Dow Jones & Co. v. Comm'r of Internal Revenue

• Decision Date: 29 October 1963
• Docket Number: Docket No. 56344.
• Citation: 41 T.C. 102
• Parties: DOW JONES AND COMPANY, INC. (DELAWARE) (SUCCESSOR TO FINANCIAL PRESS COMPANIES OF AMERICA AND ITS UNITED STATES SUBSIDIARIES), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

41 T.C. 102

DOW JONES AND COMPANY, INC. (DELAWARE) (SUCCESSOR TO FINANCIAL PRESS COMPANIES OF AMERICA AND ITS UNITED STATES SUBSIDIARIES), PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 56344.

Tax Court of the United States.

Filed October 29, 1963.

[41 T.C. 102]

J. Marvin Haynes, N. Barr Miller, and Arthur H. Adams, for the petitioner.

S. Allen Winborne, for the respondent.

SEC. 722, I.R.C. 1939.— Where the taxpayer enjoyed a period of abnormally high earnings and then suffered a depressed level of earnings which began at a time several years prior to and thus remotely related the base period and such condition continued on during that period because of a chain of events and circumstances which were of prolonged duration throughout the 1930's and not of a temporary nature, held, that the business of the taxpayer was not depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer, within the meaning of subsection (b)(2). Petitioner's claims for relief, denied.

[41 T.C. 103]

HOYT, Judge:

The petitioner seeks redetermination of the respondent's disallowance, in full, of timely filed applications for relief from alleged excessive and discriminatory excess profits taxes for the calendar years 1944 and 1945, under section 722(b)(2), (b)(3), and (b)(5) of the Internal Revenue Code of 1939. ¹ Each of such applications made claim for unused carryovers and carrybacks provided by law. The excess profits taxes paid and the refunds claimed are in the amounts of $29,166.94 for 1944 and $303,126.19 for 1945. At the trial petitioner abandoned the claims for relief under section 722(b)(3) and (b)(5).

The issues presented are (1) whether the taxpayer is qualified for relief in that its average base period net income is an inadequate standard of normal earnings because ‘the business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer,‘ within the meaning of section 722(b)(2);² and, if so, (2) whether petitioner has established ‘what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax,‘ as required by section 722(a).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulations and exhibits attached thereto are incorporated herein by reference.

Petitioner, Dow Jones & Co., Inc., is a corporation organized under the laws of the State of Delaware on November 23, 1949. Its principal office is at 44 Broad Street, New York, N.Y. By reason of a nontaxable reorganization consummated on December 31, 1949, the petitioner succeeded to all of the assets and liabilities, including claims for refund of Federal taxes, of Financial Press Companies of America, a Massachusetts trust organized on December 30, 1930 (hereinafter referred to as Financial), and its 11 wholly owned U.S. subsidiaries, as to each of which the name, date, and place of incorporation, and the nature of the business are set forth in the stipulation.

For the calendar years 1942 to 1945, inclusive, Financial kept its books and filed consolidated excess profits tax returns for itself and its 11 subsidiaries on the calendar year accrual basis of accounting with the then collector of internal revenue for the southern district of New York.

[41 T.C. 104]

Financial's excess profits net income under the income credit method for the taxable years 1942 to 1945, inclusive, as finally determined, was as follows:

+-------------------+
                ¦1942¦$78,442.62 ¦
                +----+--------------¦
                ¦1943¦1 75,163.34 ¦
                +----+--------------¦
                ¦1944¦718,601.30 ¦
                +----+--------------¦
                ¦1945¦649,824.04 ¦
                +----+--------------¦
                ¦ ¦ ¦
                +-------------------+
                

Financial's actual average base period net income applicable to the years 1942, 1944, and 1945 was $230,354.90, and for the year 1943 was $200,500.48, computed as follows:

+------------------------------------------------+
                ¦ ¦For years ¦For year ¦
                +-------------------+----------------+-----------¦
                ¦Base period year ¦1942, 1944, 1945¦1943 ¦
                +-------------------+----------------+-----------¦
                ¦ ¦ ¦ ¦
                +-------------------+----------------+-----------¦
                ¦1936 ¦$411,859.10 ¦$411,859.10¦
                +-------------------+----------------+-----------¦
                ¦1937 ¦413,780.29 ¦413,780.29 ¦
                +-------------------+----------------+-----------¦
                ¦1938 ¦(39,559.05) ¦(39,559.05)¦
                +-------------------+----------------+-----------¦
                ¦1939 ¦135,339.28 ¦15,921.56 ¦
                +-------------------+----------------+-----------¦
                ¦Average ¦230,354.90 ¦200,500.48 ¦
                +-------------------+----------------+-----------¦
                ¦ ¦ ¦ ¦
                +-------------------+----------------+-----------¦
                ¦() indicating loss.¦ ¦ ¦
                +------------------------------------------------+
                

Financial's average base period net income used in computing its excess profits tax credit for 1942, 1944, and 1945 was determined to be $300,305.83 computed under the income credit provisions of section 713(e).³ Its excess profits tax credit for 1943 was determined to be $269,440.24 computed under the invested capital credit provisions of section 714.

Over a long period of years, petitioner and its predecessors have been continuously engaged in the business of gathering and disseminating financial, business, and economic news through a daily newspaper named the Wall Street Journal and other publications, and also through the Dow Jones News Service (known as the Ticker), a news service by wire and teletype to subscribers. Mainly because of the character of the news disseminated, the business has been at all times closely associated with the financial community embracing brokers, bankers, underwriters, traders, investors, and others interested in the securities markets, finance, and the overall activity of business. The revenues of the business have been derived primarily from the circulation of and advertising in the various publications and from subscription charges for the Ticker news service.

The business of petitioner and its predecessors had its origin in New York City in the 1880's when Messrs. Dow and Jones began a bulletin service of news gathered in the financial district and later in 1889 began publication of the Wall Street Journal, a newspaper published

[41 T.C. 105]

6 days a week and encompassing primarily financial and business news. In 1897 the Dow Jones News Service (Ticker) was commenced in the New York area. In 1902 Clarence Barron bought the Wall Street Journal and its allied news Ticker and bulletin service. Barron had commenced publication of the Boston News Bureau in 1887, embracing financial and business news primarily of interest in the Boston area, and the publication was continued throughout the years until April 1947. Publication of the Philadelphia News Bureau was commenced in 1921, embracing financial and business news primarily of interest in the Philadelphia area, and that publication was continued throughout the years until June 1940. Publication of Barron's National Business and Financial Weekly (Barron's Weekly) was commenced in 1921, and at all times has been edited primarily to provide both institutional and individual investors with a weekly review of financial and business news, financial analyses of corporations, and other similar information for investors.

The Ticker news service, since its inception in 1987, has been operated for rapid transmission of financial and business news to brokers, bankers, and other subscribers, by wire and electric teletype machines. It has carried a limited number of quotations on securities and commodities but has not been a stock quotation service. At various times prior to and during the 1920's the Ticker service was extended to other areas of the country, such as Chicago, St. Louis, and Cincinnati.

The Wall Street Journal daily newspaper has been at all times the principal publishing and advertising media of petitioner and its predecessors since the inception of the New York edition in 1889. The Pacific Coast edition was commenced in 1929 to provide quicker delivery to the then subscribers of the New York edition and also to develop larger subscription circulation in the West Coast area. Publication of Southwest and Midwest editions were commenced after the taxable years involved. Because of both its name and authoritative specialized news content, the Wall Street Journal has been generally regarded as the newspaper of the financial community. It has always carried in great detail items of news and information of interest to the financial community, such as stock and bond quotations from both the organized exchanges and over-the-counter markets, corporate reports, new security offerings, and other financial and corporate information. In addition, and from time to time in varying amounts, it has carried information and news of general interest to the business community as a whole.

Prior to and during the base period years 1936-39 the Wall Street Journal's major class of advertising was the so-called financial advertising placed by the financial community. During those years, its various other classes of advertising (hereinafter set out in detail) were directed mainly to persons and concerns in the category of

[41 T.C. 106]

Journal subscribers and thus more limited in scope than the general types of advertising carried in the usual daily newspapers for the general public. During the 1930's the Wall Street Journal suffered a substantial decline in advertising linage and revenue, especially in the category of financial advertising due to certain adverse conditions affecting the business activities of the financial community, as more particularly hereinafter set forth. During the last half of the 1930's the Journal instituted a program to expand its coverage of national and business news to obtain broader reader appeal and increased subscription circulation among businessmen and others as a basis for securing increased linage in...