Revenue Act of 1917, in so far as it is pertinent to the present inquiry, defines invested capital as:
(a) In the case of a corporation or partnership: (1) Actual cash paid in, (2) the actual cash value of tangible property paid in other than cash, for stock or shares in such corporation or partnership, at the time of such payment (but in case such tangible property was paid in prior to January first, nineteen hundred and fourteen, the actual cash value of such property as of January first, nineteen hundred and fourteen, but in no case to exceed the par value of the original stock or shares specifically issued therefor), and (3) paid in or earned surplus and undivided profits used or employed in the business, exclusive of undivided profits earned during the taxable year: Provided, That (a) the actual cash value of patents and copyrights paid in' for stock or shares in such corporation or partnership, at the time of such payment, shall be included as invested capital, but not to exceed the par value of such stock or shares at the time of such payment, and (b) the good will, trademarks, trade brands, the franchise of a corporation or partnership, or other intangible property, shall be included as invested capital if the corporation or partnership made payment bona fide therefor specifically as such in cash [1104]*1104or tangible property, the value of such good will, trade-mark, trade brand, franchise, or intangible property, not to exceed the actual cash or actual cash value of the tangible property paid therefor at the time of such payment; but good will, trade-marks, trade brands, franchise of a corporation or partnership, or other intangible property, bona fide purchased, prior to March third, nineteen hundred and seventeen, for and with interests or shares in a partnership or for and with shares in the capital stock of a corporation (issued prior to March third, nineteen hundred and seventeen), in an amount not to exceed, on March third, nineteen hundred and seventeen, twenty per centum of the total interests or shares in the partnership or of the total shares of the capital stock of the corporation, shall be included in invested capital at a value not to exceed the actual cash value at the time of such purchase, and in case of issue of stock therefor not to exceed the par value of such stock.
Section 826 of the Revenue Act' of 1918 defines invested capital as follows:
(1) Actual cash bona fide paid in for stock or shares;
(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such payment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commissioner to have been clearly and substantially in excess of such par value, in which case such excess shall be treated as paid-in surplus: Provided, That the Commissioner shall keep a record of all cases in which tangible property is included in invested capital at a value in excess of the stock or shares issued therefor, containing the name and address of each taxpayer, the business in which engaged, the amount of invested capital and net income shown by the return, the value of the tangible property at the time paid in, the par value of the stock or shares specifically issued therefor, and the amount included under this paragraph as paid-in surplus. The Commissioner shall furnish a copy of such record and other detailed information with respect to such cases when required by resolution of either House of Congress, without regard to the restrictions contained in section 257;
(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year;
(4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest;
(5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year, whichever is lowest: Provided, That in no ease shall the total amount included under paragraphs (4) and (5) exceed in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year; * * *
In neither of the sections of the two Acts quoted above is any reference made specifically to intangible property paid in to a corpo[1105]*1105ration- without any consideration therefor. Both Acts specifically include within the definition of invested capital, intangible property bona fide paid in for stock or shares, subject to certain limitations. Unless intangibles acquired without cost can be included as a paid-in surplus they can not be included at all. Subdivision (a) (3) of section 207 of the Revenue Act of 1917 and subdivision (a) (3) of section 326 of the Revenue Act of 1918, taken by themselves, might conceivably be construed to permit the inclusion in invested capital of a paid-in surplus in respect of intangible property acquired by way of gift. It seems clear to us, however, that in providing for the inclusion in invested capital of intangibles paid in for stock or shares, subject to very specific and arbitrary limitations, Congress intended to exclude intangibles paid in as a gift. It would be absurd construction indeed which would permit the inclusion in invested capital, under very arbitrary limitations, of intangibles paid in for a consideration, and at the same time permit the inclusion of intangibles paid in as a gift to the full extent of their actual cash value. It will be noted that under the provisions of both Acts intangibles paid in for stock or shares can not be included in invested capital to the full extent of their actual cash value, if that value exceeds the par value of the stock issued therefor or a fixed percentage of the outstanding capital stock at March 3, 1917, or the beginning of the taxable year, whichever is lower. This we believe lends strength to the construction which we have placed upon the statutes. Reading together subdivisions (a) (3) and (a) (4) of the sections above quoted, we feel constrained to hold that the petitioner is not entitled under the Revenue Acts of 1917 and 1918, to include in invested capital, as paid-in surplus, intangibles acquired by way of gift.
By stipulation of the parties it is agreed that if the petitioner’s contention, that intangibles paid in as a gift should be included in invested capital as paid-in surplus, is rejected by the Board, then the invested capital shown in the deficiency letter should be increased by the sum of $15,000, representing the actual cash value of the circulation paid in by the stockholders without consideration, provided the Board finds that newspaper circulation is tangible property.
The term circulation, as used in newspaper publishing businesses, comprehends something much broader than what may be characterized as mere subscription lists. As a practical matter it appears to be rather difficult to distinguish it from good will. It possesses many of the attribútes of good will, and yet comprises other elements not common to the latter. It comprehends, on. the one hand, a body of subscribers whom experience has demonstrated may be relied upon with some degree of certainty to continue to take and renew their [1106]*1106subscriptions to the paper in the future. On the other hand, it includes within its scope an established advertising clientele who use the paper as a medium by which to reach the purchasing public. The paper assembles the individuals constituting the public in such a way that the advertiser can reach them by one announcement. Hence, what the advertiser buys is the privilege of addressing the people assembled by the paper. Quantity and quality of the circulation are the determinative factors in establishing the advertising rates of a newspaper. Quantity as expressed in units; quality as denoting not only the character of the readers whom it attracts, but also the editorial and advertising policies of the paper, and the extent to which the subscribers are concentrated within the retail trading radius. By editorial policy is meant not only the political bias of the paper, but the broad treatment of news, whether sensational, moderate or conservative; the scope of the paper’s appeal, whether to the masses or a class; and similar policies which go to make up a paper’s individuality. The rate the advertiser pays is not based, fundamentally, upon the space he uses, but upon the circulation back of that space.
Circulation, in reality, is the very foundation upon which a newspaper publishing business is built. It is always a matter of first importance in the purchase and sale of a newspaper publication. It is often the subject of barter and sale, and may be transferred separately from the remainder of the business. It is now the subject of a systemized audit conducted by an audit bureau, whose membership is made up of owners of newspaper publications. We think that in its important characteristics it is so closely related to good will that it must be included as “ other like property ” within the definition of intangible property as laid down in section 325(a) of the Revenue Act of 1918. Accordingly, we must approve the Commissioner’s action in refusing to allow a paid-in surplus, for invested capital purposes, in respect of the circulation and good will, formerly the property of the Decatur Evening Republican, paid in to the petitioner by its stockholders without consideration therefor.
The third question is whether the Commissioner is correct in reducing the invested capital for the taxable year 1919 by the amount of the income and profits-tax liability for the years 1917 and 1918. Since the adjustment of invested capital as made by the Commissioner is in conformity with the provisions of the regulations in force in respect of the year 1919, the appeal, so far as it pertains to this proposition, must be denied in accordance with the provisions of section 1207 of the Revenue Act of 1926.
The fourth question is whether the petitioner took a deduction, in computing its net income for the taxable year 1917, of $628.73, representing the income-tax liability in respect of the year 1916. It [1107]*1107is noted from the deficiency letter that while the Commissioner has found a deficiency in respect of the year 1917, he does not propose to assert the same, as the statute of limitations has run and now bars its assessment. Therefore, this Board is without jurisdiction to consider and decide the question here raised. However, it should be pointed out that the Commissioner has stipulated that the petitioner did not make such a deduction in computing its net income for the taxable year 1917.
The remaining question for decision is whether the petitioner realized a taxable profit upon the sale of its assets and business in 1920. The Commissioner, in the deficiency letter, computed a taxable profit upon the transaction of $28,398.13. The Commissioner’s computation is set out in our findings of fact. It will be noted from that computation that the Commissioner has determined the March 1, 1913, value of the intangibles plus the cost of subsequent additions to be $112,163.72, and that the book value of the assets classified by the Commissioner as intangibles was, at the date of sale, $157,586.17. Throughout the computation the Commissioner has treated circulation structure and archives as intangible property. The March 1,1913, value of intangibles was determined by the Commissioner by deducting from the average earnings of the five years next preceding 1913 an amount equivalent to 8 per cent of the average tangibles for the same period, and capitalizing the remainder at the rate of 15 per cent. The Commissioner stipulated that the cost of additions to circulation structure which were made subsequent to March 1, 1913, was $13,852.56 rather than $9,614.86, as shown in his computation, and that proper adjustment should be made to correct this error. The Commissioner stipulated further that the cost to petitioner of its circulation structure to March 1, 1913, was $76,218.95. Both parties agree that the basis for the determination of any gain or loss from this transaction should include the amount of any overpayments by the petitioner of income and profits taxes for the years 1917 to 1919, inclusive, and that the consideration or selling price will be affected by any change in the Commissioner’s determination of the income and profits-tax liability of the petitioner for the year 1919 and the two-month period ended February 29, 1920.
The first contention of the petitioner is that in the determination of the March 1, 1913, value of its intangibles the Commissioner should not have resorted to an arbitrary formula when other and better evidence of such value was available. Several witnesses testified during the hearing as to the character of the intangible properties owned by this petitioner at March 1, 1913, their relation to the petitioner’s business and their importance and great value in the conduct thereof. Only one expressed an opinion as to the fair market value [1108]*1108of these properties at March 1, 1913. This witness had been connected with the petitioner, in some capacity not disclosed to us, from 1912 to 1920, when the business was sold. He estimated the March 1, 1913, values of the petitioner’s intangible properties to be as follows: Circulation structure, $76,000 to $100,000; Associated Press membership, more than $10,000; good will, $25,000 or more; and contract with Review Publishing Co., ■ dated August 23, 1899, $18,000 to $20,000. He also expressed an opinion that the March 1, 1913, value of the petitioner’s archives (morgue) was about $15,000. Another former employee of the petitioner testified that in his opinion $12,000 would represent a conservative value for the archives at March 1, 1913.
The next contention of the petitioner is that, if the formula used by the Commissioner for computing the March 1, 1913, value of intangibles is approved and adopted by the Board, the rate of 15 per cent used by the Commissioner for capitalizing the earnings, in excess of a return of 8 per cent on the net tangibles, is too high. However, the petitioner produced no evidence in support of this contention. During the oral argument counsel for petitioner asked us to adopt a rate of 12.42 per cent in lieu of the 15 per cent rate used by the Commissioner. Said rate of 12.42 per cent was computed by the petitioner in the following manner:
Net tangible assets at date of sale, as computed by tbe Com-missioner_$126, 631.46
Average earnings for five-year period preceding date of sale- 27, 609.94
Less: 8% on net tangibles_ 10,130. 52
Earnings attributable to intangibles_ 17, 479.42
Total consideration received for assets, as determined by Com-missioner_ 267,193. 31
Less: Net tangibles as shown above_ 126, 631. 46
Consideration received for intangibles- 140, 561. 85
Percentage that $17,479.42 bears to $140,561.85_ 12.42
The computation is based upon an assumption that the tangible assets were purchased :n 1920 by the vendee at their book value; while the intangibles were purchased at a value based upon a capitalization of excess earnings on the basis of an eight-year purchase. These are assumptions which the petitioner has not established, by any competent evidence, to have been the actual facts. Further, we have no reason to believe that a willing purchaser would have purchased these intangibles at March 1, 1913, upon the same basis on which they were sold in 1920.
Speaking now in respect of the petitioner’s contract with the Review Publishing Co., dated August 23, 1899, upon which one of the petitioner’s witnesses placed a value at March 1, 1913, of [1109]*1109$18,000 to $20,000, we are of the opinion that that contract had no value at that date which should be included in the basis for the determination of the gain or loss realized by the petitioner upon the sale of its assets in 1920. The Review Publishing Co. was bound by its covenants for a period of but one year; hence, the life of the contract, so far as it conferred any benefits upon the petitioner, did not extend beyond that period. At any rate the contract had expired six years before the petitioner sold its business in 1920; hence, this contract could not have been one of the assets conveyed to the purchaser in 1920, and no part of the purchase price received for the business can be deemed to have been consideration for the contract.
We think from the evidence before us that the value which the Commissioner has placed upon the intangibles at March 1, 1913, to wit, $102,548.86, represents the fair value of the circulation, good will, and Associated Press franchise at that date, and that such value was properly used by the Commissioner in the determination of the gain or loss on this transaction.
From the evidence before us we find that the value of - the archives at March 1, 1913, was not less than $12,000. The archives' are tangible property and the Commissioner erred in treating them as intangible property for the purpose of the computation.
Order of rede,termination in accordance with the foregoing findings of fact and opinion will be entered on 15 days' notice, under Rule 50.
Geeen, Smith, and Trttssell dissent.