Appeal of THE WEST BAY CO.

Appeal of THE WEST BAY CO. Docket No. 2843. Submitted July 7, 1925. Decided September 8, 1925. John A. Kratz, Esq., for the taxpayer. P. S. Crewe, Esq., for the Commissioner. Before Marquette and MoRRis. [MAJORITY] This is an appeal from the determination of a deficiency in income tax for the year 1919 in the amount of $2,911.30. The alleged deficiency arises from the Commissioner’s reduction of the 1919 opening inventory of an affiliated corporation by $30,000 alleged to represent appreciated value of timber stumpage purchased by the subsidiary from the taxpayer. FINDINGS OE FACT. 1. The taxpayer is a corporation with its principal place of business at 100 West Forty-second Street, New York City. It is a holding company, capitalized at $1,000,000, and during 1919 its assets consisted of $400,000 par value stock of the West Bay Naval Stores & Lumber Co. with which it was affiliated. 2. In its opening inventory for 1919 the West Bay Naval Stores & Lumber Co. carried an item of $48,959.30 for stumpage. This represents two purchases of stumpage, one being from the Sale-Davis Co. and the Southern Lumber Co., the other from W. H. Covington & Co., a partnership. The venders named are in no way affiliated with the West Bay Co. or the West Bay Naval Stores & Lumber Co. 3. The Commissioner’s reduction of the 1919 opening inventory of the West Bay Naval Stores & Lumber Co. was predicated upon the contention that the stumpage purchases above mentioned were made from the West Bay Co. and that their inventory valuation represented an appreciation of $30,000 over cost. 4. The West Bay Co. has never owned- any stumpage and has never transacted any business, its sole function being that of a holding company. DECISION. The deficiency determined by the Commissioner is disallowed. ARundell not participating.