Hillyer, Deutsch, Edwards, Inc. v. Commissioner

HILLYER, DEUTSCH, EDWARDS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hillyer, Deutsch, Edwards, Inc. v. Commissioner Docket Nos. 36893, 42168. United States Board of Tax Appeals 21 B.T.A. 452; 1930 BTA LEXIS 1845; November 28, 1930, Promulgated *1845 1. Salvage value of logging equipment determined from the evidence. 2. In determining the unit rate of depreciation per thousand feet as a step in computing depreciation upon the unit-of-production basis, both the additions to the physical equipment account and the additions to the available timber account should, in the absence of evidence showing the exact date such additions were made, be averaged over the entire year. 3. A certain contract held to be an assignment of a prior contract rather than a novation thereof. 4. Evidence held insufficient to overcome the prima facie correctness of respondent's determination of the value of the contract assigned. John J. Finnorn, Esq., for the petitioner. Brooks Fullerton, Esq., for the respondent. LOVE *452 These proceedings, which were consolidated, are for the redetermination of deficiencies in income tax for the calendar years 1923 to 1926, inclusive, in the respective amounts of $1,836.94, $22.78, $405.54, and $1,599.06. In its prayers for relief, petitioner asks that the Board find that there are no deficiencies, and, further, that refunds are due petitioner for each of*1846 the years in question. On the other hand, the respondent, at the close of the hearing, moved that the deficiencies for each of the years be increased. Petitioner is engaged in the business of manufacturing lumber, and the issues are the determination of the proper allowances as deductions from its gross income on account of depreciation of its physical assets and depletion or exhaustion of a certain timber contract as modified by a supplemental agreement. Petitioner contends that the amounts allowed by the respondent should be increased, whereas the respondent has moved that the amounts allowed by him in his deficiency letters should now be disallowed. FINDINGS OF FACT. Petitioner is a corporation organized and incorporated during 1917 under and pursuant to the laws of the State of Louisiana, with its principal office and place of business at Oakdale, La. It was originally incorporated under the name of "The Sabine River Lumber & Logging Company," a Louisiana corporation, but shortly after the date of incorporation, its name was changed to "Hillyer, Deutsch, Edwards, Inc." Another corporation, "The Sabine River Lumber & *453 Logging Company," a Texas corporation, *1847 was incorporated in 1909 or 1910 under the laws of that State, with its principal office and place of business at Flannigan, Tex. The stockholders of both the Texas corporation and petitioner corporation were identically the same. The Southwestern Lumber Co. of New Jersey was a New Jersey corporation and a subsidiary of the Santa Fe Railroad. On March 15, 1916, an agreement was entered into between the Southwestern Lumber Co. of New Jersey (hereafter called the Southwestern Co.), as party of the first part, and the Sabine River Lumber & Logging Co., the Texas corporation (hereafter called the Sabine Co.), as party of the second part. The preamble to this agreement read as follows: The Southwestern Company is the owner of the lands and timber described herein * * * and desires the Sabine Company to fell and manufacture into lumber and ties the timber thereon. The Sabine Company is in the business of manufacturing timber into lumber and ties and desires to so manufacture the timber on the lands above referred to. The Southwestern Company desires to purchase lumber and sawn ties, including track and switch ties, that may be manufactured by the Sabine Company, and the Southwestern*1848 Company further desires for itself, through its duly accredited agent, to manufacture hewn ties, including track and switch ties, from the same lands. Article I, section 1, of the agreement stated that "The Southwestern Company hereby grants to the Sabine Company, subject to the conditions hereinafter set forth, and in consideration of the payments agreed to be made from time to time, the right to enter upon the lands of the Southwestern Company hereinafter described, during the term hereinafter provided, for the purpose of felling, removing, manufacturing and selling for account of the Sabine Company" certain kinds of timber, including pine, oak, beech, gum and other timber larger in diameter than 16 inches at 18 inches above the ground. Article I, section 2, described the lands of the Southwestern Co. referred to in section 1 of the agreement. Article I, section 3, granted the Sabine Co. the right to "locate and construct the necessary camps, flumes, rail and wagon roads, bridges, chutes, sawmills or other special facilities on the lands upon which the Sabine Company has hereunto the right to enter, provided that all proper precautions to prevent fire or other damage to*1849 growing timber are taken by the Sabine Company and its employees." Article I, section 4, provided: The Southwestern Company agrees to purchase or cause to be purchased at the prices herein set forth all the sawn ties, including track and switch ties, that shall be manufactured by the Sabine Company, provided the number *454 thereof to be furnished annually shall be estimated and agreed to annually between the parties hereto on or about the first of each calendar year of this agreement. Article I, sections 5 and 6, provided that the Southwestern Co. was to furnish the Sabine Co. all the required rail at 6 per cent annually on the valuation thereof at $30 per gross ton, and also about ten miles of trackage rights "for a fair consideration." Article II of the agreement, provided that the Sabine Co. was to construct, maintain and operate at its own cost, one or more mills together with the necessary tramroads, bridges, wagon roads, logging camps, et cetera; that it was to "fell, remove and manufacture all the timber herein referred to within a period of fifteen years from date hereof"; that the Southwestern Co. reserved the right to enter upon the lands and cut certain*1850 classes of timber therein specified; and that the Sabine Co. was to be governed by certain general rules as to what timber might be cut, how it was to be cut, that no unnecessary damage was to be done to trees left standing, that stumps were to be cut not higher than 18 inches from the ground, that all proper precaution against fires was to be taken; that the vicinity of all logging camps was to be kept neat and clean; and, further, that the Sabine Co. was also to be governed by "such specific agreements as from time to time may be mutually agreed to." Article III, section 1, provided that "the rights granted hereunder are for the sole purpose of cutting timber and manufacturing the same into lumber and ties, and no live stock shall be kept or pastured on the said lands" except the animals actually engaged in the work. Article III, section 2, provided: That the stumpage rates to be paid by the Sabine Company, and received as full compensation therefor by the Southwestern Company, for all timber cut prior to July 31, 1921, shall be as follows: (a) For all pine timber, $4 per thousand feet log measure; (b) For all white oak, $3 per thousand feet log measure; (c) For all*1851 other timber, $2 per thousand feet log measure, based and figured on Doyle-Scribner Combination Scale. * * * Bills shall be rendered monthly by the Southwestern Company after the close of each month and paid by the Sabine Company within thirty days thereafter. Article III, section 3, provided that after July 31, 1921, the Sabine Co. was to pay for stumpage at least the prices set forth in section 2 of Article III, and, in addition thereto, one-half of the annual profits in excess of the average annual profits for the entire period preceding July 31, 1921, providing there be such an excess. Article III, section 4, set forth the prices to be paid the Sabine Co. by the Southwestern Co. for the ties to be purchased by the *455 latter as provided in Article I, section 4, and also that "the Sabine Company will also sell to the Southwestern Company, or its assigns, such white oak car stock as may be ordered up to its capacity not to exceed five hundred thousand (500,000) feet per year, at a price of $17 per thousand feet B.M. in lengths, six, seven, eight, twelve, fourteen and sixteen feet; other lengths $2 per thousand feet B.M. additional." This section further provided: *1852 * * * The above prices shall obtain to July 31, 1921, and subsequent to that the date the prices be as mutually agreed on, and if the parties can not agree thereon the Sabine Company shall not be bound to sell, and the Southwestern Company shall not be bound to purchase, under this agreement, any ties or lumber of any kind, after July 31, 1921. Article III, sections 5 to 9, inclusive, dealt with the disposition of cut-over lands, the payment of taxes (by the Sabine Co.) on all properties owned by the Sabine Co., the transportation of lumber over certain railroads "at no higher freight rate than over other lines," the suspension of operations without incurring penalties in case of serious financial panic, and the temporary suspension of operations without incurring penalties in case of the purchase and operation by the Sabine Co. of timber adjacent to the lands and timber of the Southwestern Co. Article III, section 10, provided as follows: That this agreement shall not be assigned or transferred by the Sabine Company to any other party without the written consent of the Southwestern Company first being obtained. Article III, sections 11 and 12, dealt with the penalties*1853 of cancellation upon the failure of either party to perform, and the settlement by arbitration of all controversies that might arise in connection with the agreement. The last provision of the agreement of March 15, 1916, being section 13 of Article III, was as follows: Unless terminated as herein provided for, this agreement shall continue in effect from the date hereof until all of the said timber shall have been cut; provided, however, in no event shall said term extend beyond fifteen (15) years from the date hereof. The above agreement involved about 35,000 acres of timber on which there were about 181,000,000 feet log measure. About 50 per cent of the timber was pine, 10 per cent oak, and 40 per cent consisted of other grades. The Santa Fe Railroad (owner of the stock of the Southwestern Co.) had approximately 13,000 miles of trackage with only a limited amount of trackage in timber territory. *456 The use of the Doyle-Scribner Combination Scale provided for in Article III, section 2 of the 1916 agreement, resulted in an advantage to the purchaser of timber on that basis of about 20 per cent overrun of board measurement over log measurement. The interest*1854 cost of carrying a tract of timber the size of that involved in the 1916 agreement would amount to about $33,000 a year. During the years 1916 and 1920 the prevailing rate of interest in petitioner's vicinity was 8 per cent. Article I, section 6, of the 1916 agreement, saved the Sabine Co. from having to build a bridge across the Calcasieu River at a cost of $35,000 or $40,000, and about 10 miles of trackage at an approximate cost of $60,000. In lieu of making an investment of about $95,000 or $100,000, the Sabine Co. paid the Southwestern for the use of the latter's track at the rate of 75 cents a train mile, regardless of the number of cars in the train. Had the Sabine Co. built its own track, it would have cost it about $1.50 per train mile to keep up the track, and the track would have had no value at the completion of the timber operations. Caretakers were paid about $125 per month. Had the Sabine Co. purchased the timber outright, it would have been necessary for it to engage at least two caretakers to patrol the 35,000 acres. At the time petitioner was incorporated in 1917, the Sabine Co. (the Texas Co.) transferred all of its assets, with the exception of the March 15, 1916, agreement, *1855 to petitioner. Petitioner, however, from the time it was organized, commenced to cut timber from the lands of the Southwestern Co. which were covered by the agreement dated March 15, 1916, and paid for such timber at the prices specified in the said agreement. On July 1, 1920, the Southwestern Co., the Sabine Co. and petitioner entered into the following agreement: SUPPLEMENTAL AGREEMENT, Made this first day of July, 1920, between SOUTHWESTERN LUMBER COMPANY OF NEW JERSEY, a New Jersey corporation (hereinafter called the "Southwestern Company"), party of the first part, THE SABINE RIVER LUMBER & LOGGING COMPANY, A Texas corporation (hereinafter called "Assignor"), party of the second part, and HILLYER-DEUTSCH-EDWARDS, INC., a Louisiana corporation (hereinafter called "Assignee"), party of the third part. RECITALS: Under date of March 15, 1916, the Southwestern Company entered into an agreement with the Assignor relating to the sale of certain timber and the manufacture thereof into lumber as in said agreement set forth. The Assignor now desires to assign all of its interest in said agreement to the Assignee. The parties further desire to modify from and after the date*1856 hereof the stumpage rates to be paid under said agreement to the Southwestern Company. *457 AGREEMENT ARTICLE I For value received, the Assignor hereby assigns to the Assignee all of the interest of the Assignor in the agreement mentioned in the foregoing recitals and all rights granted to the Assignor thereby. In consideration of said assignment of the Assignor and of the consent of the Southwestern Company hereinafter contained, the Assignee hereby accepts said assignment and assumes and agrees to observe and discharge all of the conditions and obligations in the aforesaid agreement, as herein modified, which are by the terms thereof to be observed and discharged by the Assignor, and the Assignee further agrees not to assign its right or interest in said agreement without the written consent of the Southwestern Company in each instance. In consideration of the covenants of the Assignor and the Assignee herein contained and the faithful performance thereof, the Southwestern Company hereby consents to the assignment by the Assignor to the Assignee of the Assignor's interest in the above mentioned agreement. ARTICLE II The Southwestern Company and the Assignee*1857 mutually agree that in effect from and after the first day of July, 1920, said agreement mentioned in the foregoing recitals shall be and hereby is modified as follows: (1) That paragraph numbered 3 of Article III of said agreement be stricken out. (2) That the stumpage rates to be paid by the Assignee to the Southwestern Company for all timber cut on and after the first day of July, 1920, shall be as follows: (a) For all pine timber, $6 per thousand feet, log measure; (b) For all white and red oak, $4 per thousand feet, log measure; (c) For all other timber, $2 per thousand feet, log measure; based and figured on Doyle-Scribner Combination Scale, in lieu of the stumpage rates specified in paragraph numbered 2 of the Article III of said agreement. IN WITNESS WHEREOF, the parties have executed this instrument in triplicate the day and year first above written. The amounts of depreciation and depletion deducted by petitioner on its income-tax returns for the years 1923 to 1926, inclusive, as compared with the amounts determined and allowed by the respondent for those years, are as follows: Depreciation Depletion Calendar year Petitioner Respondent Petitioner Respondent [1923] $62,199.84 $35,439.98 None. $12,064.30 [1924] 39,413.36 32,097.25 None. 7,133.80 [1925] 36,810.71 31,385.31 None. 3,475.52 [1926] 44,756.74 32,411.38 $5,815.36 6,002.48 *1858 *458 In a statement attached to the deficiency letter covering the taxable year 1923, the respondent explained how he arrived at the allowance for depreciation of $35,439.98, which was as follows: Value of property January 11, 1917 $300,000.00 Additions, 1918 to 1922, inclusive 100,652.74 Additions, 1923 (one-half of $4,107.33) 2,053.67 Total 402,706.41 Less 10 per cent salvage value 40,270.64 Balance 362,435.77 Less depreciation reserve to December 31, 1922 248,497.54 Depreciable balance January 1, 1923 113,938.23 Quantity of timber remaining uncut December 31, 1922: Under Southwestern Co. contract feet 67,933,530 Miscellaneous timber do 10,340,485 Do 78,274,015 Acquired during 1923 do 33,901,051 Total available timber do 112,175,066 Depreciable balance $113,938.23, divided by total available timber of 112,175,066 feet, equals a unit rate for depreciation of $1.016, which multiplied by the total timber cut during 1923 of 34,881,870 feet, equals the depreciation allowance as determined by the respondent of $35,439.98. The petition covering the taxable year 1923 alleged that petitioner was entitled to an*1859 allowance for depreciation of $47,036.11, which should be computed as follows: Value of property January 11, 1917 $300,000.00 Additions 1918 to 1922, inclusive 100,652.74 Additions 1923 4,107.33 Total 404,760.07 Less salvage value 5,000.00 Balance 399,760.07 Less depreciation reserve to December 31, 1922 248,497.54 Depreciable balance January 1, 1923 151,262.53 Depreciable balance $151,262.53, divided by total available timber of 112,175,066 feet, equals a unit rate for depreciation of $1.34844, which multiplied by the total timber cut during 1923 of 34,881,870 feet equals the depreciation allowance as alleged by petitioner, of $47,036.11. The salvage value of petitioner's physical assets was not more than $5,000. The respondent determined the depletion allowance upon the basis that the fair market value of the Southwestern Co. contract at the *459 time acquired was $119,000. The fair market value of that contract on July 1, 1920, was not more than $119,000. The parties have stipulated that petitioner's books of account show that the following amount of timber has been cut upon the 35,000 acres involved in the contract with the Southwestern*1860 Co. during the following periods: Feet cut March 15, 1916, to July 1, 1920 48,596,687 Calendar year 1923 19,210,666 Calendar year 1924 11,359,560 Calendar year 1925 5,534,271 Calendar year 1926 9,558,085 OPINION. LOVE: The issues here involve the amount, if any, of depreciation and depletion, or rather the exhaustion of the value of the Southwestern Co. contract, which petitioner is entitled to deduct from its gross income for the calendar years 1923 to 1926, inclusive. The amounts dedcted by petitioner in its income-tax returns and the amounts allowed by the respondent in his deficiency letters have been set out in our findings. The amounts now claimed by petitioner, as alleged in its petitioners, are as follows: Calendar year Depreciation Depletion Total (approximate) (approximate) [1923] $47,036.11 $99,395.99 $146,432.10 [1924] 52,572.45 58,774.36 111,346.81 [1925] 43,601.67 28,634.32 72,235.99 [1926] 49,006.59 49,453.33 98,459.92 On the other hand, the respondent, at the close of the hearing, moved that the deficiencies as determined by him be increased, on the ground that petitioner was not entitled to*1861 any deduction for either depreciation or depletion in any of the years now before us. We shall consider first the respondent's motion as it relates to depreciation. In so doing, we will, for illustrative purposes, use only the facts contained in the respondent's explanation of how he determined the depreciation allowance for the year 1923, since the principles involved apply alike to all of the years now before us. The facts upon which the respondent based his allowance for depreciation of physical assets in his deficiency letter for the year 1923, and the method used by him, have been set out in our findings. We have also set out therein the facts upon which petitioner relied in support of the allowance contended for by petitioner. An examination of the facts and method used by respondent and the facts and method contended for by petitioner, indicate that the method *460 employed by each is the same, namely, the determination of a reasonable allowance for depreciation according to the so-called "unit-of-production" basis. This basis or method has from time to time received our approval as constituting a reasonable basis or method for determining the allowance provided*1862 for in the respective statutes. See ; ; ; ; and . The only difference between the two computations is that the respondent determined the salvage value of the equipment to be $40,270.64, and averaged the additions of $4,107.33, made during the year 1923, whereas the petitioner alleges that the salvage value was not more than $5,000, and contends that the additions to the physical equipment for the taxable year should not be averaged in determining the unit rate of depreciation and, if such additions should be so averaged over the year, the number of feet of timber acquired during the year should also be averaged. The respondent contends that not only should the petitioner be denied any further allowance for depreciation, but that the amounts determined as allowable by him should now be disallowed on the ground that petitioner has failed to prove all of the factors which would enter into the computation, such as the original cost of the property, *1863 subsequent additions, et cetera. We do not think that, under the circumstances of this case, the pleadings placed in issue any of the factors except the salvage value and the proper treatment of the additions made during the year. The evidence relative to the salvage value of the physical assets clearly proves that such value was not more than $5,000, and we so find. With respect to the proper treatment of additions during the year, including both the additions to the physical property of $4,107.33, and the additions to the timber to be cut of 33,901,051 feet acquired during the year, we think that, in the absence of evidence showing the exact date or dates such additions were made, such additions should be averaged over the entire year, that is, the physical equipment account at the beginning and end of the taxable year should be added together and divided by two, and likewise, the quantity of available timber at the beginning and end of the taxable year should also be added together and divided by two. Cf. , and *1864 . This brings us to the consideration of the depletion or rather exhaustion of the contract with the Southwestern Co. Petitioner originally contended in its petitions that the Sabine Co. (Texas company) liquidated in 1917 and assigned the March 15, 1916, contract along with its remaining assets to a partnership composed of the stockholders of the Sabine Co. (Texas company) and *461 that the partnership then organized the petitioner and assigned the said contract to it. Petitioner now concedes that the March 15, 1916, contract remained the property of the Sabine Co. (Texas company) until July 1, 1920, when the three-party agreement was entered into. Petitioner now contends that the March 15, 1916, agreement was modified with respect to the price to be paid for stumpage and the elimination of Article III, section 3, thereof, prior to the moment it was assigned to petitioner; that it was then assigned to petitioner in the modified form; that it was assigned for no consideration; that it was, therefore, a gift to petitioner; and that the fair market value of the contract at the date of gift for exhaustion purposes was somewhere*1865 between $400,000 and $600,000. The respondent in his deficiency letters determined that petitioner was entitled to deductions from gross income on account of the exhaustion of the contract under the heading of depletion, and allowed deductions for each of the taxable years now before us, based upon a valuation of the contract of $119,000. He now contends that the July 1, 1920, agreement amounted to a novation of the March 15, 1916, agreement; that the July 1, 1920, agreement was an arm's-length agreement with the Southwestern Co. which was acquired by petitioner without any cost; that, therefore, petitioner was not entitled to any deduction on account of the exhaustion of the contract; and that in any event petitioner has failed to prove a value in excess of the $119,000 value determined by the respondent. Article 2185 of the Revised Civil Code of Louisiana, defines novation to be a contract consisting of two stipulations; one to extinguish an existing obligation; the other to substitute a new one in its place. Article 2187 of the same code provides: The pre-existent obligation must be extinguished, otherwise there is no novation; if it be only modified in some parts, and*1866 any stipulation of the original obligation be suffered to remain, it is no novation. A reading of paragraph 2 of Article I of the July 1, 1920, agreement, set out in full in our findings, makes it very clear to us that the parties did not intend to extinguish the March 15, 1916, agreement, but, to the contrary, "the Assignee hereby accepts said agreement and assumes and agrees to observe and discharge all of the conditions and obligations in the aforesaid agreement, as herein modified * * *." We do not, however, agree with the petitioner that the March 15, 1916, agreement was first modified and then assigned to petitioner. The modification and assignment were by the terms of the agreement itself simultaneous. Sections 204 of the Revenue Acts of 1924 and 1926 provide that the basis upon which depletion, exhaustion, wear and tear are to *462 be allowed in respect of property acquired after February 28, 1913, shall be the cost of such property, except that: If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition. *1867 The same rule applies under the Revenue Act of 1921, except that there is no restriction that the gift be made "on or before December 31, 1920." It may be before or after that date. See , and . With respect to the fair market value of the contract at the time acquired on July 1, 1920, we do not think petitioner has overcome the determination made by the respondent, which is prima facie correct. Petitioner's evidence consisted of the testimony of F. L. Hillyer, who is petitioner's secretary, and Percy C. Smith, an attorney. Hillyer's testimony was devoted principally to pointing out the provisions in the contract which were advantageous to the Sabine Co. (Texas company) and, hence, to the petitioner. We are satisfied from Hillyer's testimony that the contract contained provisions which were advantageous to petitioner, but the question before us is what a willing purchaser, not compelled to buy, would pay a willing seller, not compelled to sell, for such a contract. Hillyer gave no testimony along that line except that he did say that $6 for pine, $4 for white and red*1868 oak, and $2 for all other timber on July 1, 1920, "was a very cheap price." These were the prices for stumpage provided for in the July 1, 1920, agreement. The best that we could say for Hillyer's testimony is that it furnished support to the respondent's determination of a $119,000 value. It certainly did not show that value to be erroneous. Smith testified as an expert. He was a lawyer by profession and had practiced law for 20 years, during which time about 90 per cent of his business had been with timber companies. On direct examination he testified that in his opinion the contract in 1920 was worth about $500,000. But on cross and redirect examination the witness so discredited his testimony that very little weight can be given to it. When asked on cross-examination whether he understood that the $500,000 he had testified to was the amount of profit which he thought petitioner might reasonably expect to make upon the cutting and marketing of the timber left standing in 1920, Smith answered: Well, no, I don't know. I can't answer that question. I don't know what they get for their lumber, but of course they get different prices for it, but I don't know what profit*1869 they have made, or contemplate making; but taking everything into consideration, just as though it was now 1920, I would say *463 that a contract of all of the conditions that existed then, would be worth $500,000. He then testified that if he had contemplated taking over the contract as it was modified on July 1, 1920, he could reasonably expect to make "over a period of several years, with first-class equipment and good management, $600,000," after which the cross-examination continued as follows: Q. Well, now, considering that $600,000 would have been a reasonable estimate of the total profit one could expect to make, under the conditions as set forth in this contract, how much of that profit would a buyer be willing to pay to the Hillyer, Deutsch, Edwards Company as a bonus or premium for the contract on July 1, 1920? A. Now, Mr. Fullerton, that is a question that is hard to answer. To step out on the street, or in the open market, and offer for sale a contract involving some $600,000 or $700,000 or $800,000, is a little bit unusual, and I doubt if one could have stepped out on the street, in the open market, and sold that contract for anything like that.*1870 But they had a right, reasonably, to contemplate that, over a period of years, they would receive a legitimate profit of about $5 a thousand, over and above the cost of the stumpage and logging and milling and overhead. Q. Well, you would wish us to understand, would you not, that this $600,000 profit to be made - that anyone who was willing to pay a bonus for the contract, would not be willing to pay the entire amount of the profit he eventually expected to get, as a bonus? A. No. Q. Otherwise, he wouldn't make anything? A. No, sir. Q. If you had been in position to buy this contract and had the money to buy it with, how much of the $600,000 eventual profit would you have been willing to pay as a bonus for the contract? A. Now, Mr. Fullerton, that is a little bit bigger proposition than I ever did go into myself, and I think I would have to have some time to figure on it, if I were going into it, myself, and get the counsel and advice of some others. I wouldn't want to go into a proposition that big, myself, without getting some counsel from some business man, or business men. Q. Well, would you - would any reasonable man expect to pay as a bonus five-sixths*1871 of the entire profit he eventually expected to make? A. Oh, no, of course not. (Italics supplied.) In continuing the cross-examination, Smith testified that he did not understand that the value he was placing on the contract was the value that a willing buyer would pay for it and stated "I don't know what it would be worth to a willing buyer. * * *" On redirect examination, Smith thought that, on account of the advantages which petitioner enjoyed under the contract, petitioner ought reasonably to expect a profit of almost $1,000,000, or $960,000 over the period of years, "and I should imagine - I believe, if they could have gotten in touch with the right people and offered that contract for sale to people that understood it, people in the business, a willing buyer would have been willing to pay $450,000 for *464 that contract, or $400,000 anyway." When the latter testimony is compared with his previous testimony, that with "first-class equipment and good management" one could reasonably expect to make out of the contract over a period of years only $600,000; that he did not know "just what would be considered a willing buyer under the circumstances"; and that he*1872 did not know what the contract would be worth to a willing buyer, it seems to us, that, considering the entire record, petitioner has failed to overcome the prima facie determination of value made by the respondent. We, therefore, sustain the respondent's determination on this point. The deficiencies should be redetermined in accordance with this opinion. Judgment will be entered under Rule 50.