Muir v. Commissioner

4 B.T.A. 893, 1926 BTA LEXIS 2138

• Court: United States Board of Tax Appeals
• Decided: September 22, 1926
• Docket: Docket Nos. 6500 and 6502.
• Status: Published

Opinion

OPINION.

Aeundbll:

The Commissioner has determined the March 1, 1913, value of the shares of stock in the Robert Lewis Co., Inc., owned by these petitioners to be $200.36 per share. This figure not only represents the book value of the shares as of the basic date, but also the price paid for a portion of the holdings of these petitioners on January 1, 1913. The contention is now made that the sales were not representative and that the book value does not represent the fair market value on March 1,1913, of the shares of stock.

Petitioners seek to increase the value of the shares by finding that the Robert Lewis Co., Inc., had a valuable good will which was not reflected on its books. They assert that this value may properly be determined by capitalizing at 10 per cent all earnings in excess of a return of 8 per cent on the tangible assets.

The only evidence offered in the attempt to prove good will was the average annual earnings and the average tangible assets as shown by the books of the years 1908 to 1912, inclusive. These figures, standing alone, are not sufficient evidence of the existence of good will to warrant our disturbing the Commissioner’s finding. Appeal of Rock Spring Distilling Co., 2 B. T. A. 207. Furthermore, the position of the petitioners is obviously inconsistent in asking that we compute good will on the basis of the book figures submitted while at the same time alleging that the books were improperly kept.

The Commissioner admits that the petitioner Lewis sustained a loss on the sale' of his interest ,in the partnership. The dispute arises as to whether the loss was sustained in 1920 or 1921. The petitioner claims it as a deduction from income for 1920, whereas the Commissioner has allowed it as a deduction from 1921 income.

The petitioners contend that a contract had been entered into by the partners prior to December 31, 1920, and that all that remained to be done at the close of the year was the mechanical task of taking an inventory. While it appears that there was an agreement between the partners prior to December 31, 1920, it is clear from the evidence that the transaction was not completed until January 12, 1921. In Appeal of A. J. Schwarzler Co., 3 B. T. A. 535, we said, at p. 539:

We think that a loss is sustained, within the meaning of the law, only when it is a realized loss and is evidenced by a completed and closed transaction.

■ Applying this principle to the present appeal, we are of the opinion that the loss was not sustained in the year 1920.

The deficiency for the year 1920 in the case of Joseph Z. Muir is $8,610.30 a/nd in the case of George Lewis $11,365.98. Orders will be entered accordingly.