O'Bryan Bros. v. Commissioner , 42 B.T.A. 18 ( 1940 )

O'BRYAN BROTHERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

T. P. KENNEDY, SR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

O'Bryan Bros. v. Commissioner

Docket Nos. 83382, 90681.

United States Board of Tax Appeals

42 B.T.A. 18; 1940 BTA LEXIS 1061;

June 11, 1940, Promulgated

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1. A taxpayer may not create a partial bad debt deduction by voluntarily releasing a portion of the collateral held as security therefor without taking into consideration the value of the collateral so released. Value of collateral determined and held to be in excess of indebtedness.

2. Commissioner's method of computing depreciation on factory equipment, furniture and fixtures approved.

3. A gift tax return mailed to the office of the internal revenue agent in charge is not such a filing of the return under section 507(b), Revenue Act of 1932, as will start the tolling of the statute of limitations.

4. Value of common capital stock determined for gift tax purposes.

Cecil Sims, Esq., and T. W. Branch, C.P.A., for the petitioners.

F. L. VanHaaften, Esq., for the respondent.

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ARNOLD

These proceedings, consolidated for hearing, involve the respondent's determination of deficiencies in income and excess profits tax as to Docket No. 83382, and a deficiency in gift tax as to Docket No. 90681, for the calendar year 1933, as follows:

O'Bryan Brothers, income tax	$11,630.88
O'Bryan Brothers, excess profits tax	1,104.41
T. P. Kennedy, Sr., gift tax	1,507.50

The questions presented for determination, as to O'Bryan Brothers, are (1) whether petitioner is entitled to a deduction of $138,567.20 representing amounts charged off its books during the taxable year as a partially worthless debt, and (2) whether respondent erred in his method of computing depreciation on factory equipment and furniture and fixtures; and as to the petitioner, T. P. Kennedy, Sr., (3) whether the gift tax for 1933 is barred by the statute of limitations, and, if not, (4) whether respondent erred in placing a value of $150 per share on 751 shares of stock of O'Bryan Brothers as of June 5, 1933, the date of petitioner's gift of the stock to his son, T. P. Kennedy, Jr.

FINDINGS OF FACT.

Petitioner O'Bryan Brothers is a Tennessee corporation, with its principal place of business in Nashville. It filed its income and excess profits tax return for the calendar year 1933 with the collector of internal revenue for the district of Tennessee.

Petitioner T. P. Kennedy, Sr., is an individual, residing at Nashville, Tennessee. His gift tax return for the calendar year 1933 was filed with the collector of internal revenue for the district of Tennessee on August 7, 1934.

Petitioner O'Bryan Brothers is engaged in manufacturing and selling "Duck Head Brand" overalls, coats, and pants, which brand had been registered for more than 25 years. Its outstanding authorized common stock during the taxable year 1933, and for a number of years prior thereto, consisted of 1,500 shares of $100 par value, or a total of $150,000. Its authorized and outstanding preferred stock during the same period amounted to $21,650.

For several years prior to 1933 T. P. Kennedy, Sr., was president and principal stockholder of O'Bryan Brothers, owning 1,308 shares out of the total 1,500 shares of its authorized outstanding capital stock. From 1919 until the early part of 1932 he maintained an open account with O'Bryan Brothers, through which he would have the corporation pay his personal bills, such as taxes, life insurance premiums, grocery bills, and other similar personal items and charge these items to his personal account. He also drew large sums of money from O'Bryan Brothers with which to purchase common stock therein as well as to finance the purchase of his residence, charging his open account accordingly. The balance of this account fluctuated from time to time as credits were entered arising from dividends, both preferred and common, bonuses, and other payments.

The entries on the personal account of T. P. Kennedy, Sr., on the books of O'Bryan Brothers were as follows:

Year	Debits	Credits	Debit balance end of year
1919	$1,223.86	$342.63	$881.23
1920	2,736.68	3,310.73	207.18
1921	5,194.04	4,715.18	686.04
1922	6,852.31	3,000.00	4,538.35
1923	5,797.56	14,012.69	(credit) 3,676.78
1924	15,661.45	17,925.00	(credit) 5,940.33
1925	31,880.90	5,995.00	19,945.57
1926	48,753.58	5,625.00	63,074.15
1927	51,441.66	26,640.00	87,875.81
1928	46,863.27	464.82	134,274.26
1929	76,246.84	18,806.23	191,714.87
1930	12,117.00	53.58	203,778.29
1931	2,729.79	10.09	205,496,89
1932	964.52	450.00	206,011.51
1933		136,011.51	70,000.00

The amount of $1,175 charged to his account in the name of J. A. Kennedy is not included in the above statement.

T. P. Kennedy, Sr., also had on the books of the corporation an account captioned "T. P. Kennedy, Sr., Sunday School Account", which is as follows:

Dec. 31 -	Debit	Credit	End of year balance
1924	$1,224.98	0	$1,224.98
1925	53.46	0	1,278.44
1926	24.75	0	1,303.19
1927	10.03	0	1,313.22
1928	21.99	0	1,335.21
1929	45.48	0	1,380.69
1930		0	1,380.69
1931		0	1,380.69
1932		0	1,380.69
1933		0	1,380.69

The personal account of T. P. Kennedy, Sr., which was also charged with an amount of $1,175, carried in the name of J. A. Kennedy, together with the Sunday School account stated above, made the amount due and owing to petitioner O'Bryan Brothers at the end of 1933 as follows:

T. P. Kennedy, Sr., personal account	$206,011.51
T. P. Kennedy, Sr., Sunday School account	1,380.69
J. A. Kennedy	1,175.00
Total	208,567.20

There is no record of interest having been charged to this account.

The petitioner, O'Bryan Brothers, suffered heavy losses in 1930 and 1931, and at the end of 1931 was indebted to the American National Bank of Nashville for an amount of approximately $145,000. The officers of the bank caused an audit to be made of petitioner's books, which revealed the indebtedness of T. P. Kennedy, Sr., in the amount of $208,567.20, and that no security had been posted to insure its payment. The bank insisted that this indebtedness be secured and on or about December 24, 1931, Kennedy, Sr., executed a 30-day promissory note in the amount of $204,007.56 to O'Bryan Brothers, and secured the same by pledging his entire holding of common capital stock, 1,308 shares, together with a deed of trust on his house and 12 acres of ground. This real estate had an appraised value of $35,000. Kennedy, Sr.'s, note was not recorded upon the books of O'Bryan Brothers and no attempt was ever made to enforce its payment, although the matter was discussed several times at directors' meetings in connection with other debts of the corporation. O'Bryan Brothers, upon execution of this note by Kennedy, Sr., immediately assigned the note and the collateral to the bank as security for its indebtedness of $145,000.

T. P. Kennedy, Sr., was 56 years of age at that time and in a highly nervous condition over the corporation's heavy losses. As a consequence he was confined to his home for a considerable part of the time. Due to his nervous condition and the precarious financial situation of O'Bryan Brothers, the American National Bank, as its largest creditor, assumed the management of the corporate petitioner on or about March 1, 1932, after which date its affairs were conducted under the supervision of the bank. The bank guaranteed the other creditors and subordinated its own indebtedness. At or about this time, Kennedy, Sr., was removed from actual supervision of O'Bryan Brothers but was permitted to continue as chairman of its board of directors, and was employed as a salesman at a salary of $300 per month. His son, T. P. Kennedy, Jr., who had been serving as one of the vice presidents, and also as factory superintendent or production manager, assumed the management of the business under the supervision of the bank. This arrangement was temporary until November 1932, when T. P. Kennedy, Jr., was made president and treasurer of O'Bryan Brothers at the instance of the bank.

Between March and November 1932 T. P. Kennedy, Jr., was an employee of the bank rather than an officer of the corporation. He indicated to the bank his unwillingness to continue in this capacity as he felt his position was unsatisfactory and insecure and that he had hoped for a more permanent arrangement. In the spring of 1933, at the suggestion of the bank, Kennedy, Sr., offered to give his son, T. P. Kennedy, Jr., 751 of his 1,308 shares of common stock in O'Bryan Brothers, as an inducement to remain with the corporation. This offer was contingent, however, upon the consent of O'Bryan Brothers and its relinquishment of this stock as security for the debt of Kennedy, Sr. The bank was unwilling to continue supervision of O'Bryan Brothers' operations without the assistance of Kennedy, Jr., and indicated its willingness to release this amount of stock to O'Bryan Brothers. All parties to the transaction agreed to the proposition, and, upon release by the bank and O'Bryan Brothers of the stock in question, the gift was completed by the issuance, on June 5, 1933, of a new certificate for 751 shares of the common capital stock to T. P. Kennedy, Jr. O'Bryan Brothers valued its remaining collateral at $70,000, which represented a value of $35,000 on the real estate and a value of $35,000 on the remaining 557 shares of stock, or $62.81 per share. The indebtedness of Kennedy, Sr., to the corporation in the amount of $208,567,20 was then written down to $70,000, and the difference of $138,567.20 was charged off its books as a partially worthless debt and deducted as such on its income tax return for 1933.

The balance sheets of O'Bryan Brothers as of December 31, 1931, 1932, and 1933, show assets and liabilities as follows:

	1931	1932	1933
ASSETS:
Cash	$10,187.44	$1,681.66	$18,993.01
Accounts receivable	285,918.93	81,355.12	99,127.72
Bills and notes receivable	14,458.32	811.08	280.00
Warrants receivable		1,419.43	1,022.91
Inventory	82,389.03	89,181.74	116,001.56
Real estate	131,782.24	131,782.24	131,782.24
Automobiles	1,331.83	1,331.83	1,631.83
Cafeteria equipment	5,547.64	5,547.64	5,547.64
Factory equipment	78,352.72	79,140.96	79,552.97
Furniture and fixtures	18,536.43	18,606.18	18,820.18
Restroom equipment	2,391.24	2,391.24	2,391.24
Sprinkler system	5,140.91	5,140.91	5,140.91
Improvement account		577.84	758.14
Salesmen's salary account	38,593.92	1,656.40
Personal account		251,143.93	93,508.29
Other assets	11,346.84	8,871.31	2,803.80
Profit and loss	78,137.53
Total	764,115.02	680,639.51	577,362.44
LIABILITIES:
Accounts payable	67,241.65	21,743.87	63,848.70
Bills payable	148,366.33	145,000.00	50,000.00
Bills payable (real estate)	80,000.00	80,000.00	77,500.00
Bills payable	30,000.00	45,882.25	31,000.00
Reserves, interest, repairs, and taxes		2,776.82	12,672.67
Depreciation reserve	98,560.40	105,760.40	112,960.40
Other liabilities	1,250.00	8,455.19	14,307.56
Preferred stock	21,650.00	21,650.00	21,650.00
Common stock	150,000.00	150,000.00	150,000.00
Surplus	167,046.64	99,370.98	43,423.11
Total	764,115.02	680.639.51	577,362.44

During the period from 1919 up to and including the year 1928, the common capital stock of O'Bryan Brothers paid dividends of 5 or 10 percent annually. No common dividends were paid between 1928 and 1934. Preferred dividends of 8 percent were paid during the years 1919 to 1931, inclusive. Accumulated preferred dividends for 1932 and 1933 were paid in 1936.

Petitioner corporation's income tax returns for the years 1931 and 1932, and its income and excess profits tax return for 1933, show the following:

Year	Loss	Profit
1931	$60,295.27
1932		$11,819.35
1933		1 82,235.38

Petitioner corporation's factory building was mortgaged to the Penn Mutual Life Insurance Co. for approximately $80,000, which mortgage was reduced as of December 31, 1933, to $77,500. In 1933 it offered to sell the building to the insurance company for the amount of the mortgage, but after inspection by the insurance company the offer was rejected.

About the middle of March 1933 a tornado damaged petitioner's factory building, machinery, and equipment, all of which was covered by insurance. Petitioner used the insurance proceeds to reduce its indebtedness, and was also able to dispose of some of its goods to a salvage company for about $40,000.

Due to the advent of the N.R.A. and the processing tax, which materially increased the value of materials and inventories, O'Bryan Brothers was able to show a profit up until September 1933, when a strike occurred among its employees. On account of the increase in value of materials and inventories, as well as the receipt of insurance money and salvage money, it was able to reduce its bills payable approximately $100,000, which left due and owing to the American National Bank, its largest creditor, an amount of about $50,000. As O'Bryan Brothers was still operating under the bank's supervision, and was somewhat restricted thereby in its freedom to transact business, it borrowed $50,000 from another bank, with which it satisfied this indebtedness and secured the release of the collateral pledged with the bank. All of O'Bryan Brothers' creditors, as of June 5, 1933, were subsequently reimbursed.

Prior to 1931, T. P. Kennedy, Sr., had received as much as $35,000 a year in salary and bonus from O'Bryan Brothers. During the years 1931, 1932, and 1933, O'Bryan Brothers paid its officers the following salaries for their services:

1931
T. P. Kennedy, Sr., president	$15,000.00
T. J. Wilkinson, vice president	6,416.76
A. R. Lester, secretary	5,675.10
T. P. Kennedy, Jr., vice president	5,100.00
1932
T. P. Kennedy, Sr., chairman, board of directors	$4,012.50
T. P. Kennedy, Jr., president and treasurer	2,412.50
A. R. Lester, secretary	2,412.50
1933
T. P. Kennedy, Sr., chairman, board of directors	3,300.00
T. P. Kennedy, Jr., president and treasurer	2,100.00
A. R. Lester, secretary	2,100.00

The minutes of the annual stockholders' meetings of O'Bryan Brothers in 1934 and 1935 and the minutes of a special stockholders' meeting in December 1934 show that T. P. Kennedy, Jr., held 751 shares in his own right and held proxies for the 557 shares standing in the name of T. P. Kennedy, Sr.

In its return for 1933 O'Bryan Brothers claimed a deduction for depreciation for $7,200. The respondent determined that petitioner was entitled to repreciation in the amount of $5,065.36, and disallowed $2,134.64 of the deduction claimed. The deficiency letter shows that $1,554.87 of the depreciation allowed was for factory equipment based on a 15-year life, and that $427.42 of the depreciation allowed was for furniture and fixtures based on a 20-year life. The deficiency letter contains the following explanation of respondent's adjustments:

An adjustment has been made for depreciation allowable in accordance with Treasury Decision 4422, Cumulative Bulletin XIII-I, page 58, which provides that a deduction for depreciation of any property for any taxable year is limited to such ratable amount as reasonably may be considered necessary to recover the unrecovered cost during the remaining useful life of the property. Under this Treasury Decision the burden of proof of the accuracy of deductions for depreciation is placed upon the taxpayer. No evidence has been submitted by uou which, under the existing law and regulations, would permit the allowance of rates higher than those shown in the attached Exhibit A.

The deficiency letter further states:

Relative to depreciation on factory equipment and furniture and fixtures, you contend that the remaining cost as indicated in Exhibit A, attached should be computed from the beginning of the year 1930 rather than from the beginning of the year 1933 inasmuch as the agent's report covered the years 1931, 1932 and 1933 and set up depreciation allowable from the year 1929. Since the loss for the year 1931 eliminated income for the year 1932 and the statute of limitations had run on these two years at the time the report was made, the Bureau holds the remaining cost should be as of the beginning of the year 1933, the earliest year open.

On November 26, 1937, O'Bryan Brothers paid the collector of internal revenue at Nashville, Tennessee, under protest, $1,941.30 on its income and excess profits taxes for the calendar year 1933, and it asks that it be allowed credit in this amount in the event a deficiency in tax is determined. In the event that no deficiency is determined, it asks that this amount be refunded.

Petitioner, T. P. Kennedy, Sr., was advised on April 13, 1934, by the internal revenue agent in charge that a gift tax return should be filed covering his gift of 751 shares of common stock in O'Bryan Brothers to his son, T. P. Kennedy, Jr. The petitioner advised the agent in charge that the transfer was in no sense a gift or gratuity and for that reason no return had been filed. Under date of June 12, 1934, petitioner executed a gift tax return, Form 709, which was mailed to the office of the internal revenue agent in charge. None of the schedules in Form 709 were filled in, but a statement was attached thereto reciting the circumstances under which the 751 shares of O'Bryan Brothers' stock were transferred. The office of the internal revenue agent in charge acknowledged receipt of the purported gift tax return in a letter to petitioner, dated June 15, which reads in part as follows: "The return, Form 709, filed for the above-named donor has been examined, as a result of which this office proposes to recommend to the Commissioner changes in accordance with the summary enclosed." Form 709 was forwarded to the collector of internal revenue for the district of Tennessee on or about August 6, 1934, and received in the collector's office on August 7, 1934. On June 15, 1937, the respondent issued his deficiency notice, wherein he valued the stock at $150 per share and determined a deficiency in gift tax of $1,507.50.

The value of the common stock of O'Bryan Brothers on June 5, 1933, was $150 per share.

OPINION.

ARNOLD: The first issue is whether respondent erred in disallowing the deduction of $138,567.20 claimed by the corporate petitioner as that portion of a debt ascertained to be worthless and charged off during the taxable year. O'Bryan Brothers determined the worthless portion of the indebtedness by valuing the remaining collateral that secured the Kennedy not at the time Kennedy, Sr., transferred 751 shares of stock to his son. There is no dispute between the parties with respect to the charge-off on petitioner's books, so that the issue is reduced to a question of whether the facts establish a sufficient ascertainment of worthlessness.

The respondent contends that the disallowance of the deduction was proper because (1) the withdrawals represented in the Kennedy account were in the nature of dividends and accordingly should be charged to surplus; (2) the Kennedy accounts were not ascertained to be worthless in the year 1933 even in part; and (3) the charge-off by O'Bryan Brothers was in the nature of a forgiveness of indebtedness and should have been charged to surplus.

Briefly, the facts show that prior to the taxable year the corporate petitioner had sustained losses and its principal creditor, a Nashville bank, had assumed supervision of its affairs in order to work out the indebtedness owing to the bank. One of the principal assets of O'Bryan Brothers was an open account with its majority stockholder, who had withdrawn over $200,000 from the corporation during the years 1925 to 1932, inclusive. Upon the insistence of the bank the majority stockholder executed a promissory note in favor of the corporate petitioner and pledged his 1,308 shares of corporate stock and a deed of trust on his home as security for the note. O'Bryan Brothers then pledged the note and the security with the bank as collateral for its own indebtedness. The bank officials placed the son of the majority stockholder in charge of the corporate petitioner and directed the affairs of O'Bryan Brothers through this nominee of the bank. Kennedy, Sr., remained as chairman of the board of directors but confined his activities to selling.

In order to retain young Kennedy's services the bank proposed that Kennedy, Sr., transfer 751 shares of his stock to his son so that the latter would have an incentive to work the corporate petitioner out of its financial difficulties. The elder Kennedy consented to the proposal and the bank and the corporate petitioner successively released the 751 shares as collateral so that the elder Kennedy could effect the transfer of stock control to his son. The delivery of said shares occurred on June 5, 1933, and it is this transfer, together with the physical and financial condition of Kennedy, Sr., and the financial condition of O'Bryan Brothers, which petitioner says establishes the partial worthlessness of the elder Kennedy's debt.

While there may be merit in respondent's contention that the withdrawals by Kennedy, Sr., were in the nature of dividends, we prefer to dispose of the issue upon the assumption that an indebtedness existed. The fact that O'Bryan Brothers voluntarily relinquished collateral securing the indebtedness, thereby contributing to the partial worthlessness thereof, is, in our opinion, the critical factor herein. A taxpayer is not permitted voluntarily to surrender property which concededly is valuable and which was given for the purpose of protecting it from loss on an indebtedness, and then charge off the debt, Gilliam Manufacturing Co.,1 B.T.A. 967">1 B.T.A. 967, 971. Such action would amount to a perversion of the statute. W. F. Taylor Co.,38 B.T.A. 551">38 B.T.A. 551, 557. We can not, therefore, agree that the transfer of the 751 shares on June 5, 1933, coupled with the financial and physical condition of T. P. Kennedy, Sr., established the partial worthlessness of any part of the indebtedness.

Our findings show that the corporate petitioner fixed the value of the 557 shares at $35,000, or approximately $62.81 per share. This valuation, if correct and if applied to the entire 1,308 shares, plus the appraised value of the real property, might entitle petitioner to a smaller deduction than that claimed. For the purpose of determining the gift tax liability of the individual petitioner, respondent fixed the value of each share of stock given to T. P. Kennedy, Jr., at $150 per share. If respondent's valuation is correct the value of the collateral held by O'Bryan Brothers prior to the relinquishment of a portion thereof exceeded the amount of the indebtedness. The value of O'Bryan Brothers' stock, therefore, is one of the determining factors as to two of the issues presented.

The evidence of value is conflicting. We have the testimony of Kennedy, Jr., that the stock had no market value when given to him, and yet the corporate petitioner valued the stock at approximately $62.81 per share in fixing the amount of deduction it would claim. We have evidence that O'Bryan Brothers was being operated under the direction of its principal creditor; opposed to this is other evidence which shows that its earnings for the taxable year amounted to $54.82 per common share, if preferred stock and the deduction claimed are not taken into consideration. The balance sheets of the corporation for 1931, 1932, and 1933 indicate that the stock had substantial book values of $159.27, $166.25, and $128.95 per common share, respectively. The asset values on O'Bryan Brothers' balance sheets fail to reflect the evident value of its trademark and good will as indicated by the company's dividend record and the net withdrawals of its principal stockholder. A small corporation like O'Bryan Brothers must have a substantial earning power to pay its majority stockholder a salary and bonus of $35,000 per year, permit him to make net withdrawals of $19,945.57 for 1925, $43,128.58 for 1926, $24,801.66 for 1927, $46,398.45 for 1928, $57,440.61 for 1929, and $12,063.42 for 1930, and in addition pay dividends of 8 percent on its preferred stock and 5 or 10 percent on its common stock for most of these years.

More favorable to petitioners is the known economic condition of the country in 1932 and 1933, but in spite of economic conditions generally, the record shows that particular events favored O'Bryan Brothers in 1933. Furthermore, it was testified that its operations were profitable until its employees struck in September, and yet, despite the economic loss that usually results from a strike, O'Bryan Brothers was able to finish the year with earnings of more than $82,000, omitting from consideration the bad debt deduction.

In view of all the facts and circumstance herein, we are of the opinion that the value of the common stock of O'Bryan Brothers was $150 per share; that the collateral securing the indebtedness, together with the collateral surrendered, exceeded in value the amount of the elder Kennedy's indebtedness; and that no part of said indebtedness was properly ascertained to be worthless. On this issue decision will be for the respondent.

The second issue involves respondent's determination of the amount of depreciation to which the corporate petitioner is entitled. No evidence was offered by petitioner, but it contends that as a matter of law respondent erred in his determination. The deficiency letter and the statement and depreciation schedules attached thereto indicate that respondent determined as a matter of fact that the life of petitioner's factory equipment and of its furniture and fixtures was 15 and 20 years, respectively, and not 10 and 15 years, respectively, as originally determined by petitioner and accepted by the respondent. Respondent, therefore, determined new rates for these depreciable assets based upon their longer useful life, and depreciated the remaining cost thereof over their remaining life, beginning with the taxable year. Petitioner agrees with respondent's determination of fact, namely, a longer useful life for these assets, but asks the Board to require respondent to make his determination retroactive to January 1, 1930. This we can not do unless petitioner shows that 1933 income would somehow be affected, such as by net losses sustained in prior years; Sample-Durick Co.,35 B.T.A. 1186">35 B.T.A. 1186. But the record here shows that this petitioner had taxable income for 1932, and that it has offered no evidence to overcome respondent's determination of a question of fact. The respondent's determination must, therefore, be approved on this issue.

As to the third issue, petitioner T. P. Kennedy, Sr., contends that the proper date for filing his gift tax return was June 15, 1934, the date of its receipt by the revenue agent in charge, and accordingly that the statute of limitations has run against the collection of the tax. The respondent contends that the gift tax return was filed August 7, 1934, when it was received by the collector of internal revenue for the district of Tennessee, and therefore the statute of limitations has not run against the collection of the tax. In support of this contention respondent relies on the case of Hill Co. v. Commissioner, 64 Fed.(2d) 506; certiorari denied, 290 U.S. 691">290 U.S. 691, affirming 22 B.T.A. 1351">22 B.T.A. 1351, wherein it is stated:

The first contention made by the petitioner is that the statute of limitations has operated to bar the assessment and collection of the deficiency found to be due for the fiscal year ended March 31, 1920. The petitioner contends that a return for this fiscal year was executed by the officers of the petitioner and delivered to the revenue agent at his request; that he promised to file the return, and that the execution and lodgment of the return with the revenue agent meets the requirements of the statute. There is no merit in this contention. Under the heading "Time and place for Filing Returns" section 241(b) of the Revenue Act of 1918 provides:

Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland.

It is no part of the duties of an internal revenue agent or of an internal revenue agent in charge to file returns for taxpayers. That is the duty which law places on the shoulders of the taxpayers. * * *

Section 507(b) of the Revenue Act of 1932 is to the same effect as section 241(b) of the 1918 Act mentioned above. Upon authority of Hill Co. v. Commissioner, supra, the contention of the respondent in respect to this issue is sustained.

As to the fourth and last issue presented for determination, petitioner T. P. Kennedy, Sr., contends that respondent erred in placing a value of $150 per share on 751 shares of stock of O'Bryan Brothers as of June 5, 1933, the date of the gift of the stock to his son, T. P. Kennedy, Jr. In view of our decision on the first and third issues it is unnecessary to further consider the value of O'Bryan Brothers common stock in determining the gift tax liability of T. P. Kennedy, Sr., since he does not dispute the making of the gift to his son, and the only question raised is the value of the gift. Respondent's determination on this issue is approved.

Since the petitioner, O'Bryan Brothers, has paid the collector of internal revenue at Nashville, Tennessee, $1,941.30 on its income and excess profits tax liability for the calendar year 1933, it is entitled to credit for this payment in the recomputation of its taxes for that year.

Decision will be entered under Rule 50.

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Footnotes

• 1. Before deducting $138,567.20 charged off as partially worthless debt, after which a net loss is shown of $56,331.82. ↩