OPINION.
Littleton:
The first error alleged by the petitioner is that the Commissioner erred in failing to allow certain proven tangible and intangible assets as a part of invested capital, and in support thereof sets up these contentions:
(a) The petitioner is entitled to include in its invested capital for the taxable years in question the actual cash value of the tangible property (the tangible property being the total capital stock of the original issue of the News Publishing Co. and 89% of the capital stock of the Intelligencer Publishing Co.) acquired by the Wheeling Printing & Paper Co. in exchange for stock at the time of the latter's incorporation in 1904.
(b) If the first point should be denied, then it must follow that the News Publishing Co. resulting from the reorganization in 1914 was in effect an entirely new entity and that therefore the petitioner is entitled to include in its invested capital for the taxable years in question the actual cash value of the tangible property acquired by it for the new stock at the time of the 1914 reorganization.
(c) Such amounts as had been expended in the building up of a circulation structure and in the acquisition and manufacture of plates should be considered as capital expenditures and the amounts thereof considered in determining invested capital.
In connection with this point the petitioner asks that it be allowed to include as a part of its invested capital the surplus earned from 1904 (if this date is taken as a starting point), or from 1914 (if the latter date is taken as the starting point) to the taxable years under consideration, but it is not felt that this point is in serious contro versy as it is understood that in the invested capital as determined by the Commissioner, earned surplus as reflected by the petitioner's books has been allowed.
Since the Wheeling Printing & Paper Co. was dissolved in 1914, it is not necessary for us to determine what might have been the invested capital of this consolidated group (Wheeling Printing & Paper Co. and the petitioner) had both of them remained in existence during the taxable years on appeal. Suffice it to say that they do not occupy such a status, and no assets were paid in to the petitioner in 1904. Therefore, the contentions advanced under subdivision (a) above Avill not be considered further.
This brings us to the alternative proposition advanced by the petitioner, viz., that in 1914, when the petitioner, by amendment to its charter, increased its capital stock from $75,000 to $400,000, issued new stock for the stock of the Wheeling Printing & Paper Co. of a like par value and then dissolved the latter company, circumstances arose which would justify a revaluation of assets as of this date for invested capital purposes under the provisions of the Revenue Act of 1918.
The Wheeling Printing & Paper Co. held as its only assets in 1914 the $75,000 capital stock of the petitioner and $89,000 capital stock of the Intelligencer Publishing Co. By amendment to its charter, petitioner increased its capital stock to $400,000 and exchanged new stock for stock of a like par value of the Holding Company and then dissolved the Holding Company, thereby acquiring whatever assets the Holding Company had. It will thus be seen that the assets acquired were the capital stock of the Intelligencer and its own old stock when new stock had already been issued under the amendment to its charter to take the place of the old stock.
The record is not sufficiently complete to determine all the legal incidents arising from the securing of the amendment to the charter of the petitioner, but accepting the evidence as offered we find that merely an amendment to an existing charter was secured. What, in general, the amendment to a charter means is stated in 14 Corpus Juris 197, where numerous cases are cited in support of this projio-sition:
The mere amendment of a charter or articles of incorporation does not create a new corporation or otherwise affect the identity of the corporation, or its existing rights of action, property rights, or liabilities; and this is true even where the amendment is made by the substitution of a new charter, if the manifest intention is to amend merely and not to create a new corporation.
That it was not the intention to create a new corporation is shown by the fact that the amendment was secured merely for economy in state taxation, to avoid paying tax on the capital stock of two corporations instead of one.
Therefore we are dealing with the same corporation which was organized in 1890, as far as its legal entity is concerned. Our question now is whether anything was paid in in 1914, at the time of the merger, in the sense contemplated by section 326, Revenue Act of 1918, for invested capital purposes.
When the petitioner issued its own stock for the stock of the Wheeling Printing & Paper Co. and then effected a liquidation of the latter company, it acquired the assets of the Wheeling Printing & Paper Co. by the payment of stock therefor. Appeal of Regal Shoe Co., 1 B. T. A. 896. But what were these assets ? The entire capital stock of the petitioner and $89,000 capital stock of the Intelligencer Publishing Co. As to the capital stock of the petitioner which was thus acquired, it can not be said that anything came into the corporation which was not already there. That the assets of a corporation are owned by the corporation and not by the stockholders is too well established to admit of questioning. The petitioner owned its assets before the merger and it likewise owned them afterwards. The only new asset which can be said to have been paid in at this time was the stock of the Intelligencer, and as to this the petitioner is entitled to have the cash value when paid in, viz., in 1914, under the provisions of section 326, Revenue Act of 1918.
The next question presented is the value of this stock, but no satisfactory evidence has been presented as a basis of determining its value. No sales were made, either of this stock or that of the Wheeling Printing & Paper Co., at or about the date in question. The same is true of the stock of the petitioner. When we examine the earnings of the Intelligencer prior to 1914, we find that they amounted to a total of $18,309.08 in the eight years immediately preceding 19.14, and that no dividends were paid during that period. What the net or gross value of its assets was during this period is not shown. The Commissioner allowed this stock in invested capital at its par value and this is as liberal as the Board can be on the basis of the evidence presented.
As a further contention with respect to invested capital, petitioner claims that the amounts which were expended in building up circulation structure and in the acquisition and manufacture of plates which were used in the business beyond the year when acquired or manufactured, should be considered as capital expenditures, even though originally charged to expense.
That circulation structure is perhaps the most important asset of a news publishing business was recognized by the Board in the Appeal of Gardner Printing Co., 4 B. T. A. 37, and, therefore, if its cost can be determined it must be considered in determining petitioner's invested capital. Our difficulty lies in determining its cost. The only definite statement we have is that there was expended from 1899 to 1916, $76,139.20 as salaries and expenses of solicitors engaged in building up and maintaining circulation structure. We are of the opinion that this is not sufficient. See Public Opinion Publishing Co., 6 B. T. A. 1255. We said in the Gardner Printing Co. appeal, supra:
A newspaper circulation structure is an asset which must be continually-supported by such advertising and soliciting as will result in constantly bringing in new subscribers and new advertising patrons to take the place of those who, in the regular course of business, are constantly dropping off.
Any addition to invested capital on this account must, therefore, be denied.
The evidence is likewise insufficient to make a restoration to the capital account because of expenditures made in the acquisition and manufacture of plates. That the expenditure for an item which has a useful life of more than a year should generally be treated as a capital expenditure was recognized by the Board in the Appeal of Winifrede Coal Co., 1 B. T. A. 566; Appeal of Union Collieries Co., 3 B. T. A. 540; Appeal of Goodell-Pratt Co., 3 B. T. A. 30. But again we are without definite information as to the amount expended, when expended and the extent to which these plates are still in use and therefore no amounts which the petitioner may have invested in this way can be considered in determining its invested capital.
Petitioner claims that it should be affiliated with the Washington News Co. for the years on appeal under the provisions of section 240 (b), Kevenue Act of 1918, which reads as follows:
For tlie purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.
It is under clause one above that the petitioner claims affiliation on the ground that entire control of the News was vested in it.
The record does not disclose the exact amount of stock issued, though it does show that of the authorized capital stock of $25,000, $10,000 capital stock was issued to the petitioner and that approximately $11,000 cash was paid in by citizens of Washington, Pennsylvania, but it was not definitely shown that stock was issued for the latter amount. The only contributor (of the citizens) who testified stated that $1,000 capital stock was issued for his contribution of a like .amount. The probabilities are, therefore, that the entire $11,000 was issued for capital stock.
That the entire operation and management of the News were left to the petitioner the record is clear, but the Board is not convinced that there was such " control " as is contemplated by the statute. As was-stated in the Appeal of Isse Koch & Co., 1 B. T. A. 624, " control " means actual control. In the same opinion it is stated further that, " The control, however, must be shown to be a genuine and real control actually exercised, and it can not be established by mere assertions or agreements between majority and minority stockholders unsupported by facts."
That the stockholders (other than the petitioner) did not at any time after the News began -operation exercise any control in the sense contemplated by the statute is -certainly shown, but that they did not have power- through the voting rights of their stock to exercise control is not shown. We are of the opinion that something-more must bo shown than a mere failure to exercise control which potentially, at least, existed.
In the Appeal of Watsontown Brick Co., 3 B. T. A. 85, we said:
Control of tlie business is not control of the stock of a corporation conducting a business, nor, where 'a minority of stockholders are present, even though quiescent, representing 27.04 per cent of the stock, can we hold that the stock owned or controlled by the parent company constitutes substantially all of such stock.
We denied affiliation in the Appeal of Goldstein Bros. Amusement Co., 3 B. T. A. 408, for the reason that control over the-minority stock was speculative and because ownership and control of 15 per cent of stock by same interests is insufficient to establish affiliation where there is no evidence of actual control of minority stock and it is merely shown that minority interests were quiescent and permitted majority to manage corporation.
The Board must, therefore, hold that the two corporations were not affiliated for the years on appeal.
Since it has been found that the petitioner and the News were not affiliated, it becomes necessary to consider the third error alleged in which the petitioner seeks to have allowed as deductions the amounts which it charged off in the years on appeal on account of advances to, and investment in, the News. The News continued in operation throughout the years on appeal, and, while the business was not profitable for those years, the petitioner continued to make advances to carry on its operation. The extent to which the amount charged off in each year represented aihounts charged off on account of advances and the extent to which on account of the original investment are no.t shown.
When the News was still in operation, and no definite ascertainment of the extent of the loss which may have been sustained had been made, Certainly there is no justification for saying that a loss on account of investment in its stock has been realized which can be recognized under the Eevenue Act of 1918. The investment in the stock gave the petitioner its proportionate right to a participation in the assets upon liquidation, and what the value of this right would be, would not be determined until liquidation.
As to the deduction claimed on account of a partial charge-off of the advances, there is no provision under the Revenue Act of 1918 for the partial writing down of an account. Steele Cotton Mill Co., 1 B. T. A. 299.
We must hold, therefore, that the action of the Commissioner was correct in disallowing the deductions claimed on account of losses due to investment in, and advances to, the Washington News Co. -
The deficiencies as determined by the Commissioner are, therefore, approved.
Judgment will be entered for the respondent.