Fort Pitt Brewing Co. v. Comm'r of Internal Revenue, Docket No. 31238.
| Decision Date | 03 April 1953 |
| Docket Number | Docket No. 31238. |
| Parties | FORT PITT BREWING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
INCOME— DEPOSITS ON CONTAINERS— METHOD OF ACCOUNTING FAILING TO REFLECT INCOME— SECTION 41.— The experience of the petitioner indicates that many of its containers will never be returned and the balance at the beginning of the taxable years in its reserve for returnable containers is ample to meet its liability for refunds which might reasonably be expected. Consequently, the Commissioner did not err in including in income the amounts added to the balance in the reserve in the taxable years, i.e., the excess of deposits over refunds in those years, where the petitioner is recovering the full cost of the containers through deductions for depreciation. R. J. Cleary, Esq., for the petitioner.
A. W. Dickinson, Esq., for the respondent.
The Commissioner determined deficiencies as follows for the fiscal years ended October 31:
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¦ ¦ ¦Declared ¦ ¦
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¦ ¦ ¦value ¦ ¦
+----+----------+--------------+--------------¦
¦Year¦Income tax¦excess-profits¦Excess profits¦
+----+----------+--------------+--------------¦
¦ ¦ ¦tax ¦tax ¦
+----+----------+--------------+--------------¦
¦1942¦$12,911.42¦ ¦$34,129.16 ¦
+----+----------+--------------+--------------¦
¦1943¦18,931.78 ¦$10,996.68 ¦303,783.06 ¦
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The only issue for decision is whether the Commissioner erred in adding $82,971.60 to income for 1942 and $181,196.25 to income for 1943, each representing the excess of deposits received on returnable containers over deposits refunded for the year.
The petitioner, a Pennsylvania corporation, filed its returns for the taxable years with the collector of internal revenue for the twenty-third district of Pennsylvania. It kept its books and filed its returns on an accrual basis.
The petitioner was engaged at all times material hereto in the business of operating breweries at plants located at Sharpsburg and Jeannette, Pennsylvania. It sold its products in barrels, half barrels, quarter barrels, eighth barrels, and bottles packed in cartons and cases.
It was licensed under and governed by the laws of Pennsylvania. It required the purchasers of its products to deposit with it various amounts for the return of the containers in which it delivered its products. The following was printed on the invoices for all sales to its customers:
Deposit for return of package is as follows: Barrels $8.00, Half Barrels $6.00, Quarter Barrels $4.00 and Eighth Barrels $1.00 each, Cartons of 2 Dozen Small Bottles 50¢, Case of 2 Dozen Small Bottles 75¢, Bottles short in cases returned will be charged at rate of 2¢ each for small bottles. Purchaser buys only the beer delivered and billed. Bottles, Cases, Kegs, Etc. containing the products delivered therein are never sold but remain absolute property of Brewing Company. Deposit for return of packages repaid purchaser for number delivered only on return of packages to Brewing Company. Purchaser agrees to these conditions.
The deposits required were in each case somewhat less than the cost of the containers. There was no time limit within which containers could be returned for refund.
The petitioner received deposits and made refunds on its containers during the taxable years in accordance with the above agreement. It maintained a liability account on its books entitled ‘Reserve for Returnable Containers‘ wherein it credited the deposits and debited the refunds. The information in the following table is shown in that account:
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¦ ¦ ¦ ¦Excess of ¦ ¦
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¦Fiscal year ended¦Deposits ¦Deposits ¦deposits ¦Balance in ¦
+-----------------+-------------+-------------+------------+------------¦
¦Oct. 31 ¦received ¦refunded ¦over ¦reserve ¦
+-----------------+-------------+-------------+------------+------------¦
¦ ¦ ¦ ¦refunds ¦ ¦
+-----------------+-------------+-------------+------------+------------¦
¦1936 balance ¦ ¦ ¦ ¦$17,962.50 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1937 ¦$842,464.25 ¦$832,179.75 ¦$10,284.50 ¦28,247.00 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1938 ¦1,214,122.75 ¦1,184,063.25 ¦30,059.50 ¦58,306.50 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1939 ¦2,381.485.50 ¦2,335,750.65 ¦45,734.85 ¦104,041.35 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1940 ¦3,063,054.00 ¦3,035,347.75 ¦27,706.25 ¦131,747.60 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1941 ¦3,998,938.27 ¦3,910,821.23 ¦88,117.04 ¦219,864.64 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1942 ¦4,822,919.50 ¦4,739,947.90 ¦82,971.60 ¦302,836.24 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1943 ¦5,940,221.75 ¦5,759,025.50 ¦181,196.25 ¦484,032.49 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1944 ¦7,587,196.25 ¦7,457,638.00 ¦129,558.25 ¦613,590.74 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1945 ¦7,500,625.50 ¦7,400,878.25 ¦99,747.25 ¦713,337.99 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1946 ¦8,176,090.50 ¦8,034,014.00 ¦142,076.50 ¦855,414.49 ¦
+-----------------+-------------+-------------+------------+------------¦
¦1947 ¦9,824,681.00 ¦9,601,216.32 ¦223,464.68 ¦1,078,879.17¦
+-----------------+-------------+-------------+------------+------------¦
¦1948 ¦12,225,591.00¦12,144,419.25¦81,171.75 ¦1,160,050.92¦
+-----------------+-------------+-------------+------------+------------¦
¦1949 ¦12,260,618.50¦12,364,799.00¦(104,180.50)¦1,055,870.42¦
+-----------------+-------------+-------------+------------+------------¦
¦1950 ¦10,112,643.00¦10,090,142.75¦22,500.25 ¦1,078,370.67¦
+-----------------+-------------+-------------+------------+------------¦
¦1951 ¦8,401,717.25 ¦8,455,950.25 ¦(54,233.00) ¦1,024,137.67¦
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The petitioner has never transferred any amount to surplus from its reserve for returnable containers. The balance in that reserve was shown at all times as a liability of the petitioner.
The petitioner maintained a separate account for the cost of returnable containers and reserves for depreciation thereon. The cost of containers, reserve for depreciation, and undepreciated cost as shown in the petitioner's books or, for the years beginning with 1944, as tentatively agreed upon by the petitioner and the...
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