APPEAL OF MORRIS & COMPANY, INC., Docket No. 108.

• Citation: 1 BTA 704
• Decision Date: 28 February 1925
• Docket Number: Docket No. 108.
• Parties: Appeal of MORRIS & COMPANY, INC.
• Court: U.S. Board of Tax Appeals

1 B.T.A. 704 (1925)

Appeal of MORRIS & COMPANY, INC.

Docket No. 108.

Board of Tax Appeals.

Submitted January 26, 1925.

Decided February 28, 1925.

H. A. Mihills, C. P. A., for the taxpayer.

Robert A. Littleton, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.

Before JAMES, STERNHAGEN, TRAMMELL, and TRUSSELL.

The taxpayer appeals from the Commissioner's determination of a deficiency for the fiscal year ended August 31, 1919, of $3,959.57, and a deficiency for the fiscal year ended August 31, 1920, of $2,081.99. The ground of appeal is the Commissioner's alleged failure to compute the profits tax under section 328 of the Revenue Act of 1918. The taxpayer's secretary and assistant treasurer testified at the hearing.

FINDINGS OF FACT.

The taxpayer was incorporated November 5, 1917, to succeed a partnership which had been in existence since 1898. The interests in the partnership and the corporation were substantially the same. The business was the manufacture and sale of middy blouses and suits and other garments. The corporation issued $300,000 capital stock to the partners — $250,000 common and $50,000 preferred — in exchange for the merchandise, machinery, fixtures, cash, and good will of the partnership. The accounts receivable were not transferred. The partnership did not carry any good will upon its books.

The partnership originated the Paul Jones middy. The name Paul Jones was covered by a registered trade-mark in the United States, and the name Admiral Nelson was registered for the same article in Canada. The good will of the business was in part attributable to this trade-mark, which was well known in the trade, and in part to the "demand which the taxpayer created for its garments," the "marketing of a guaranteed article." For this good will, $50,000 in capital stock was issued by the corporation. The valuation was believed by the witness to be greater than $50,000, and his testimony in answer to the question, "What was the basis of this value of $50,000?" was: "Well, only the profit from the building up around that trade-mark name of Paul Jones, and we have made that a very valuable thing in the manufacture of our garments, and that is about the best explanation I can make of it."

The net income of the partnership for the five years preceding incorporation was:

                    14 months ended Aug. 31, 1913 __________________  $92,800.75
                    Fiscal year ended Aug. 31, 1914 ________________   79,279.49
                    Fiscal year ended Aug. 31, 1915 ________________  105,556.55
                    Fiscal year ended Aug. 31, 1916 ________________  135,160.13
                    Fiscal year ended Aug. 31, 1917 ________________   94,557.15
                

and for the corporation from its organization:

                    Nov. 15, 1917, to Aug. 31, 1918 ________________ $126,651.41
                    Fiscal year ended

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