*1238OPINION.
: The first question for decision is whether the petitioner may include in invested capital the note given by Shaw in payment for 360 additional shares of capital stock of the petitioner. The Commissioner contends that, under the Constitution of South Dakota, a corporation organized in that State may not legally accept notes in payment of capital stock. Article 17, section 8, of the South Dakota Constitution provides:
No corporation shall issue stocks or bonds except for money, labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void.
This provision was considered in Schiller Piano Co. v. Hyde, 39 S. D. 74; 162 N. W. 937, in which case it was held that:
A promissory note is property within the meaning of the above constitutional provision. * * * The acceptance of promissory notes that are worth par for the issuance of corporate stock is not a violation of said constitutional provision..
The petitioner relies upon the decision of this Board in the Appeal of Hewitt Rubber Co., 1 B. T. A. 424, and Appeal of American Steel *1239Co., 1 B. T. A. 839. In those appeals, in which notes given for stock were permitted to be included in invested capital, and in the Appeal of Ready Auto Supply Co., 2 B. T. A. 730, the decisions turned upon the bona fides of the transactions. In the latter case the taxpayer was denied the right to include the notes in invested capital, and it was stated, at p. 731:
The Board is not disposed to extend what it believes to be tbe sound rule indicated in tbe Appeal of Hewitt Rubber Co., supra, to cases generally involving indebtedness of stockholders to- corporations on account of their stock. Only transactions clearly evidencing good faith may be so recognized.
A consideration of the bona fides of such transactions is necessary in view of the wording of section 326(a) (2) of the Revenue Act of 1918, providing that “ invested capital ” means the “ actual cash value of tangible property * * * bona fide paid in for stock or shares * * * .”
In the present appeal we find the petitioner receiving for the stock issued to Shaw his note payable to the New Orleans Naval Stores Co., Inc., and indorsed by that company to the order of the taxpayer. Shaw has never made any payments on the note. His liability on it has been reduced, not by payments, but by dividends on the stock issued for the note. The only evidence offered as to Shaw’s solvency was the testimony of one witness, who testified that he considered Shaw “worth a good deal more than the amount due on the note,” and that “ he owns a large quantity of land, and especially the land at the present prices. I think his assets have increased.”
These facts fall far short of being convincing either of the bona fides of the transaction or of Shaw’s ability to meet his liability on the note. Nor is there any showing of the financial condition of the indorser. We shall not disturb the action of the Commissioner in excluding from invested capital for the year 1920 the note for $36,000.
The petitioner sold its products through the New Orleans Naval Stores Co. That company entered into an agreement with three others, whereby a joint sales department was created, the companies agreeing to share equally any profits or losses of this sales organization. There is evidence in the record to the effect that the petitioner was to share in any sales loss which might be sustained by the New Orleans Naval Stores Co. The petitioner did in fact share such loss. The two companies -were not affiliated and no reason is shown why a loss should have been paid by the petitioner if there was no liability. The fact of payment, corroborating the oral testimony, is very convincing that the liability existed, and while the amount was not determined until 1921, all of the factors necessary to determine the amount were ascertainable at the close of 1920, The accounts of the *1240taxpayer are kept on tbe accrual basis and in such circumstances the loss is deductible in the year 1920. United States v. Anderson, 269 U. S. 422; 46 Sup. Ct. 131; 5 Am. Fed. Tax Rep. 5674.
Order of redetermination will be entered on 10 days’’ notice, under Rule 50.