City Ice Delivery Co. v. United States
| Decision Date | 04 August 1949 |
| Docket Number | No. 5883.,5883. |
| Citation | 176 F.2d 347 |
| Parties | CITY ICE DELIVERY CO. v. UNITED STATES. |
| Court | U.S. Court of Appeals — Fourth Circuit |
COPYRIGHT MATERIAL OMITTED
Frank Thomas Miller, Jr., and F. A. McCleneghan, Charlotte, N. C. (E. McArthur Currie, Charlotte, N. C., on brief), for appellant.
Robert R. Reynolds, Jr., Special Assistant to the Attorney General (Theron Lamar Caudle, Asst. Atty. Gen.; Ellis N. Slack and A. F. Prescott, Sp. Asst.s. to the Atty. Gen.; T. A. Uzzell, Jr., U. S. Attorney, Asheville, N. C., and Francis H. Fairley, Asst. U. S. Attorney, Charlotte, N. C., on brief), for appellee.
Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.
This is an appeal by the City Ice Delivery Company (hereinafter designated as taxpayer) from a decision of the United States District Court for the Western District of North Carolina, which denied taxpayer the recovery of $3,523.54 (with interest thereon) paid by taxpayer as federal income and declared value excess profits taxes during the fiscal years ending January 31, 1939, January 31, 1940, and January 31, 1941.
We first summarize briefly the essential facts, which were found by the District Court and about which there is very little dispute.
The taxpayer is a corporation organized under the laws of North Carolina with its principal office and place of business in Charlotte, North Carolina. It was organized on February 1, 1928, by Southern Ice & Coal Company, Standard Ice & Fuel Company, Avant Fuel & Ice Company, and Wiggins Ice & Fuel Company, all of Charlotte, North Carolina, for the purpose of setting up the taxpayer as the common delivering agency and retailer for the ice produced by these four ice manufacturers. These companies became the sole owners of the stock in the taxpayer on a percentage basis as follows:
Percent
Southern Ice & Coal Company ...... 46
Standard Ice & Fuel Company ...... 40
Avant Fuel & Ice Company ......... 8
Wiggins Ice & Fuel Company ....... 6
Each of the four organizers and stockholders of the taxpayer entered into a contract with the taxpayer covering the period of February 1, 1928, to January 31, 1937, by the terms of which each agreed to manufacture and sell, and the taxpayer agreed to buy at a specified price a certain percentage of the total requirements of the taxpayer as the selling agent and retailer for such four stockholders; and the manufacturers agreed that they would employ the taxpayer as their sole selling agent for all ice they manufactured except that delivered by them otherwise than in competition with the taxpayer. These contracts specified the respective quantities of ice to be furnished to the taxpayer by each of its stockholders on a percentage basis, using as a measure for determining the percentage of each the production capacity and selling volume enjoyed by each of the four manufacturers prior to and on the date when the taxpayer corporation was organized.
The contract with Wiggins Company was renewed through January 31, 1938, and subsequently through March 14, 1938. On December 23, 1937, the taxpayer gave to Wiggins Company an option either to continue operation under this contract or to discontinue the manufacture of ice and to receive from the taxpayer $2 per ton on 6 percent of ice tonnage based upon 35,000 tons. This option specified that the payment of $2 per ton was based on anticipated earnings of the taxpayer of $3.60 per ton or less, and further provided that if the taxpayer should earn as much as $4 per ton Wiggins Company would be entitled to receive $2.25 per ton for 6 percent of the total tonnage sold by the taxpayer.
The alleged reasons for the granting of this option were that the other three manufacturers of ice were producing a surplus and it was believed that the platform of Wiggins Company could be operated and ice delivered from the other three plants to this platform cheaper than it could be procured from the Wiggins Company as a manufacturer.
On March 14, 1938, the Wiggins Company executed a paper writing confirming its election to exercise this option and payments were made to the Wiggins Company during the years in question here on the basis of the March 14, 1938 contract.
During these taxable years, the Wiggins Company refrained from manufacturing ice for sale to or in competition with the taxpayer, and also made available to the taxpayer at its expense its selling platform, and thereby the taxpayer acquired the use of such platform, the use of the Wiggins name in connection with its sale from such platform, and the opportunity to sell ice to the Wiggins customers. Payments made by the taxpayer to Wiggins Company thereunder totaled $3,730.84 for taxpayer's taxable year ended January 31, 1939; $3,897.44 for the taxable year ended January 31, 1940; and $3,252.22 for the taxable year ended January 31, 1941.
During the taxable years, taxpayer pursued the policy of lending to customers or prospective customers certain ice boxes and other types of refrigerating equipment as a business-getting practice to encourage such customers to purchase ice and ice equipment from the taxpayer. The taxpayer's agent kept records of the items so loaned. The taxpayer decided, rather than to repossess this equipment and risk alienating the customers, to abandon title to such equipment and donate it to the customers. The value of this equipment donated to the customers was deducted by the taxpayer at cost.
The taxpayer further claimed deductions on certain equipment in its inventory which it claimed had diminished in value below its cost to taxpayer.
Three questions are thus presented for our decision:
(1) Were the amounts paid by the taxpayer to Wiggins Ice and Fuel Company in the taxable years deductible in computing its taxable income for those years as an ordinary and necessary business expense under Section 23(a) (1) (A) of the Internal Revenue Code, 26 U.S.C.A. § 23 (a) (1) (A), or as a capital expenditure depreciable under Section 23(l) (1) of the Code or as an item in the cost of the ice?
(2) Was the value of equipment donated by the taxpayer to its customers and prospective customers deductible under Section 23(a) (1) (A) of the Internal Revenue Code in computing its net income for the taxable years in which such donations were made?
(3) Was the amount by which the market value of certain items of taxpayer's inventory had diminished below their cost deductible under Section 22(c) or the Internal Revenue Code, 26 U.S.C.A. § 22(c), in computing its net income for the taxable years? We consider these questions in their order.
We think the District Court correctly held that the payments made by taxpayer to Wiggins, under the option of Wiggins to be paid for ice which it agreed not to produce, were not deductible as "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Int.Rev.Code § 23(a) (1) (A).
It is well settled that such deductions can be claimed by the taxpayer only if it brings itself squarely within the terms of the statute, since such deductions are matters of legislative grace, not matters of right. Deputy v. DuPont, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416; White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 83 L.Ed. 172; Jones v. Commissioner, 9 Cir., 103 F.2d 681; Barbour Coal Co. v. Commissioner, 3 Cir., 74 F.2d 163, certiorari denied 295 U.S. 731, 55 S.Ct. 643, 79 L.Ed. 1680. And the determination of the Commissioner against deductibility here carries a presumption of correctness with the burden on the taxpayer (which we believe it has not shouldered) of proving that this determination is incorrect. Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212.
To be deductible here, the item must be not only a business expense but also such an expense that is both ordinary and necessary. These be rather strong adjectives which the courts have often been called upon to define and apply. Thus Mr. Justice Douglas, in Deputy v. DuPont, 308 U.S. 488, 495, 496, 497, 60 S.Ct. 363, 367, said:
See, also, Commissioner of Internal Revenue v. Heininger, 320 U.S. 467, 64 S.Ct. 249, 88 L.Ed. 171; Welch v. Helvering, 290 U.S. 111, 113-114, 54 S.Ct. 8, 78 L.Ed. 212; Hales-Mullaly, Inc. v. Commissioner, 10 Cir., 131 F.2d 509, 511; A. Giurlani & Bro., Inc. v. Commissioner, 9 Cir., 119 F.2d 852, 855-857.
It takes indeed a strained interpretation of "ordinary and necessary business expenses" to include within this category the payments made by taxpayer to Wiggins. Certainly these payments were...
To continue reading
Request your trial
-
United States v. Mead
...were erroneous. An additional consideration is that cost is a concept clearly distinguishable from value. City Ice Delivery Co. v. United States, 4th Cir., 176 F.2d 347. The Agricultural Conservation Program of 1957-59 was intended to encourage farmers and ranchers to take conservation meas......
-
Wisely v. U.S.
...deduction is unavailable. White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 184, 83 L.Ed. 172 (1938); City Ice Delivery Co. v. United States, 176 F.2d 347, 350 (4th Cir.1949). We know of no rule by which the foregoing doctrine is any less applicable to the estate tax than to the inco......
-
Hofferbert v. Anderson Oldsmobile
...C.C.H. Dec. 18, 629 (M); Sol Smith v. Commissioner, C.C.H. Dec. 18, 617(M). Cf. the opinion of our Court in City Ice Delivery Co. v. United States, 4 Cir., 176 F.2d 347, 352; United States v. Safety Car Heating & Lighting Co., 297 U.S. 88, 56 S.Ct. 353, 80 L.Ed. 500; Eisner v. Macomber, 252......
-
Noland v. CIR
...deduct as a business expense, payments which clearly further the businesses of its stockholders, but not its own. City Ice Delivery Co. v. United States, 4 Cir., 176 F.2d 347. The rule has particular applicability to closely held corporations where there may be temptation to transfer expens......