Collingwood v. Comm'r of Internal Revenue
| Decision Date | 04 September 1953 |
| Docket Number | Docket Nos. 32482,32483. |
| Citation | 20 T.C. 937 |
| Parties | J. H. COLLINGWOOD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.J. H. COLLINGWOOD and MARGARET E. COLLINGWOOD, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner, who owned farms for the production of income which had been under cultivation for many years, sought to check and reduce water erosion and loss of top soil by terracing his farms in accordance with approved specifications. Terraces were made by pushing the earth into ridges following the contours of the land. Nothing new was added to the farms. The purpose was not to change the use of the land, or to prepare it for use, or for new and additional uses, but was to maintain the productivity of the farms in normal and customary operation. Held, the expenditures for farm terracing were essentially for maintenance and conservation and as such are deductible as ordinary and necessary expense under section 23(a) of the Internal Revenue Code, and they were not for permanent improvements within section 24(a)(2). Willard N. Van Slyck, Jr., Esq., and Clayton E. Kline, Esq., for the petitioners.
Everett E. Smith, Esq., for the respondent.
The Commissioner has determined deficiencies in income tax for the years 1947, 1948, and 1949, as follows:
+------------------------------+
¦Docket No. ¦Year ¦Amount ¦
+-------------+------+---------¦
¦32482 ¦1947 ¦$4,529.69¦
+-------------+------+---------¦
¦32483 ¦1948 ¦800.98 ¦
+-------------+------+---------¦
¦32483 ¦1949 ¦795.90 ¦
+------------------------------+
The question to be decided is whether the cost of grading the land of farms into earthen terraces to combat soil erosion is deductible under section 23(a) of the Internal Revenue Code. The respondent disallowed deduction under section 24(a)(2).
The petitioners filed their returns with the collector for the district of Kansas.
The facts which have been stipulated are found as facts. The stipulation is incorporated herein by reference.
The petitioners reside in Topeka, Kansas. J. H. Collingwood is referred to hereinafter as the petitioner because the issue to be decided relates solely to his business.
The petitioner owns five farms in Kansas which he rents for the production of income. The use of the farms for the production of income through the rental thereof constitutes a business of the petitioner. He was engaged, also, in the banking business during the taxable years.
The farms in question are located in eastern Kansas; one in Jefferson County covers 320 acres; one in Osage County covers 160 acres; one in Nemaha County covers 160 acres, one in Jackson County, the Dennison farm, covers 160 acres, and another in Jackson County covers 125 acres. All of these farms were cleared and prepared for farming before 1930, and since then, at least, they have been devoted to the production of crops of wheat, or soy beans, or small grains, or sweet clovers. Since 1930, at least, all the farms have been rented to tenants who paid rent on a share-crop basis.
All of the farms are located in rolling, upland areas where the slope of the land varies from 3 to 15 per cent. They are located in a glacier-drift area which is subject to severe and rapid soil erosion. Each of the farms of petitioner, before 1947, was affected by water erosion.
There are various methods which farmers use to combat soil erosion which include crop rotation, farming on contours without terracing, strip cropping, and seeding area to grass. But a method which is highly recommended and generally followed in the vicinity of petitioner's farms is the grading of the land into earthen terraces along contour lines. This method is called ‘terracing.‘ It does not involve the building of concrete or stone walls. It involves moving the earth with heavy equipment into ridges and channels which divert and slow up the running of water over the land. The object of such grading, or pushing the earth into ridges and channels is to prevent water from running downgrade at a rapid rate, from cutting gulleys into the land, and from carrying away the top soil.
The United States Department of Agriculture and the Kansas State College have recommended terracing to combat soil erosion for more than 20 years, and have issued directions and specifications for terracing farm lands. No two terracing systems will be identical, however, because the topography of the land will determine how the work is done. The United States Department of Agriculture makes benefit payments to farmers, upon application, to help defray the cost of terracing, provided the work is done according to approved standards and specifications. The average benefit payment is about 40 per cent of the cost of terracing subject to limitations which depend upon location, the number of farms owned, and the number of farms terraced by a recipient.
In 1940, petitioner terraced one of his farms but by 1947, for various reasons, the terraces were obliterated.
In 1947, the petitioner began a program of terracing all of the five farms in question for the purpose of preventing the further loss of top soil from water erosion. The plan which he adopted involved an intensive amount of work which was done on all or most of the five farms at about the same time. The work was continued in 1948 and 1949. The cost of the terracing work consisted of a charge of from 15 to 18 cents per cubic yard of earth moved by heavy equipment such as plows, bulldozers, graders, and whirlwind terracers. Except for the building of one concrete spillway which was not of any significance and which sank into the ground as a result of water erosion within 1 year, no stone, tile, or concrete was used in terracing the farms. Only earth was involved in making the terraces. The cost of pushing and grading earth on the five farms into terraces was as follows:
+----------------+
¦1947¦$10,515.41 ¦
+----+-----------¦
¦1948¦3,378.46 ¦
+----+-----------¦
¦1949¦2,932.00 ¦
+----------------+
In all of the terracing work in the taxable years, the petitioner followed the standards and specifications approved by the United States Department of Agriculture and by the Kansas State College, but he did not apply for any benefit payments. Petitioner paid all of the cost of the terracing work in the amounts set forth above. No part of the expenditures in the amounts set forth above was for the clearing of land or for what is generally done in preparing raw land for farming purposes.
The terracing which was done in 1947, 1948, and 1949 on each of the farms was done, in general, in the following way: By the use of surveyor's instruments the contours of the land were determined and contour lines were laid out going completely around a hill. The contour lines were laid out from the highest to the lowest points of the rolling land in a very roughly parallel manner depending upon slopes and contours. Suitable outlets for run-off water were selected such as a grass waterway or pasture where water could run off gradually without cutting gulleys in the land and without washing away the top soil. By the use of plows, bulldozers, graders, and whirlwind terracers, each terrace of earth was made, beginning at the highest point of the slope of the land. Each terrace was continuous in its course around a hill or contour line. A ‘terrace‘ consisted of an earthen hump or ridge, one side of which sloped out to a curved channel having for its ‘back‘ or opposite side, an earthen ridge. Each terrace had a broad base of from 18 to 30 feet wide, and it was about 18 inches high. The top of the ridge was flattened. The earth was pushed aside into ridges leaving channels. The width of ridges and channels, and the space between terraces varied according to the slope of the land and the estimate of the amount of water from rainfall to be diverted through the channels. Grading the channel was necessary to provide for a proper run-off of water. The ridge was merely a mound of earth which was pushed up, plowed up, or put up with a terracing machine. The ridges and channels were made to keep water from running straight down a hillside, to slow up the run-off of the water, and to increase the absorption of water into the land. Where the slope of the land was steep, the terraces were built closer to each other but with capacities sufficiently large to divert the fast run-off of water.
The farming of terraced land is more difficult and takes more time than farming on straight lines. Tilling is more difficult along terraces. Farmers resort to terraced farming out of necessity and because terracing is a means of saving the top soil from being washed away by water.
After the terraces were made on petitioner's farms, farming operations were carried on by the tenants in conformity with the terraced contours. The tops of the ridges were completely tilled and cultivated. The terraced ridges were plowed, worked with a disc and harrow, and with a soil surgeon. In the course of a year, five or six sets of farm implements were pulled over the terraced ridges in the process of farming them to wheat.
Terraces stop erosion by water for as long as they do not break but when breaks in terrace ridges occur, water erosion takes place. Therefore, farming operations cannot be carried on in a straight line across terraces, and care must be taken in...
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