276 F.2d 601 (10th Cir. 1960), 6202, C.I.R. v. Polk

Docket Nº:6202.
Citation:276 F.2d 601
Party Name:COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Frank POLK and Marie Polk, Respondents.
Case Date:March 17, 1960
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 601

276 F.2d 601 (10th Cir. 1960)

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

v.

Frank POLK and Marie Polk, Respondents.

No. 6202.

United States Court of Appeals, Tenth Circuit.

March 17, 1960

Page 602

John J. Pajak, Department of Justice, Washington, D.C. (Howard A. Heffron, Acting Asst. Atty. Gen., Lee A. Jackson and Harry Baum, Attorneys, Department of Justice, Washington, D.C., on the brief), for petitioner.

Ranel Hanson, Oklahoma City, Okl., for respondents.

Before BRATTON, HUXMAN and PICKETT, Circuit Judges.

HUXMAN, Circuit Judge.

This is an appeal by the Commissioner of Internal Revenue from a decision of the Tax Court holding that interest on a personal income tax deficiency assessed against an individual taxpayer is a deduction 'attributable to the operation of a trade or business' for the purpose of computing a net operating loss under Section 122(d)(5) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 122(d)(5), where the deficiency on which the interest was paid resulted from an understatement by the taxpayer of his business income. The facts are without dispute and the sole question is one of law.

At all relative times, the taxpayer, Frank Polk, was engaged as an individual in the business of raising and producing livestock. He filed his income tax return on the accrual basis. On his books he carried large livestock inventories which were a substantial factor in determining net income, if any, from the operation of his business. As a result of a revaluation of the taxpayer's livestock inventories, the Commissioner determined a very substantial deficiency in his 1948 income tax on which penalty interest was assessed. In 1952, he treated the item of interest as a business expense arising out of the operation of his business. In his 1953 return, he claimed the item as an operating loss carryover from the previous year under applicable provisions of the Revenue Code.

We are concerned here solely with the taxpayer's right to treat this item of interest as an item of expense attributable to the operation of his business of raising and producing livestock. Whether the penalty interest may be deducted as a business expense must be determined from a consideration of Section 23(a) (1)(A) of the 1939 Code, 26 U.S.C.A. § 23(a)(1)(A). That Section permits deduction of 'all the ordinary and necessary expenses paid or incurred during the...

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