Brown Paper Mill Co. v. Comm'r of Internal Revenue
| Decision Date | 15 October 1954 |
| Docket Number | 14590,31167.,Docket Nos. 4882,18774,22948,8200 |
| Citation | 23 T.C. 47 |
| Parties | THE BROWN PAPER MILL COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Robert Ash, Esq., Carl K. Goodson, Esq., Charles H. Burton, Esq., and L. J. Benckenstein, Esq., for the petitioner.
Allen T. Akin, Esq., for the respondent.
1. Petitioner's claim for relief under section 722(b)(2) held properly disallowed for failure to establish that any decline in its earnings or those of any industry of which it was a part during the base period was due to any temporary or unusual economic events or circumstances.
2. Petitioner's claim for relief under section 722(b)(4) on the ground that installation of refining machinery increased its capacity to produce during the base period held not established by the evidence.
3. Petitioner's claim for relief under section 722(b)(4) on the ground that installation of dehydrating machines increased its capacity to produce during the base period held not properly before the Court, where not raised in timely claim for relief filed with respondent. Wadley Co., 17 T.C. 269, Blum Folding Paper Box Co., 4 T.C. 795, followed.
4. Petitioner's claim for relief under section 722(b)(4) on the ground that the installation of refining and dehydrating machines constituted changes in its method of operation during the base period which would have led to substantial cost savings had they been available throughout the base period held sustained by the evidence. Proper reconstructed addition to actual earnings in each of the base period years determined.
5. (a) Petitioner held qualified for relief under section 722(b)(4) for excess profits years 1941-1945, inclusive, on ground that it changed its ratio of nonborrowed to total capital during the base period years reconstructed; and (b) base period year deductions for amortization of bond discount held, further, properly included in reconstruction; but (c) relief held, further, unavailable for the year 1940 where claim based on change in capital ratio for that year was not timely filed.
6. Amounts paid during the base period years for rights to use certain machines held properly deducted as license fees during those years and not subject to capitalization and depreciation as cost of acquiring capital assets; adjustment under section 711(b)(1)(J) as abnormal deductions held, further, precluded by qualification as change in method of operation under section 722(b)(4).
7. Amounts paid in 1941 in settlement of petitioner's undistributed profits tax liability for the years 1936 and 1937 held properly deductible in those base period years within the meaning of section 711(b)(1)(A), Internal Revenue Code of 1939.
8. Increase in petitioner's capital stock tax for 1939 imposed by Revenue Act of 1940 held properly accruable and deductible in tax year 1940, rather than base period year 1939.
9. Respondent's treatment of certain amounts of capital stock tax as deductible in 1939 in determining petitioner's base period net income for excess profits tax purposes held inconsistent with disallowance of deduction in that amount for 1939 income tax purposes so as to entitle petitioner to administrative adjustment in 1939 income taxes under section 734, Internal Revenue Code. Leonard Refineries, Inc., 11 T.C. 1000, Zellerbach Paper Co., 8 T.C. 511, followed.
Respondent determined deficiencies in petitioner's income and excess profits taxes and disallowed claims for relief under section 722 of the Internal Revenue Code of 1939 as follows:
+---------------------------------------------------+
¦ ¦Docket¦ ¦Excess ¦Claim for ¦
+----+------+----------+-----------+----------------¦
¦Year¦No. ¦Income tax¦profits tax¦relief, sec. 722¦
+----+------+----------+-----------+----------------¦
¦1940¦4882 ¦$12,845.34¦$70,665.10 ¦$399,689.21 ¦
+----+------+----------+-----------+----------------¦
¦1941¦8200 ¦19,853.83 ¦78,793.53 ¦1,174,911.88 ¦
+----+------+----------+-----------+----------------¦
¦1942¦8200 ¦ ¦137,890.67 ¦1,828,802.29 ¦
+----+------+----------+-----------+----------------¦
¦1943¦14590 ¦ ¦219,928.10 ¦ ¦
+----+------+----------+-----------+----------------¦
¦1944¦18774 ¦ ¦100,475.43 ¦ ¦
+----+------+----------+-----------+----------------¦
¦1945¦22948 ¦ ¦73,655.08 ¦ ¦
+----+------+----------+-----------+----------------¦
¦1943¦31167 ¦ ¦ ¦1,300,336.02 ¦
+----+------+----------+-----------+----------------¦
¦1944¦31167 ¦ ¦ ¦938,531.68 ¦
+----+------+----------+-----------+----------------¦
¦1945¦31167 ¦ ¦ ¦1,198,031.54 ¦
+---------------------------------------------------+
Petitioner also claims overpayments of income tax for the years 1942 through 1945, inclusive. Certain issues have been settled by stipulation; other adjustments are conceded by petitioner. The remaining questions are:
1. Whether petitioner is qualified for excess profits tax relief for all years in controversy because its average net income during the base period 1936 through 1939 is an inadequate standard of its normal earnings, due to (a) the depression of petitioner's business, or of the industry of which it was a member, during the base period by reason of temporary events or circumstances unusual to petitioner or to the industry of which it was a part, within the meaning of section 722(b)(2); or (b) a change in the character of petitioner's business during or immediately prior to the base period, within the meaning of section 722(b)(4).
2. If qualified for section 722 relief, whether petitioner has established a fair and just constructive average base period net income in excess of the credit to which it is entitled without reference to section 722.
3. Whether amounts totaling $238,573.81 paid pursuant to contract for 14 Sutherland pulp refiners in 1936, 1937, and 1938 and deducted during each of those years, should be eliminated as deductions in the computation of petitioner's base period net income and treated as payments for the acquisition of machinery and equipment, allowing only depreciation deductions for the base period years and for the years in controversy; or, if this acquisition is not a qualifying basis for reconstruction under section 722(b)(4), whether it is an abnormal deduction during the base period within the meaning of section 711(b) (1)(J) of the 1939 Code.
4. Whether respondent erred in treating sums of $180,000 and $220,000 paid in 1941 in settlement of deficiencies in petitioner's undistributed profits tax liability for 1936 and 1937 as deductible in those base period years, respectively, under section 711(b)(1)(A), rather than as accrued and deductible in 1940 under section 711(a)(1)(A).
5. Whether an addition to petitioner's capital stock tax for 1939 imposed by the Revenue Act of 1940 was properly accruable in 1940.
6. Whether petitioner is entitled under section 734, Internal Revenue Code of 1939, to an adjustment in 1939 income tax for certain amounts which were deducted in determining petitioner's base period net income credit for excess profits tax purposes for the years in controversy, but disallowed as ordinary deductions in 1939.
Extended findings of fact have been made and are filed as a part of the official record of the case. In order to give a general background of the facts, the following excerpts from such findings are set forth herein:
Petitioner is a corporation organized under the laws of Delaware in 1929. It succeeded a Louisiana corporation of the same name, hereinafter called Louisiana, in a reorganization in which no gain or loss was recognized under the Revenue Act of 1928. Petitioner maintains its principal office and business in Louisiana. Federal income and excess profits tax returns were filed on its behalf for all years in controversy on an accrual basis with the collector of internal revenue for the district of Louisiana.
Petitioner filed applications for relief from, and for refund of, excess profits tax for each of the years in controversy with the Commissioner of Internal Revenue. Petitioner filed with respondent claims for refund of overpayment of income tax for the years 1942 through 1945.
Petitioner is entitled to use an excess profits tax credit based on income in computing its excess profits taxes for the years in controversy. The general average method of the 1939 Code, section 713, was used for the years 1940 and 1941. The 75 per cent rule of section 713(e) was applicable for the years 1942 through 1945.
The tables below show the excess profits net income, net aggregate thereof, and average thereof for the base period years as adjusted and as finally determined by the respondent in his notices of deficiencies and disallowances for the taxable years 1940 through 1945:
To continue reading
Request your trial
-
Schenley Indus., Inc. v. Comm'r of Internal Revenue, Docket Nos. 40964-40967.
...by its own personnel, Neilson Lithographing Co., 19 T.C. 605 (1952); Schneider's Modern Baking, Inc., 19 T.C. 763 (1953); Brown Paper Mill Co., 23 T.C. 47 (1954); Fanner Manufacturing Co., 29 T.C. 587 (1957); Crowell-Collier Publishing Co., 25 T.C. 1268 (1956), but also by arrangements with......
-
Burwell Motor Co. v. Comm'r of Internal Revenue, Docket No. 30459.
...the same provision was relied upon with respect to the new assertions made at the conference of May 19, 1949. Cf. Brown Paper Mill Co., 23 T.C. 47,64. The original applications claimed as a basis for relief under section 722(b) (4) that petitioner had changed its product from Ford to Chevro......
-
A. Finkl & Sons Co. v. Comm'r of Internal Revenue
...a general business recession in 1938 is not sufficient to justify excess profits tax relief under section 722(b)(2). Brown Paper Mill Co., 23 T.C. 47; Industrial Yarn Corporation, 16 T.C. 681; Bulletin on Section 722, p. 17. Petitioner served a diversified group of customers, there being no......
-
Dow Jones & Co. v. Comm'r of Internal Revenue
...a general business recession in 1938 is not sufficient to justify excess profits tax relief under section 722(b)(2). Brown Paper Mill Co., 23 T.C. 47; Industrial Yarn Corporation, 16 T.C. 681; Bulletin on Section 722, p. 17. Petitioner served a diversified group of customers, there being no......