APPEAL OF INDEPENDENT BREWING COMPANY OF PITTSBURGH

• Decision Date: 18 September 1926
• Docket Number: Docket No. 3242.
• Citation: 4 BTA 870
• Parties: APPEAL OF INDEPENDENT BREWING COMPANY OF PITTSBURGH.
• Court: U.S. Board of Tax Appeals

4 B.T.A. 870 (1926)

APPEAL OF INDEPENDENT BREWING COMPANY OF PITTSBURGH.

Docket No. 3242.

Board of Tax Appeals.

Decided September 18, 1926.

B. H. Feldstein, Esq., for the petitioner.

E. C. Lake, Esq., for the Commissioner.

This is an appeal from the determination of a deficiency in income and profits tax for the year 1919 in the amount of $20,610.48. The questions in issue are (1) whether the taxpayer is entitled to deduct from gross income in its income-tax return for 1919 amounts paid as dues to various brewery associations, and (2) whether the taxpayer received any income from the purchase of its own bonds which it did not retire or cancel during the year.

FINDINGS OF FACT.

The taxpayer is a Pennsylvania corporation with its principal office in Pittsburgh. In its income-tax return for the year 1919, it deducted from gross income amounts paid brewery associations as follows:

                  Western Pennsylvania Brewers Association ____________  $1,896.88
                  Westmoreland County Brewers Association _____________     524.12
                  United States Brewers Association ___________________   6,236.00
                  United States Brewers Association (attorneys' fees) _   8,340.16
                                                                         _________
                                                                         16,997.16
                

The Western Pennsylvania Brewers Association was a trade organization carried on by brewers of Western Pennsylvania. During 1919, it maintained an office in Pittsburgh where the brewers from the vicinity of the city met and discussed matters of interest to them. It was not used or intended to be used in lobbying for the promotion or the defeat of legislation. The Westmoreland County Brewers Association was a small trade organization maintained by the brewers of Westmoreland County; no part of the money paid to it was expended in lobbying for the promotion or the defeat of legislation. The United States Brewers Association was a large organization to which the principal brewers throughout the United States belonged. Its income was used for the promotion of the interests of the brewery industry. It maintained an office at Washington, D. C. It was interested in contesting the constitutionality of the Prohibition Amendment to the Constitution of the United States and the contribution of the taxpayer to this association during the year 1919 of $8,340.16 for attorneys' fees was in connection with this litigation.

The taxpayer corporation was organized in February, 1905, at which time it executed a first mortgage to the Colonial Trust Company of Pittsburgh, as trustee, securing an issue of $4,500,000 of bonds, 4,500 in number of the par value of $1,000 each. The original mortgage contained no sinking-fund agreement. A supplement thereto was duly made and executed by the taxpayer on July 28, 1909, which provided for a sinking fund for the retirement of the bonds issued under the mortgage, the taxpayer agreeing to pay to the trustee not less than $50,000 in each year, payments to begin on December 1, 1911.

From December 1, 1911, to December 31, 1918, inclusive, the taxpayer made payments to the trustee of its sinking fund in accordance with the supplemental agreement of July 28, 1909, and the trustee acquired bonds of the taxpayer which it kept alive in the sinking fund. Most, if not all, of these bonds were acquired directly from the taxpayer at par. All of the bonds so sold to the trustee were rubber stamped "Not Negotiable." The coupons on the bonds, however, were not marked in any manner and in all cases the taxpayer's books of account show the payment upon each interest-paying date of the full amount of interest accrued upon its $4,500,000 of bonds issued. The trustee has never sold or parted with any of the bonds which have been acquired by it.

During the year 1919, the market price of the taxpayer's bonds became very much depressed and, in order to support the price, the taxpayer purchased in the open market 476 of its bonds, paying therefor $251,825.69. These bonds were not cancelled and the taxpayer's books of account show interest paid on them the same as on the bonds held by the trustee of its sinking fund and those held by the public.

During the year 1919, the taxpayer sold to the trustee for the sinking fund...