Goodell-Pratt Co. v. Commissioner of Internal Revenue
| Decision Date | 04 May 1927 |
| Docket Number | Docket No. 5884. |
| Parties | GOODELL-PRATT CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Lawrence A. Baker, Esq., and R. L. P. Wallace, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.
Deficiency of $27,818.60 income and profits tax for 1920. The respondent reduced invested capital by eliminating $280,513.26, the alleged capital cost of certain assets which by the Board's decision in Goodell-Pratt Co., 3 B. T. A. 30, were held to be part of petitioner's invested capital for 1917, 1918, and 1919.
FINDINGS OF FACT.
The taxpayer is a corporation organized under the laws of Massachusetts in the year 1895, with its principal office at Greenfield. It is, and has been since the date of its organization, engaged in the business of manufacturing and selling tools. The stock of the corporation is closely held.
When the taxpayer commenced business it manufactured only one tool, namely, an automatic punch drill. From time to time it developed and placed on the market other tools, until at the present time it manufactures and carries in stock over 2,000 different mechanics' tools. When a tool is developed and found to be successful, it is listed in the taxpayer's catalogue, which is issued once a year. A tool once brought out and listed is thereafter in stock, so that it is possible today to purchase any tool that the taxpayer has ever made and placed on the market. The taxpayer maintains and has maintained for many years a separate department for the purpose of working out new ideas and developing new tools, patents, secret processes, methods of manufacture and special machinery. The expenses of this department consist, and have consisted, largely of salaries and amounts paid for consumable materials.
During the years 1909 to 1916, inclusive, the taxpayer expended $280,513.26 in developing certain patents, secret processes, methods of manufacture, special machinery and new tools, in developing foreign markets, in gathering and compiling information relative thereto, and in establishing agencies, etc. These expenditures were charged to current expenses and claimed as deductions on income-tax returns for the years in which such returns have been required. From time to time appraisals were made of the intangible assets created through these expenditures, and the appraised values thereof were set up on the taxpayer's books and credited to surplus.
The good will and other intangible assets, created by the taxpayer through the expenditure of the amount of $280,513.26 during the years 1909 to 1916, inclusive, as above set forth, had on January 1, 1917, a total value of at least $280,513.26.
The same assets heretofore described were in use during 1920 and contributed to the earnings in 1920.
Upon audit of the returns for the years 1917, 1918, and 1919, the Commissioner eliminated from the taxpayer's invested capital the entire amount of good will shown by its books. The taxpayer thereupon claimed that in lieu of the good will elminated by the Commissioner it should be allowed additional invested capital for the years 1917, 1918, and 1919, through the restoration to surplus of the amount of $280,513.26, expended during the years 1909 to 1916, inclusive, as above set forth, and charged to expense. The Commissioner disallowed the taxpayer's claim, and determined that there was a deficiency in tax in the amount of $71,863.09 for the year 1919 and overassessments of $36,889.83 and $5,729.83, respectively, for the years 1917 and 1918, making a net deficiency of $29,243.43.
From the foregoing determination of the Commissioner for 1917, 1918, and 1919, the petitioner appealed to the United States Board of Tax Appeals, which, on November 14, 1925, after hearing, duly promulgated its report containing findings of fact and opinion, which report is published in 3 B. T. A. 30. Thereafter, in due course, on October 15, 1926, in...
To continue reading
Request your trial