Isbell Porter Co. v. Com'r of Internal Revenue
| Decision Date | 07 April 1930 |
| Docket Number | No. 150.,150. |
| Parties | ISBELL PORTER CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
Charles P. Hamel, Lee I. Park, and John Enrietto, all of Washington, D. C. (Earl B. Barnes, of New York City, of counsel), for petitioner-appellant.
George A. Youngquist, Asst. Atty. Gen., Sewall Key and Andrew D. Sharpe, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and R. N. Shaw, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for appellee.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
The question raised by this appeal is whether certain drawings belonging to the taxpayer should be treated as part of invested capital in calculating the excess profits tax for 1919.
The business of the taxpayer was the manufacture and sale of machinery and apparatus for producing and purifying gas. In the course of this business it made many drawings, (1) for work in process attributable to a particular job; (2) standard model drawings, the object of which was to bring apparatus up to date to meet conditions from year to year and from month to month; (3) design drawings, which assemble the various types and classes of apparatus into a complete gas plant.
Drawings of the first class are designed for current business, and they are charged to the current business as part of the cost of the job. They are not involved here because it is not sought to include them in invested capital. The standard model drawings referred to in class 2 are not designed for any work for which there are orders or probable orders on hand, but are made because the magnitude of the various pieces of apparatus makes it impracticable to use models. These drawings are used as stock in trade, and are displayed to customers as being the drawings of a piece of apparatus that will accomplish a particular result. They are used to find an apparatus suitable for meeting the particular requirements of a customer, and as the basis of various units entering into a complete gas plant, and in making bids on prospective work and installation. The design drawings of class 3 represent various units of apparatus assembled into a complete installation, and require considerable engineering work in determining the capacities, stresses, and various other items entering into an engineering unit.
The gas industry has developed gradually in such a way that apparatus used at the present time represents an outgrowth of earlier methods and designs, and, as a result, drawings made by the taxpayer many years prior to the year involved are still useful and are used in its business. The drawings represent the arrangement and design of apparatus for gas production, and are used not only in aid of construction of apparatus as the art progresses, but for locating trouble in apparatus already in use.
The cost of standard model drawings (class 2) and design drawings (class 3) has not been charged to customers in the cost of a particular job, but has been included in the general expense of the taxpayer for the years in which the particular drawings were made. The cost for drafting, tracing, and engineering in respect to the standard model drawings was $43,969, and in respect to the design drawings was $44,908. The foregoing costs, however, included no allowance for overhead expenses, bonuses paid to employees, and certain increases in salaries during the period 1904 to 1917, which, in fact, amounted to not less than 50 per cent. of the above costs for engineering, drafting, and tracing, making an aggregate of $133,309.50. This sum the taxpayer has sought to have allowed as a part of invested capital of the year 1919 for which the excess profit tax had to be determined. No allowance as invested capital was made of any part of this aggregate either by the Commissioner or by the Board of Tax Appeals.
Hay, the chief engineer of the taxpayer, testified that he could not point out from the books in detail expenditures that could be allocated to a particular drawing, but said that the cost of the drawings was charged...
To continue reading
Request your trial
-
Union Pac. R. Co., Inc. v. United States
...in the context of the excess profits tax for 1919, as an item valuable and used in the taxpayer's business. Isbell Porter Co. v. Commissioner, 40 F.2d 432 (2d Cir. 1930). 17 "Bond discount is defined as the excess of face or maturity value over the amount of cash or equivalent paid in by th......
-
Nichols v. Securities and Exchange Commission
...& Fuel Associates, D.C., 120 F.Supp. 460. 5 Cohan v. Commissioner of Internal Revenue, 2 Cir., 39 F.2d 540; Isbell Porter Co. v. Commissioner of Internal Revenue, 2 Cir., 40 F.2d 432; Conrad & Co. v. Commissioner of Internal Revenue, 1 Cir., 50 F.2d 576; Sioux City Stock Yards Co. v. Commis......
- THE FRANK, 305.