Mertz v. Commissioner

5 B.T.A. 694, 1926 BTA LEXIS 2803

• Court: United States Board of Tax Appeals
• Decided: November 30, 1926
• Docket: Docket No. 5695.
• Status: Published

Opinion

OPINION.

Trammell:

The petitioner having received the assets in liquidation of the corporation in December, 1917, the value thereof at that time represents cost to him on the subsequent sale which occurred in 1920. The principal value of the business was in the trade name and the formula.

There was some testimony as to an offer of $100,000 for the business in 1915, but this testimony was indefinite and uncertain, the name of the person who made the offer not being known by the witness, or the terms of the offer or the capacity of such person to pay. We have considered this testimony but, in our opinion, it is not sufficient to establish the value claimed.

With respect to the record of earnings, the testimony was also uncertain and indefinite. The books having been lost or destroyed, the witness testified from memory. The petitioner may or may not have been entitled to a salary out of the earnings.

Another factor to be considered in determining the value of the intangible assets is the outlook for the future and the prospects that the business will continue to be as profitable as in the past. In our opinion, looking at the matter from the standpoint of a purchaser in 1917 of a business such as this, impending prohibition legislation would have been a factor for consideration by a prospective purchaser.

In view of the foregoing, we are not inclined to place a value on the intangible assets by the capitalization of earnings method. In our opinion, the value of the intangible assets received in 1917, including the formula, was $30,000. The loss sustained on the transaction is the difference between $30,000 and the amount of $3,000 received for both tangible and intangible assets.

With respect to the real estate sold by the taxpayer, we have the testimony of a witness who was familiar with real estate values in 1913, who had made appraisals of property on many occasions as a member of the Appraisal Committee of the Washington Real Estate Board, and who was familiar with such appraisals prior to the time he was a member of that board. From the testimony introduced, we are of the opinion that the real estate sold was worth $25,000 on March 1, 1913. Its cost prior to March 1, 1913, was less than that amount. It sold for $34,820 after deducting the real estate commissions. For the purpose of this case it makes no difference whether the real estate commissions be deducted as expense or whether they be deducted from the selling price of the property. The gain subject to tax is the difference between $25,000 and $34,820, the amount for which the property was sold, after taking into consideration the depreciation on the buildings.

Judgment will be entered after 10 days' notice, wnder Rule 50.