Landsberger v. McLaughlin

• Citation: 26 F.2d 77
• Decision Date: 07 May 1928
• Docket Number: No. 5293.,5293.
• Parties: LANDSBERGER v. McLAUGHLIN, Collector of Internal Revenue.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

26 F.2d 77 (1928)

LANDSBERGER v. McLAUGHLIN, Collector of Internal Revenue.

No. 5293.

Circuit Court of Appeals, Ninth Circuit.

May 7, 1928.

I. I. Brown and Vogelsang & Brown, all of San Francisco, Cal., for plaintiff in error.

Geo. J. Hatfield, U. S. Atty., and T. J. Sheridan, Asst. U. S. Atty., both of San Francisco, Cal., for defendant in error.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

GILBERT, Circuit Judge.

The plaintiff in error was for many years extensively engaged in the business of buying wines and brandies from wine makers in California, and selling the same, generally in carload lots, to wholesale dealers. His business was in the nature of that of a broker. He had no capital invested in it, except that occasionally he would loan money to grape growers to finance the raising of their crops. In his income tax returns for 1919 and 1920 he claimed that the good will of his business had been worth $90,113.90, but that it became obsolete by reason of national prohibition, which went into effect January 16, 1920, and he allocated his loss by obsolescence to the year 1919, in the sum of $45,964.54, and to the year 1920, $2,015.19. The Treasury Department disallowed the deductions, and he paid under protest the additional tax. Thereafter he brought an action in the court below to recover $13,426, the deficiency in income tax assessed against him for 1919, and $1,154.31, assessed and paid for 1920.

The statute which controls decision is the Revenue Act of 1918, 40 Stat. 1057, which provides as follows: "Sec. 214. (a) That in computing net income there shall be allowed as deductions: * * * (8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence." Comp. St. § 63361/8g(a). The plaintiff in error contends that the loss of good will due to prohibition legislation was properly deductible under the foregoing statute; that it comes within the provision which permits a reasonable allowance for obsolescence.

The identical question thus presented was before the Circuit Court of Appeals for the Eighth Circuit in Red Wing Malting Co. v. Willcuts, 15 F. (2d) 626, 49 A. L. R. 459, where in a careful and exhaustive opinion it was held that good will is a property of intangible nature, and that its loss cannot be the basis for income tax reduction, in the absence of a showing that such loss was not reflected in general loss resulting from sale of property for...