Appeal of Atkins Lumber Co.

[319] OPINION. Trussell : While it appears from the pleadings that some part of the proposed deficiencies as computed by the Commissioner are based upon modifications of deductions claimed by the taxpayer for depreciation of mill and logging equipment, no testimony or argument was presented to the Board upon this subject; and it is therefore taken for granted that the taxpayer has acquiesced in the Commissioner’s adjustments of the depreciation deductions. The whole burden of the taxpayer’s complaint, therefore, rests upon its claims, first, that the depletion allowance of $4.57 per thousand feet of timber, as computed by the Commissioner, is insufficient to restore the capital cost of such timber and, second, that the taxpayer throughout the entire period of its operations has never actually realized any profit, and that the stockholders, when liquidation shall have been completed, will fail to receive a return of their actual investment. Taking up the first contention, it appears that at the inception of its business the taxpayer estimated the depletion requirement at $3.50 per thousand feet of timber; that three years later it became convinced that this rate was too low and then claimed a rate of $6.50 per thousand feet of timber;_ that the Commissioner, as a result of his investigations and inquiries and the showings made before him by the taxpayer, has found and established a depletion rate of $4.57 per thousand feet of timber, which amount the taxpayer claims is insufficient to restore to the stockholders the capital cost of the timber. It seems apparent when the Commissioner made his computation of a depletion rate that he must have had before him some definite figures of capital cost and estimated quantity of timber upon the tract. These figures and estimates apparently used by the Commissioner, however, were not furnished to the Board and no testimony on that subject was offered at the hearing. We, therefore, have no knowledge of any facts that can lead us to a determination of whether the Commissioner’s depletion unit of $4.57 per thousand feet is the true rate or not. On the other hand, the taxpayer has [320] failed to produce before the Board any testimony or evidence of any character whatever showing its claimed cost of the timber, or any estimate of its quantity other than' its estimate of 40,000,000 feet, and, therefore, there is in the record no basis upon which this Board can now compute a depletion unit or rate and we are entirely helpless to find whether the rate claimed by the taxpayer for the years 1919 and 1920 of $6.50 per thousand is too high or otherwise. The record thus leaves us wholly unable to find any basis for granting relief to this taxpayer upon the question of depletion of its timber resources. Much stress was laid, both in the testimony on behalf of the taxpayer and in the argument of counsel, upon the fact that the total of all the company’s operations from its inception in 1915 to its close in 1924, will result in losses, and that, therefore, apparent book profits for any given annual period, which profits have never been realized, should not be subject to income and profits taxes. It appears that the company’s accounting sj'stem showed profits for the years 1919 and 1920, and it was argued that the following years of 1921 and 1922 showed losses, and that the apparent profits of 1919 and 1920 were more than exhausted by losses of the following years before such profits were in any sense realized by the stockholders of the taxpayer corporation. While this presents a situation which has a strong appeal, we can not overlook the fact that the taxing statutes have been designed to levy income and profits taxes upon the gains and profits of business for annual periods, and that each annual period must necessarily, under the provisions of the law, stand by itself, subject only to those provisions of the Revenue Acts of 1918 and 1921 permitting the adjustment of one year’s net losses against another year’s profits. But those provisions do not apply to the years 1919 and 1920 except as to losses of 1919. Therefore, the Board is without power to find any relief for this taxpayer and we are led inevitably to the conclusion that the Commissioner’s findings must be approved.