Aluminum Castings Co. v. Routzahn

• Decision Date: 02 April 1929
• Docket Number: No. 5134.,5134.
• Citation: 31 F.2d 669
• Parties: ALUMINUM CASTINGS CO. v. ROUTZAHN, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Sixth Circuit

31 F.2d 669 (1929)

ALUMINUM CASTINGS CO. v. ROUTZAHN, Collector of Internal Revenue.

No. 5134.

Circuit Court of Appeals, Sixth Circuit.

April 2, 1929.

John T. Scott, of Cleveland, Ohio (M. B. & H. H. Johnson, of Cleveland, Ohio, on the brief), for plaintiff in error.

J. R. Wheeler, Sp. Atty., of Washington, D. C. (A. E. Bernsteen and Irene Nungesser, both of Cleveland, Ohio, and C. M. Charest, of Washington, D. C., on the brief), for defendant in error.

Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.

HICKENLOOPER, Circuit Judge.

This is an action to recover incomes taxes paid under protest. In the years 1916 and 1917 plaintiff was engaged in the manufacture of aluminum, brass, and bronze castings, including certain munitions of war manufactured in 1916 and subject to the munitions tax. Title 3, Revenue Act 1916, 39 Stat. 780. Such munitions tax was not payable and was not paid until within the calendar year 1917. Section 12 (a) of the Revenue Act of 1916 (chapter 463, 39 Stat. 767-769) prescribed the method for ascertaining the net income of a corporation organized in the United States, by deducting from the gross amount of its income received within the year from all sources, first, all ordinary and necessary expenses paid within the year; second, all losses actually sustained and charged off within the year and not compensated by insurance or otherwise; third, the amount of interest paid within the year on its indebtedness, not exceeding the proportions fixed; and, fourth, taxes paid within the year. The method so outlined is usually referred to as the cash receipt and disbursement basis of return. Section 13 (d) of the same act (39 Stat. 771) further provided that a corporation keeping accounts upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect its income, may, subject to regulations made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned. This is ordinarily denominated a return upon the accrual basis.

In preparing its returns for income tax for the years 1916 and 1917, plaintiff declared therein that the return was made on the basis of actual receipts and disbursements, but included in its gross income from operations the increase in inventory value of stock on hand and accounts receivable as of the date of entry upon the books, without regard to whether such accounts were actually paid or not. In the deductions claimed, accounts payable were treated as expenditures as of the time of entry upon the books. Depreciation of buildings and equipment was likewise claimed. Other reserves appearing upon the books were not reflected in the return. Only such taxes as were actually paid during the year were deducted. The books of the corporation were kept upon the "accrual" basis, except that no reserve was set up during 1916 to cover the munitions tax, and the amount of this tax was not claimed as a deduction in the return for 1916, but was set up on the books in, and claimed as a deduction for, the year 1917, in which year it was actually paid. The Commissioner of Internal Revenue audited the returns for 1916 and 1917, disallowed the munitions tax as a deduction for the year 1917, and allocated the same to the year 1916 as properly attributable to that period. This transfer of the munitions tax as a deduction from the year 1917 to the year 1916 increased the taxes payable for said years by the sum of $166,910.90. The District Court found for the defendant. 24 F.(2d) 230. Plaintiff prosecutes error.

Since all facts are conceded, and only the conclusions to be drawn therefrom are contested, the ultimate and decisive question presented is whether the returns of plaintiff for the years 1916 and 1917 were on a strictly cash receipt and disbursement basis under section 12 (a), or upon some other basis under section 13 (d). As held by the District Court, we are of the opinion that the case is controlled by the decision of U. S. v. Anderson et al., 269 U. S. 422, 46 S. Ct. 131, 70 L. Ed. 347, which case was later cited and approved in U. S. v. Mitchell, 271 U. S. 9, 12, 46 S. Ct. 418 (70 L. Ed. 799), American National Co. v. U. S., 274 U. S. 99, 103, 47 S. Ct. 520 (71 L. Ed. 946), and ...