Becker v. Anheuser-Busch, Inc.

• Decision Date: 23 June 1941
• Docket Number: No. 11816 to 11836.,11816 to 11836.
• Citation: 120 F.2d 403
• Parties: BECKER, Collector of Internal Revenue, v. ANHEUSER-BUSCH, Inc., and twenty other cases.
• Court: U.S. Court of Appeals — Eighth Circuit

120 F.2d 403 (1941)

BECKER, Collector of Internal Revenue, v. ANHEUSER-BUSCH, Inc., and twenty other cases.

Nos. 11816 to 11836.

Circuit Court of Appeals, Eighth Circuit.

May 29, 1941.

Rehearing Denied June 23, 1941.

Paul R. Russell, Sp. Asst. to Atty. Gen., (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., Harry C. Blanton, U. S. Atty., of Sikeston, Mo., and Herbert H. Freer, Asst. U. S. Atty., of St. Louis, Mo., on the brief), for Louis J. Becker, Collector of Internal Revenue, etc.

Harry W. Kroeger, of St. Louis, Mo. (Daniel N. Kirby, of St. Louis, Mo., on the brief), for taxpayers.

Before WOODROUGH, JOHNSEN, and VAN VALKENBURGH, Circuit Judges.

WOODROUGH, Circuit Judge.

The plaintiffs in these civil actions alleged that the Commissioner of Internal Revenue had erroneously disallowed deductions claimed in consolidated income tax returns of Anheuser-Busch, Inc. (1875), its successor, Anheuser-Busch, Inc. (1925), and their affiliated subsidiary corporations, for the year 1924 and the year 1925, and claims for refund having been denied, they sued to recover tax payments attributable to the wrongful refusal to allow the deductions. Issues were joined and, jury being waived, the cases were tried to the court. The court made findings of fact, amended and additional findings of fact and conclusions of law, and without formal opinion entered judgments in favor of the taxpayers amounting to $123,179.46, from which the Collector has appealed. There are also appeals and cross-appeals by the taxpayers.

Allegations made in the petitions of the plaintiffs include the following:

"The Obsolescence Charge-Offs.

"On its said consolidated income tax return for itself and its subsidiaries for the year 1924, said Anheuser-Busch, Incorporated (1875), had taken a deduction against the consolidated income of the affiliated group for the year 1924 in the amount of $1,381,451.31 claimed for obsolescence of Bevo cases and the bottles abandoned in the year 1924, said amount being derived by said Anheuser-Busch, Incorporated (1875), and appearing on its books as follows, to-wit:

                  749,897 two dozen 10 oz. `Bevo' cases became
                    obsolete and were abandoned in
                    1924 — (cost to taxpayer) ................   $  772,393.91
                  3,271,160 dozen 10-oz. `Bevo' bottles became
                    obsolete and were abandoned in
                    1924 — (cost to taxpayer) ................      885,096.95
                                                                 _____________
                      Total ..................................   $1,657,490.86
                  Less their junk value .......    $201,051.85
                  Less depreciation theretofore
                    written off ...............      74,987.70
                                                   ___________
                                                   $276,039.55      276,039.55
                                                   ___________   _____________
                  Net Amount Deducted — Loss .................   $1,381,451.31
                

"On its consolidated income tax return for said Anheuser-Busch, Incorporated (1875), itself and its subsidiaries for the year 1925, plaintiff, Anheuser-Busch, Incorporated (1925), had taken a deduction against the consolidated income of said affiliated group for the year 1925 in the amount of $98,586.16 claimed for obsolescence of Bevo cases and bottles abandoned at the end of the year 1925, said amount being derived by plaintiff, Anheuser-Busch, Incorporated (1925), and appearing on its books, as follows:

                  409,071 dozen 10 oz. bottles — Obsolete ........   $119,039.66
                          Less junk value at 5¢ per doz ..........     20,453.50
                                                                     ___________
                                                                      $98,586.16
                

"Said deductions by Anheuser-Busch, Incorporated (1875), and plaintiff, Anheuser-Busch, Incorporated (1925), arose out of the following facts:

"Anheuser-Busch, Incorporated (1875), was, for many years prior to January, 1920, the effective date of the ratification of the Eighteenth Amendment to the Federal Constitution, and prior to January 17, 1920, the effective date of the Volstead Act, in the business of manufacturing and selling beer having an alcoholic content. The immediate effect of said Eighteenth Amendment and Volstead Act was to completely destroy the said business that had been theretofore conducted by said Anheuser-Busch, Incorporated (1875). It thereupon pursued the policy of readjusting and changing the character of its products to comply with the law, and of adding new products for the purpose of utilizing its plant and equipment. Preparatory to the advent of National Prohibition, it had invented and begun to market a non-alcoholic cereal beverage named `Bevo'. The initial demand for said Bevo was great, and in order to equip itself to meet the market for said product, it purchased large quantities of ten ounce bottles of a peculiar size and shape not adaptable to the marketing of other products. In 1919, it sold 3,904,016 dozen bottles of Bevo, and in 1920 it sold 3,044,006 dozen bottles of Bevo. Thereafter, however, its sales of said product dropped as follows:

                  1921 — 794,378 dozen       1923 — 726,348 dozen
                  1922 — 732,302 dozen       1934 — 709,008 dozen
                

"At the end of the year 1924, the officers of said Anheuser-Busch, Incorporated (1875), having ascertained from sustained experience that its case and bottle equipment for the distribution of Bevo, acquired at a time when there was reasonable expectation of increased sales of said product, had become grossly excessive in the light of the subsequent falling off of such sales, determined that, of the supplies of such cases and bottles on hand, said 749,897 cases and said 3,271,160 dozen bottles were incapable of further use in said business, or in any other business conducted by said Anheuser-Busch, Incorporated (1875), that they had no value, and that they had become obsolete in respect to said business, and ordered said cases and bottles to be abandoned, not further used in said business, and sold as junk when reasonably possible. Thereafter, and pursuant to said order, said cases and bottles were physically set apart from all similar cases and bottles still used in the conduct of said business, or which were reserved for future use, and abandoned.

"In like manner, at the end of the year 1925, the officers of plaintiff, Anheuser-Busch, Incorporated (1925), having ascertained from sustained experience that its case and bottle equipment for the distribution of Bevo, acquired at a time when there was reasonable expectation of increased sales of said product, was still grossly excessive in the light of the subsequent falling off of such sales, determined that, of its supplies of such cases and bottles on hand, not only those which had been abandoned as aforesaid, in the year 1924, but also said 409,071 dozen ten ounce Bevo bottles above mentioned were incapable of further use in said business or in any other business conducted by plaintiff, Anheuser-Busch, Incorporated (1925), that they had no value, and that they had become obsolete in said business, and ordered said bottles to be abandoned, not further used in said business, and sold as junk when reasonably possible. Thereafter, and pursuant to said order, said cases and bottles were physically set apart from all similar cases and bottles still used in the conduct of said business or which were reserved for future use, and abandoned.

"None of said cases and bottles in respect to which said deduction for obsolescence was taken by said Anheuser-Busch, Incorporated (1875), and none of said bottles in respect of which said deduction for obsolescence was taken by plaintiff, Anheuser-Busch, Incorporated (1925), were in fact ever used by said Anheuser-Busch, Incorporated (1875), or plaintiff, Anheuser-Busch, Incorporated (1925), in the conduct of said business. The remaining bottles and cases reserved for future use proved adequate to satisfy all the subsequent demands incident to the manufacture and sale of Bevo. Quantities of said abandoned bottles were in fact sold or given away as junk realizing smaller amounts than said amounts assigned to them as junk value, and deducted from the respective amounts of said obsolescences. Said deduction taken on account of obsolescence of said cases and bottles in the year 1924 was a loss incurred in the conduct of the business of said Anheuser-Busch, Incorporated (1875), such loss was sustained in the year 1924 when the cases and bottles were determined to be useless and in fact abandoned, and the amount thereof was properly deducted from the consolidated income of Anheuser-Busch, Incorporated (1875), and its subsidiaries on its return for said year. Said deduction taken on account of obsolescence of said bottles in 1925 was a loss incurred in the conduct of the business of plaintiff, Anheuser-Busch, Incorporated (1925), such loss was sustained in the year 1925 when the cases and bottles were determined to be useless and in fact abandoned, and the amount thereof was properly deducted from the consolidated income of plaintiff and its said subsidiaries on its return for said year."

Issues were joined upon these and other allegations by the answer of the Collector, and his position with reference to the deductions may be briefly indicated by an official letter relative to certain claims for refund wherein the taxpayer's representative was informed:

"You contend that a further deduction should be allowed this taxpayer for the years 1924 and 1925 as loss of useful value on 10-ounce Bevo cases and bottles which were set aside by the corporation in the years in question, due to the fact that bottles and cases on hand exceeded the requirements of the declining trade.

"In rejecting the claims, the Bureau took the position that until the investment in cases and bottles was converted into terms of money by sale or other final disposition, there was neither loss nor gain and the income of the company for the year was neither increased nor...