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*993OPINION.

MoRRis:

The taxpayer’s contention that there is no provision of the Revenue Act of 1918 which authorizes or permits the Commissioner to compute profits by averaging the cost of such sales with additional shares acquired through a stock dividend and the exercise of the right to purchase additional shares; that neither gain nor loss can be determined with regard to the stock dividend shares and/or the shares purchased in 1918 until they have been disposed of and the Commissioner’s method of computing gain on the transaction results in effect in levying a tax on a stock dividend and/or the right to subscribe for stock, have been ruled on adversely in so far as they relate to averaging cost in the case of a sale of stock upon which a stock dividend has been declared in the Appeal of D. W. Cowden, 3 B. T. A. 816.

That the Commissioner’s method was correct in also including the cost of shares acquired through the exercise of the right to purchase additional shares in arriving ar the average cost is apparent from the decision of the Supreme Court in Miles v. Safe Deposit Trust Co., 259 U. S. 247, in which the following language was used:

Tbe right to subscribe to tlie new stock was but a right to participate, in preference to strangers and on equal terms with other existing stockholders, in the privilege of contributing new capital called for by the corporation — an equity that inheres in stock ownership under such circumstances as a quality inseparable from the capital interest represented by the. old stock, recognized so universally as to have become axiomatic in American corporation law. * * * The District Court proceeded correctly in treating the subscription rights as an increase inseparable from the old shares, not in the way of income but as capital; in treating the new shares if and when issued as indistinguishable legally and in the market sense from the old; and in regarding the sale of the lights as a sale of a portion of a capital- interest that included the old shares.

The court also quoted with approval article 1547 of Regulations 45 which prescribes the method followed by the Commissioner in determining the cost of the stock sold by this taxpayer.

Judgment for the Commissioner.

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