Shanley & Furness, Inc. v. Commissioner

SHANLEY & FURNESS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Shanley & Furness, Inc. v. Commissioner Docket No. 26029. United States Board of Tax Appeals 21 B.T.A. 146; 1930 BTA LEXIS 1908; October 31, 1930, Promulgated *1908 The value of the petitioner's good will on March 1, 1913, was at least $14,999. A. W. Helvern, Esq., for the petitioner. Bruce A. Low, Esq., for the respondent. MARQUETTE *146 This proceeding is for the redetermination of a deficiency in income tax amounting to $1,874.87, asserted by the respondent for the fiscal year ended November 30, 1923. The petitioner alleges that the respondent, in computing the profit from the sale of petitioner's property in 1923, did not allow any value for good will on March 1, 1913. *147 FINDINGS OF FACT. The petitioner is a corporation organized about December 1, 1909, under the laws of California, with its principal place of business in Los Angeles. On December 1, 1909, it acquired from F. P. Shanley and J. C. Furness, in exchange for shares of its capital stock, a leasehold on a building known as the Continental Hotel at San Francisco, together with the hotel furnishings and office fixtures. Shanley became the president, and Furness the secretary of the corporation, and they continued in that capacity until October 31, 1923. They devoted practically their entire time to managing and operating*1909 the said hotel. During the period December 1, 1909, until October 31, 1923, Shanley and Furness each received $150 per month as salary, together with $3 per day for meals, and they were also furnished with rooms at the hotel. Said salaries and allowances were charged currently to operating expenses. The average value of the petitioner's tangible assets during the period March 1, 1909, to March 1, 1913, was $19,630.72. The net income of the petitioner during the period December 1, 1909, until February 28, 1913, inclusive, was $14,917.53. The value of the tangible assets of the petitioner on October 31, 1923, was $38,133.06. These assets were sold by the petitioner on October 31, 1923, for $60,000. The petitioner in its income-tax return for the fiscal year ended November 30, 1923, reported a profit of $6,867.94. In computing said profit the petitioner took the value of its tangible assets on October 31, 1923, as $38,133.06 and the March 1, 1913, value of good will as $14,999. The respondent determined that the petitioner did not have good will of any value on March 1, 1913, that the petitioner's profit on the sale of its assets was $21,866.94, and that there is a*1910 deficiency in tax as above set forth. OPINION. MARQUETTE: The only question presented for our decision by the record in this case is whether the petitioner had any good will on March 1, 1913, and if it did have good will on that date, what its fair market value was. The petitioner claims that the value of its good will on March 1, 1913, was at least $14,999. The evidence establishes that the petitioner was organized and commenced business on December 1, 1909, and that the average value of its tangible assets during the period December 1, 1909, to February 28, 1913, inclusive, was $19,630.72, and that its income for that period *148 was $14,917.53, an average of $4,590, after allowing adequate salaries and expenses to officers and managers. Taking its earnings for the period of the petitioner's existence prior to March 1, 1913, and allowing a very liberal return of 10 per cent on tangibles and capitalizing the remainder of the earnings at 15 per cent, would indicate a value for the petitioner's good will of at least the amount it now claims. *1911 ; ; . We are satisfied, in view of the evidence, that the petitioner had on March 1, 1913, good will of the value of $14,999, and we so hold. Judgment will be entered under Rule 50.