Clark Dredging Co. v. Commissioner of Internal Rev.

• Decision Date: 21 February 1933
• Docket Number: No. 6555.,6555.
• Citation: 63 F.2d 527
• Parties: CLARK DREDGING CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

63 F.2d 527 (1933)

CLARK DREDGING CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 6555.

Circuit Court of Appeals, Fifth Circuit.

February 21, 1933.

Wm. S. Hammers, of Washington, D. C., for petitioner.

G. A. Youngquist, Asst. Atty. Gen., Sewall Key and Helen R. Carloss, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Maxwell M. Mahany, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

BRYAN, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals which disallowed certain deductions claimed by the taxpayer from income taxes for the years 1924 and 1925, and sustained deficiency assessments as determined by the Commissioner of Internal Revenue. Clark Dredging Co. v. Commissioner of Internal Revenue, 23 B. T. A. 503.

In 1922 petitioner was incorporated and succeeded to all the assets and liabilities of another corporation, the Bowers Southern Dredging Company. The latter company, after its capital stock had been exchanged by its stockholders ratably for petitioner's stock, surrendered its charter for cancellation. Petitioner contends that the Board erred in refusing as deductions in 1924 the aggregate amount of the net losses sustained by the Bowers Company and by it under a contract with the United States for dredging in the harbor at Miami, Fla. The Bowers Company had undertaken that contract in 1916 and given bond to secure performance, but had delayed performance beyond the time allowed. Because of the default, in 1921 the United States, as it had the right to do, took over and completed the dredging work. In 1924 the surety on the bond required petitioner, which had assumed the liability of the Bowers Company, to deposit $85,000 in cash and bonds to save it harmless from demand by the United States for reimbursement on account of the increased cost resulting from a breach of the dredging contract, and during that year the petitioner entered on its books, which it kept on the accrual basis, the full amount of $85,000 as a contingent liability. In 1928 a compromise was finally reached under which the government received $40,000 in settlement, and $45,000 in cash and securities were returned to petitioner.

Petitioner also contends that the Board erred in refusing to allow as a deduction in 1925 an amount as liquidated damages for delay in completion of a dredging contract in the harbor at Nassau, Bahama Islands. That contract provided for liquidated damages of 100 pounds per week for failure to complete the work within the time stipulated. Although petitioner was notified of the amount claimed for failure to complete the work on time, there was no demand for its payment, nor was any amount withheld that was due under the terms of the contract. A supplemental contract was entered into some time after 1926. Petitioner did not make any entry on its books with reference to the matter until December 31, 1926, when the amount now claimed was entered as a contingent liability.

The net loss incurred by the Bowers Company...