Coors v. Comm'r of Internal Revenue
| Decision Date | 12 June 1973 |
| Docket Number | Docket Nos. 2837-69,2840-69.,2839-69 |
| Parties | WILLIAM K. COORS AND PHYLLIS E. COORS, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Gene W. Reardon, for the petitioner
Marvin T. Scott, for the respondent
Held: 1. Where the Commissioner did not concede the correctness of the company's accounting treatment of its self-constructed assets in abandoning capitalization adjustments in litigation involving the company for prior years, the doctrines of res judicata and collateral estoppel do not apply to the present litigation.
2. The company's method of accounting for its self-constructed assets does not clearly reflect its income on an annual basis and is erroneous for Federal income tax purposes. Costs of its self-constructed assets represent capital expenditures under sec. 263, I.R.C. 1954.
3. The Commissioner properly changed the company's method of accounting for self-constructed assets, a recurring material item, and made the necessary adjustments under sec. 481 in 1965, the year of change, to give the company an increased basis in its self-constructed assets on hand as of Jan. 1, 1965.
4. The company is not prejudiced by the Commissioner's inventory adjustments.
5. Land development costs incurred by the company are nondeductible capital expenditures.
6. Paving and fencing costs are partly deductible business expenses and partly nondeductible capital expenditures.
7. The company's duct work, saw room, and valve-testing room do not qualify as sec. 38 property for investment credit purposes.
8. The company is not entitled to deduct social club membership dues paid for the personal benefit of two of its principal stockholders and officers because under sec. 274 and the implementing regulations it has failed to establish that the primary use of each facility was for business purposes. Certain amounts constitute constructive-dividend income to the two shareholders.
9. Certain expenditures by the company made for the purpose of influencing legislation are not deductible.
10. Petitioner William K. Coors is entitled to deduct a net loss in 1966 from the rental of an Aspen condominium.
11. The payment of a guarantor obligation by petitioner Joseph Coors in 1965 is deductible as a nonbusiness bad debt.
1A
Respondent determined the following deficiencies in the Federal income taxes of petitioners:
+------------------------------------------------------------------+
¦Petitioners ¦Docket No.¦Year¦Deficiency ¦
+-------------------------------------+----------+----+------------¦
¦ ¦ ¦ ¦ ¦
+-------------------------------------+----------+----+------------¦
¦William K. Coors and Phyllis E. Coors¦2837-69 ¦1966¦$3,926.00 ¦
+-------------------------------------+----------+----+------------¦
¦Joseph Coors and Holly H. Coors ¦2839-69 ¦1965¦7,952.00 ¦
+-------------------------------------+----------+----+------------¦
¦ ¦ ¦1966¦7,803.00 ¦
+-------------------------------------+----------+----+------------¦
¦Adolph Coors Co ¦2840-69 ¦1965¦3,838,154.33¦
+-------------------------------------+----------+----+------------¦
¦ ¦ ¦1966¦1,268,786.83¦
+-------------------------------------+----------+----+------------¦
¦ ¦ ¦ ¦ ¦
+------------------------------------------------------------------+
Various concessions have been made by the parties and will be given effect in the Rule 50 computations. The issues remaining for decision are:
(1) Whether the doctrines of res judicata and collateral estoppel apply to certain capitalization adjustments made by the respondent.
(2) Whether the cost basis of certain self-constructed assets has been understated by the Adolph Coors Co.
(3) Whether respondent's adjustments brought about a change in the accounting method for the costs of the company's self-constructed assets.
(4) Whether adjustments under section 481, I.R.C. of 1954, are applicable.
(5) Whether the inventory adjustments with respect to the company are proper.
(6) Whether certain land development costs incurred by the company are deductible business expenses or capital expenditures.
(7) Whether certain paving and fencing costs are capital expenditures or deductible business expenses.
(8) Whether certain property qualifies as section 38 property and is eligible for the investment tax credit.
(9) Whether membership dues in social clubs paid by the company on behalf of two stockholders are business or personal expenses and whether such amounts constitute dividend income to the shareholders.
(10) Whether certain payments made to influence legislation are deductible by the company as business expenses.
(11) Whether William K. Coors is entitled to deduct a net loss from the rental of a condominium in Aspen, Colo., in 1966.
(12) Whether the payment by Joseph Coors of a guarantor obligation in 1965 constituted a business or nonbusiness bad debt.
Some of the facts have been stipulated by the parties. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
William K. Coors and Phyllis E. Coors, petitioners in docket No. 2837-69, are husband and wife. Their legal residence at the time they filed their petition herein was in Golden, Colo. Their joint Federal income tax return for the year 1966 was filed with the district director of internal revenue at Denver, Colo.
Joseph Coors and Holly H. Coors, petitioners in docket No. 2839-69, are husband and wife. Their legal residence was in Golden, Colo., when they filed their petition herein. Their joint Federal income tax returns for the years 1965 and 1966 were filed with the district director of internal revenue at Denver, Colo.
Adolph Coors Co. (sometimes referred to herein as either the company or the corporation), petitioner in docket No. 2840-69, is a Colorado corporation. Its principal place of business as of the date the petition was filed herein was at Golden, Colo. Its Federal corporation income tax returns for the years 1965 and 1966 were filed with the district director of internal revenue at Denver, Colo. The corporation is an accrual basis taxpayer. Its taxable year is the calendar year.
In 1873 a brewery business was started by Adolph Coors, the father of Adolph Coors, Jr. William K. Coors and Joseph Coors are sons of Adolph Coors, Jr. The brewery has been located in its present location at Golden, Colo., since that date. In 1913 the business was incorporated under the laws of Colorado and the stock of Adolph Coors Co. has been held by the Adolph Coors family since incorporation. A substantial amount of the corporation's capital stock is owned either directly or beneficially by William K. Coors and Joseph Coors.
During the years 1965 and 1966 the principal officers of the corporation were: William K. Coors, president and chairman of the board; Joseph Coors, executive vice president; Adolph Coors, Jr., treasurer; and Ray V. Frost, financial vice president and secretary. The executive committee was comprised of these same offices. These officers and Herman F. Coors, now deceased, comprised the board of directors of Adolph Coors Co. Herman F. Coors resided in Arizona.
The principal business of the corporation is the manufacture and sale of beer. The manufactured beer is placed in bottles, cans, and kegs at its Golden, Colo., manufacturing plant, from where it is shipped either by railroad car or truck and sold to its 180 distributors throughout the 11 Western States of the United States. Adolph Coors Co. is a regional-type brewery and limits its market to 11 Western States. It has only one production plant.
In its petition herein the company has affirmatively pleaded res judicata and collateral estoppel with respect to the capitalization adjustments for 1965 and 1966, and with respect to the section 481 adjustment for 1965.
In a previous notice of deficiency involving the years 1962, 1963, and 1964 respondent determined that the company should have capitalized certain construction department overhead costs and maintenance and certain costs of engineering department overhead.
In the section of his brief captioned ‘Questions Presented’ filed in Adolph Coors Co., docket No. 3179-66, the respondent made the following statements:
Respondent hereby abandons the adjustment made in the statutory notice of deficiency in the amount of $405,567.07 for 1962, $560,942.25 for 1963, and $310,866.81 for 1964 in Docket No. 3179-66. These amounts represented costs of construction overhead and maintenance and costs of engineering department overhead. Respondent also is hereby abandoning adjustments in the amount of $59,009.60 for 1962, $95,931.74 for 1963, and $122,076.56 for 1964. These amounts represent depreciation on construction equipment which respondent determined to be capital expenditures rather than operating expenses. By abandoning these adjustments, the respondent does not concede one way or the other that Adolph Coors Company's accounting treatment for these items is correct. The respondent is merely abandoning any attempt to change Adolph Coors Company's treatment of these items for the taxable years 1962, 1963, and 1964. These items were referred to at paragraphs 4D and 4G of the petition in Docket No. 3179-66.
In this Court's Memorandum Findings of Fact and Opinion in Adolph Coors Co., T.C. Memo. 1968-256, it was stated:
The Commissioner in his brief abandons the disallowances of deductions made in the deficiency notice of $405,567.07 for 1962, $560,942.25 for 1963, and $310,866.81 for 1964 representing corporation costs of construction overhead and maintenance and costs of engineering department overhead. He also abandons...
To continue reading
Request your trial
-
Commissioner of Internal Revenue v. Idaho Power Company 8212 263
...occur if depreciation properly allocable to asset acquisition were deducted from gross income currently realized. See, e.g., Coors v. Commissioner, 60 T.C., at 398; Southern Natural Gas Co. v. United States, 412 F.2d, at 1265, 188 Ct.Cl., at An additional pertinent factor is that capitaliza......
-
Illinois Cereal Mills, Inc. v. C.I.R.
...of Internal Revenue, 66 T.C. 1017, 1020 (1976) (fence around auto salvage yard is not structural component); Coors v. Commissioner of Internal Revenue, 60 T.C. 368, 404-05 (1973), aff'd, 519 F.2d 1280 (10th Cir.1975) (air conditioning duct work is structural component); Central Citrus Co. v......
-
Capitol Fed. Sav. & Loan Ass'n & Subsidiary v. Comm'r of Internal Revenue
...does clearly reflect income. Prabel v. Commissioner, 91 T.C. 1101, 1111-1112 (1988), affd. 882 F.2d 820 (3d Cir. 1989); Coors v. Commissioner, 60 T.C. 368, 394 (1973), affd. 519 F.2d 1280 (10th Cir. 1975). See also Commissioner v. Hansen, 360 U.S. 446, 467 (1959); Brown v. Helvering, 291 U.......
-
Lychuk v. Comm'r of Internal Revenue, 11794–99
...such taxpayer), the taxpayer's choice of method will not be disturbed. * * *Id. at 286–287 (citations omitted). In Coors v. Commissioner, 60 T.C. 368, 397, 1973 WL 2682 (1973), affd. 519 F.2d 1280 (10th Cir.1975), we distinguished Fort Howard Paper Co. and found the taxpayer's method of acc......