Brandon Corporation v. COMMISSIONER OF INT. REVENUE

• Decision Date: 11 June 1934
• Docket Number: No. 3639.,3639.
• Citation: 71 F.2d 762
• Parties: BRANDON CORPORATION v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

71 F.2d 762 (1934)

BRANDON CORPORATION v. COMMISSIONER OF INTERNAL REVENUE.

No. 3639.

Circuit Court of Appeals, Fourth Circuit.

June 11, 1934.

John W. Townsend, of Washington, D. C. (James Craig Peacock, of Washington, D. C., on the brief), for petitioner.

M. H. Eustace, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before NORTHCOTT and SOPER, Circuit Judges, and PAUL, District Judge.

NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals, involving income taxes of the petitioner for the period from June 1, 1928, to December 31, 1928, and involves a deficiency determination by the Commissioner of Internal Revenue against the petitioner in the sum of $8,760.07. The decision of the Board, which is not reported, was promulgated August 17, 1933 (B. T. A. docket No. 51693). The Board sustained the finding of the Commissioner.

The facts as found by the Board of Tax Appeals are as follows:

"Brandon Mills, Poinsett Mills, and Woodruff Cotton Mills were separate South Carolina Corporations engaged in the manufacture of cotton goods during the first five months of the calendar year 1928. They were not affiliated and each filed a separate return for that period of five months. Brandon Mills had taxable net income of $48,416.60, while Poinsett Mills had a statutory net loss of $35,914.77, and Woodruff Cotton Mills had a statutory net loss of $37,085.81 for that period.

"The petitioner, a new corporation, came into existence on June 1, 1928, as a result of the consolidation of the three former corporations under the laws of South Carolina. Under this law the three former corporations were dissolved. The petitioner carried on its business for the last seven months of 1928 and filed a return for that period. Its taxable net income for that period of seven months was $219,951.49. In its return the petitioner deducted the total net losses of Poinsett Mills and Woodruff Cotton Mills for the period of five months from January 1, to May 31, 1928."

The Commissioner refused to allow the deduction, and the only question presented here is whether the petitioner is entitled to deduct the net losses sustained, in the preceding tax period, by two of the three corporations which were consolidated to form the petitioner corporation.

Section 117 (b) of the Revenue Act of 1928 (26 USCA § 2117 (b) provides: "If, for any taxable year, * * * any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year. * * *"

It is settled that only those deductions may be allowed which are specifically authorized. Woolford Realty Co. v. Rose, 286 U. S. 319, 52 S. Ct. 568, 76 L. Ed. 1128; Brown v. Helvering, 291 U. S. 193, 54 S. Ct. 356, 78 L. Ed. 725, decided by the Supreme Court January 15, 1934; Burnet v. Thompson Oil & Gas Co., 283 U. S. 301, 51 S. Ct. 418, 75 L. Ed. 1049; Darby-Lynde Co. v. Commissioner (C. C. A.) 51 F.(2d) 32; Phipps v. Bowers (C. C. A.) 49 F.(2d) 996. It is clear from the reading of the statute that in order to allow the deduction claimed by the petitioner the loss must have been suffered by the same taxpayer. That the petitioner was the same taxpayer as were the two companies that suffered the loss, claimed as deductible, cannot be successfully maintained. Here the consolidation of the three companies was not a merger such as was involved in the case of Western Maryland Ry. Co. v. Commissioner (C. C. A.) 33 F.(2d) 695. In Burnet v. Riggs National Bank, 57 F.(2d) 980, we held that separate corporate entities of even merged banks could not be ignored in determining what was deductible loss, and in Planters' Cotton Oil Co. v. Hopkins, 286 U. S. 332, 52 S. Ct. 509, 76 L. Ed. 1135, the Supreme Court held that losses suffered by joint stock associations during the year preceding affiliation with other companies were not deductible.

The Board of Tax Appeals has uniformly held that a corporation may not deduct a net loss of a predecessor. Appeal of White House Milk Co., 2 B. T. A. 860; West Point Marion Coal Co. v. Commissioner, 19 B. T. A. 945; Plumber's Supply Co. v. Commissioner, 20 B. T. A. 459; Athol Mfg....