[1251]*1251OPINION.
Littleton:
Several questions were raised by the petition but all except two were withdrawn or stipulated. It is stipulated that the Commissioner’s determination with respect to the deduction of the commissions paid by petitioner on the sale of its preferred stock, and the Commissioner’s determination with respect to the reduction of invested capital for the years in question by the prorated amount of income and profits tax shown to be due on returns filed for said years and by the amount of additional tax for said years found to be due by the Commissioner was correct. In accordance with stipulation filed, the depreciation agreed upon, the value of property, and the rates established by the Commissioner with respect thereto are approved.
The two remaining questions are: (1) Whether the petitioner may include in invested capital for the years 1918, 1919, and 1920, the amount of $223,'749.11 expended during the years 1908 to 1914, inclusive, for development of the trade-mark “Wunderhose”; (2) whether contributions made by the petitioner during the taxable years in question to the American Protective Tariff League and The League of Industrial Eights, of both of which petitioner was a member, were proper deductions from gross income as ordinary and necessary expense.
The petitioner was during the taxable years, and still is, engaged in the manufacture and sale of hosiery. Prior to 1908 it sold to jobbers and had no trade-mark or trade names. In 1908 it adopted the trade-mark “Wunderhose” and decided upon an intensivé advertising campaign to cover a period from the end of 1908 until during the year 1914, involving the expenditure of approximately [1252]*1252$35,000 a year to establish the trade-mark “Wunderhose,” and to build up a market for its product.
Approximately $35,000 a year was spent in advertising “ Wunder-hose ” during this campaign. After the year 1914, when the campaign closed, only about $2,500 a year was spent for general advertising purposes. The sales of “ Wunderhose ” increased from about $115,000 in the first year of the inauguration of the advertising campaign to more than $354,000 during the campaign, and to $1,527,-289.52 in 1920, the last taxable year in question.
It is evident that the amount of $223,749.77 for advertising purposes during the years 1908 to 1914, inclusive, was out of all proportion to the petitioner’s business at that time, and is evidence of the fact, as was testified to by all of the officers of the corporation and others who were in a position to know, that it had in view the establishment of a- permanent asset rather than merely increasing current business.
The Commissioner, while admitting that large sums were expended for advertising purposes, contends that the expenditures made were not of a capital nature but were ordinary and necessary expenses for the respective years, and as such amounts were charged to expense on the books of the petitioner it should not be permitted to restore the amounts to invested capital. The Commissioner further contends that even though a portion of the amount expended in this advertising campaign could be regarded as a.capital expenditure, the petitioner has never made any segregation of the amount which could be properly termed a capital expenditure and the amount that represented a current expense item, and that the resulting capital asset, if any, did not have the value claimed during the taxable years.
The amount of money spent for expansion and promotion of its business by advertising the “ Wunderhose ” is not in dispute. The only question is whether the amount so spent was properly chargeable to current expense or whether at this time petitioner should be permitted to restore to capital the expenditures previously recorded on the books as current expense.
That an erroneous recordation of an expenditure is no bar to its ultimate restoration to its proper status for income and profits-tax purposes has been stated by the Board on several occasions. Appeal of Gilliam Mfg. Co., 1 B. T. A. 967; Appeal of Union Metal Mfg. Co., 1 B. T. A. 395; and Appeal of Goodell-Pratt Co., 3 B. T. A. 30.
In each of the above-cited appeals, the fact that the expenditures were of a capital nature was not in dispute, whereas in this proceeding the main question at issue is whether the expenditures were of such a definite capital nature that they may be restored to, and considered a part of, petitioner’s invested capital for the years on ap[1253]*1253peal. Expenditures made in prior years and charged to expense will not be restored to capital in the absence of satisfactory evidence that the amount sought to be restored was specifically expended in the acquisition of an asset of a permanent nature. Appeal of Cramer-Krasselt Co., 3 B. T. A. 388; Appeal of Northwestern Yeast Co., 5 B. T. A, 232.
The petitioner argues with much plausibility that the expenditures in question resulted in the acquisition of an asset from which benefits ran to it through the succeeding years after the advertising campaign ceased and that therefore the entire amount should be considered a capital expenditure. It appears that after the expenditures ceased “ Wunderhose ” continued to be sold even in greater volume than before and we are asked to say, along a line of -syllogistic reasoning, that therefore an asset of-a permanent nature was acquired with the payment of $223,749.77 therefor, which should be capitalized.
The first difficulty arises from an inability to make a satisfactory segregation as between capital and expense of the entire amounts expended. It is evident that the petitioner was looking more to future, than present, sales when the advertising campaign was authorized and carried out, but it is likewise apparent that a substantial part of the amount in question produced immediate, rather than prospective, benefits. The public has a short memory concerning such matters as we are -here dealing with. Because of this fact, established concerns continue their advertising campaigns in order to keep constantly before the people the -product which they are manufacturing, as well as to prevent the usurpation of its place in the minds of the purchasing public by a similar article. The-petitioner’s product was of an inexpensive and short-lived nature and, therefore, the users of 1914 would not in all probability be the users in succeeding years without continued advertising, unless the character of the hose became so impressed on their minds that they would continue to ask for the same trade brand. The petitioner answers this argument by showing that its sales of “ Wunderhose ” not only continued after the advertising campaign closed, but also increased in the succeeding years. As to this we can not overlook the fact that the years- following 1914 were abnormal- years when other factors may have caused the continued sales in this line of goods and that the sales of the other products of the petitioner’s plant showed a corresponding increase, without extended advertising. It should be noted, also that traveling salesmen wore constantly engaged in securing orders for “ Wunderhose ” in the same manner as -they did for petitioner’s other products. •
As we have heretofore said in this opinion, the manner in which the petitioner treated its expenditures for advertising on its books [1254]*1254is not conclusive of their nature.
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[1251]*1251OPINION.
Littleton:
Several questions were raised by the petition but all except two were withdrawn or stipulated. It is stipulated that the Commissioner’s determination with respect to the deduction of the commissions paid by petitioner on the sale of its preferred stock, and the Commissioner’s determination with respect to the reduction of invested capital for the years in question by the prorated amount of income and profits tax shown to be due on returns filed for said years and by the amount of additional tax for said years found to be due by the Commissioner was correct. In accordance with stipulation filed, the depreciation agreed upon, the value of property, and the rates established by the Commissioner with respect thereto are approved.
The two remaining questions are: (1) Whether the petitioner may include in invested capital for the years 1918, 1919, and 1920, the amount of $223,'749.11 expended during the years 1908 to 1914, inclusive, for development of the trade-mark “Wunderhose”; (2) whether contributions made by the petitioner during the taxable years in question to the American Protective Tariff League and The League of Industrial Eights, of both of which petitioner was a member, were proper deductions from gross income as ordinary and necessary expense.
The petitioner was during the taxable years, and still is, engaged in the manufacture and sale of hosiery. Prior to 1908 it sold to jobbers and had no trade-mark or trade names. In 1908 it adopted the trade-mark “Wunderhose” and decided upon an intensivé advertising campaign to cover a period from the end of 1908 until during the year 1914, involving the expenditure of approximately [1252]*1252$35,000 a year to establish the trade-mark “Wunderhose,” and to build up a market for its product.
Approximately $35,000 a year was spent in advertising “ Wunder-hose ” during this campaign. After the year 1914, when the campaign closed, only about $2,500 a year was spent for general advertising purposes. The sales of “ Wunderhose ” increased from about $115,000 in the first year of the inauguration of the advertising campaign to more than $354,000 during the campaign, and to $1,527,-289.52 in 1920, the last taxable year in question.
It is evident that the amount of $223,749.77 for advertising purposes during the years 1908 to 1914, inclusive, was out of all proportion to the petitioner’s business at that time, and is evidence of the fact, as was testified to by all of the officers of the corporation and others who were in a position to know, that it had in view the establishment of a- permanent asset rather than merely increasing current business.
The Commissioner, while admitting that large sums were expended for advertising purposes, contends that the expenditures made were not of a capital nature but were ordinary and necessary expenses for the respective years, and as such amounts were charged to expense on the books of the petitioner it should not be permitted to restore the amounts to invested capital. The Commissioner further contends that even though a portion of the amount expended in this advertising campaign could be regarded as a.capital expenditure, the petitioner has never made any segregation of the amount which could be properly termed a capital expenditure and the amount that represented a current expense item, and that the resulting capital asset, if any, did not have the value claimed during the taxable years.
The amount of money spent for expansion and promotion of its business by advertising the “ Wunderhose ” is not in dispute. The only question is whether the amount so spent was properly chargeable to current expense or whether at this time petitioner should be permitted to restore to capital the expenditures previously recorded on the books as current expense.
That an erroneous recordation of an expenditure is no bar to its ultimate restoration to its proper status for income and profits-tax purposes has been stated by the Board on several occasions. Appeal of Gilliam Mfg. Co., 1 B. T. A. 967; Appeal of Union Metal Mfg. Co., 1 B. T. A. 395; and Appeal of Goodell-Pratt Co., 3 B. T. A. 30.
In each of the above-cited appeals, the fact that the expenditures were of a capital nature was not in dispute, whereas in this proceeding the main question at issue is whether the expenditures were of such a definite capital nature that they may be restored to, and considered a part of, petitioner’s invested capital for the years on ap[1253]*1253peal. Expenditures made in prior years and charged to expense will not be restored to capital in the absence of satisfactory evidence that the amount sought to be restored was specifically expended in the acquisition of an asset of a permanent nature. Appeal of Cramer-Krasselt Co., 3 B. T. A. 388; Appeal of Northwestern Yeast Co., 5 B. T. A, 232.
The petitioner argues with much plausibility that the expenditures in question resulted in the acquisition of an asset from which benefits ran to it through the succeeding years after the advertising campaign ceased and that therefore the entire amount should be considered a capital expenditure. It appears that after the expenditures ceased “ Wunderhose ” continued to be sold even in greater volume than before and we are asked to say, along a line of -syllogistic reasoning, that therefore an asset of-a permanent nature was acquired with the payment of $223,749.77 therefor, which should be capitalized.
The first difficulty arises from an inability to make a satisfactory segregation as between capital and expense of the entire amounts expended. It is evident that the petitioner was looking more to future, than present, sales when the advertising campaign was authorized and carried out, but it is likewise apparent that a substantial part of the amount in question produced immediate, rather than prospective, benefits. The public has a short memory concerning such matters as we are -here dealing with. Because of this fact, established concerns continue their advertising campaigns in order to keep constantly before the people the -product which they are manufacturing, as well as to prevent the usurpation of its place in the minds of the purchasing public by a similar article. The-petitioner’s product was of an inexpensive and short-lived nature and, therefore, the users of 1914 would not in all probability be the users in succeeding years without continued advertising, unless the character of the hose became so impressed on their minds that they would continue to ask for the same trade brand. The petitioner answers this argument by showing that its sales of “ Wunderhose ” not only continued after the advertising campaign closed, but also increased in the succeeding years. As to this we can not overlook the fact that the years- following 1914 were abnormal- years when other factors may have caused the continued sales in this line of goods and that the sales of the other products of the petitioner’s plant showed a corresponding increase, without extended advertising. It should be noted, also that traveling salesmen wore constantly engaged in securing orders for “ Wunderhose ” in the same manner as -they did for petitioner’s other products. •
As we have heretofore said in this opinion, the manner in which the petitioner treated its expenditures for advertising on its books [1254]*1254is not conclusive of their nature. This is particularly true of the years prior to the incidence of the income and profits-tax laws, but when we note that in 1925 the petitioner made an expenditure of $110,000, more than three times the average amount expended in the years from 1908 to 1914, and principally in advertising another brand of hosiery, and claims this as a deduction from gross income in its income-tax returns for that year, it is apparent that the petitioner is recognizing that sales for that year are attributable at least in part to current advertising. Although we are not passing on the correctness of the expenditure in 1925, we do consider that the policy of the company in 1925 and other years of charging advertising to expense is an evidentiary fact which may properly be considered in determining whether the expense in question is to be treated as capital or expense. It evidences a recognition that results from advertising a product of the character in question are in a measure immediate and are, therefore, more properly chargeable as an expense of the year when expended than as producing an asset the value of which will remain with, and be productive of income to, the company in the succeeding years.
The Board is satisfied that the advertising campaign carried on from 1908 to 1914 had for its major purpose the establishing of the trade-mark “ Wunderhose ” in such a way in the minds of the public purchasing this grade of hose that benefits to the petitioner would flow therefrom beyond the year when the expenditures were made, but we are not convinced that the entire amount was a capital expenditure when made nor are we satisfied that it resulted in the acquisition of an asset which was yet in existence to the extent claimed in the years on appeal. It may be that in such cases as this upon a proper showing, some portion of the total amount expended for advertising could be capitalized, but when we look to all of the facts and circumstances disclosed by the record in this proceeding any attempt to make an allocation as between expense and capital would be a mere guess unsupported by any sound reason. The action of the Commissioner in eliminating this item from invested capital must, therefore, be sustained.
The second question involved is whether the contributions made to the American Protective Tariff League and The League of Industrial Eights are proper deductions from gross income as ordinary and necessary business expenses.
The primary object of the American Protective Tariff League was to gather statistics concerning imports and to keep manufacturers advised concerning tariff legislation and obtain information from manufacturers as to what they considered to be for their best interest in that regard. We think the contributions for such purposes [1255]*1255come within the term of ordinary and necessary expense of carrying on a trade or business and that the Commissioner erred in denying the deduction of such contribution from gross income. The contribution to The League of Industrial Eights, an organization having for its purpose the prevention of labor troubles, was an expenditure directly connected with the business and was of such a character as properly to be considered an ordinary and necessary expense incident to the carrying on of a business. It should be allowed as a deduction from gross income. Appeal of California Brewing Assn., 5 B. T. A. 347.
Judgment will be entered on 16 days’ notice, under Rule 60.
Murdock concurs in the result only.