Midwest Motor Express, Inc. v. Comm'r of Internal Revenue

• Decision Date: 31 October 1956
• Docket Number: Docket No. 54589.
• Citation: 27 T.C. 167
• Parties: MIDWEST MOTOR EXPRESS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

27 T.C. 167

MIDWEST MOTOR EXPRESS, INC., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 54589.

Tax Court of the United States.

Filed October 31, 1956.

Joseph A. Maun, Esq., for the petitioner.

Merl B. Peek, Esq., for the respondent.

1. Petitioner is an accrual basis taxpayer whose motor carrier transportation system was taken possession of, controlled, and operated by the United States during 1944 and 1945. In 1948 Congress passed an Act creating a Motor Carrier Claims Commission to determine whether such operation constituted a ‘taking’ for which just compensation was due under the Fifth Amendment to the Constitution and if so, the amount of such compensation. In 1952 the Commission decided a claim in petitioner's favor and an award to compensate petitioner for loss of market value was paid to petitioner. Held, the full amount of the award received by petitioner was accruable in the calendar year 1952. Held, further, payment of the award was not an ‘involuntary conversion’ within the meaning of section 117(j), Internal Revenue Code of 1939, and accordingly is taxable as ordinary income rather than capital gain.

2. A retrospective automobile liability insurance premium paid by petitioner in 1953 accrued and was deductible as an allowable business expense prior to 1952.

OPINION.

BRUCE, Judge:

Respondent determined a deficiency in petitioner's income and excess profits taxes for the year 1952 in the amount of $25,770.51. In an answer to amendments to petition, filed May 20, 1955, respondent claimed an increase in deficiency from the above amount to $30,246.73. Certain adjustments made by respondent in his determination of the deficiency have not been contested. Also, several issues presented by the pleadings have been settled by stipulation of the parties or conceded on brief. Adjustments therefor will be made in a computation under Rule 50. The remaining issues presented for our determination relate to the treatment to be accorded an award by the Motor Carrier Claims Commission and a retrospective premium for public liability insurance paid by petitioner. They are:

1. Whether the sum of $29,324.74 received by petitioner in 1952 as the result of an award by the Motor Carrier Commission is taxable to petitioner in 1952 or was accruable prior thereto.

2. If taxable in 1952, is said sum taxable as capital gain under the provisions of section 117(j) of the Internal Revenue Code of 1939, or as ordinary income under section 22(a) of the Internal Revenue Code of 1939?

3. Whether a retrospective public liability insurance premium in the amount of $5,200.94 paid in 1953 was properly accrued by petitioner as a business expense for 1952, or was accruable prior thereto.

All of the facts were stipulated and are so found and incorporated herein by this reference.

Petitioner is a corporation organized under the laws of North Dakota with its principal office located at Bismarck, North Dakota. For the taxable year 1952 petitioner filed its income tax return with the director of internal revenue for the district of North Dakota. An amended return for the same year was filed in 1953. For 1952 and prior years petitioner filed its Federal income tax returns for a calendar year period and on an accrual basis.

Since its inception in 1938 petitioner has been engaged in business as a common carrier of property by motor vehicle, operating its vehicles in various midwestern States. At all pertinent times petitioner was a motor carrier operating in interstate commerce under the jurisdiction of the Interstate Commerce Commission.

Prior to August 11, 1944, petitioner owned and operated motor tractors, trucks, semitrailers, pick-up and delivery trucks, and service cars. Petitioner also owned certain real estate used as a terminal in the operation of its business and miscellaneous personal property, all used in its business. All of this property was acquired prior to January 1, 1944.

From September 15, 1939, to August 11, 1944, petitioner and other motor carriers in the midwest were operating under substantially similar contracts with a drivers' union. In 1943 a group of midwestern carriers, including petitioner, sought to negotiate a separate contract with the union. Negotiations became deadlocked, however, and the matter was certified to the National War Labor Board, which decided that wage rates should be increased. Because it could not afford the wage increase, petitioner continued to operate under the old contract until August 4, 1944, when the drivers went out on strike. On August 11, 1944, all of petitioner's operations were shut down.

On August 11, 1944, the President of the United States signed and issued Executive Order No. 9462, which provided:

Executive Order No. 9462

Possession and Operation of Certain Motor Carrier Transportation Systems

Whereas, after investigation I find and proclaim that the motor carrier transportation systems of the motor carriers named in the list attached hereto and made a part hereof are equipped for the transportation of materials of war and supplies that are required for the war effort, or useful in connection therewith, and are now engaged in such transportation; that there are threatened interruptions of the operation of said transportation systems as a result of a labor disturbance; that the war effort will be unduly impeded or delayed by such interruptions; that it has become necessary in the national defense to take possession and assume control of the said transportation systems for needful and desirable purposes connected with the prosecution of the war and that they be operated by or for the United States; and that the exercise as hereinafter specified, of the powers vested in me is necessary to insure, in the interest of the war effort, the operation of said systems;

NOW THEREFORE, by virtue of the power and authority vested in me by the Constitution and laws of the United States, including the Act of August 29, 1916, 39 Stat. 645, the First War Powers Act, 1941, and Section 9 of the Selective Training and Service Act of 1940 as amended by the War Labor Disputes Act, as President of the United States and Commander in Chief of the Army and Navy, it is hereby ordered as follows:

1. The Director of the Office of Defense Transportation is authorized and directed, through or with the aid of any public officers, Federal Agencies, or other Government instrumentalities, that he may designate, to take possession and assume control of, and to operate, or arrange for the operation of, the motor carrier transportation systems of the motor carriers named in the list attached hereto and made a part hereof, including all real and personal property and other assets, wherever situated, used or useful in connection with the operation of such systems, in such manner as he may deem necessary for the successful prosecution of the war; and to do anything that he may deem necessary to carry out the provisions and purposes of this order.

2. Subject to the applicable provisions of existing law, including the orders of the Office of Defense Transportation, issued pursuant to Executive Orders 8989, as amended, 9156 and 9294, the said transportation systems shall be managed and operated under the terms and conditions of employment in effect between the carriers and the collective bargaining agents at the time possession is taken under this order. During his operation of said transportation systems the Director shall observe the terms and conditions of the directive order of the National War Labor Board, dated February 7, 1944; provided, however, that in the case of each said transportation system the Director is authorized to pay the wage increases provided for by the said directive order of the National War Labor Board, which accrued prior to the taking of possession of said system under this order, only out of the net operating revenue of the said system.

3. Except with the prior written consent of the Director, no attachment by mesne process, garnishment, execution, or otherwise shall be levied on or against any of the real or personal property or other assets, tangible, or intangible, in the possession of the Director hereunder.

4. Possession, control, and operation of any transportation system, or any part thereof, or any real or personal property, taken under this order shall be terminated by the Director when he determines that such possession, control, and operation are no longer necessary for the successful prosecution of the war.

5. For the purposes of paragraphs 1 to 4, inclusive, of this order, there are hereby transferred to the Director the functions, powers, and duties vested in the Secretary of War by that part of Section 1 of the said Act of August 29, 1916, reading as follows:

The President, in time of war, is empowered through the Secretary of War, to take possession and assume control of any system or systems of transportation, or any part thereof, and to utilize the same, to the exclusion as far as may be necessary of all other traffic thereon, for the transfer or transportation of troops, war materials and equipment, or for such other purposes connected with the emergency as may be needful or desirable.

6. Upon request of the Director of the Office of Defense Transportation the Secretary of War is authorized to take any action that may be necessary to enable the Director to carry out the provisions and purposes of this order.

THE WHITE HOUSE

(s) FRANKLIN D. ROOSEVELT

Petitioner was included in the list of carriers named in the order. On the same date, August 11, 1944, the Director of the Office of Defense Transportation, having first notified it by telegram, sent petitioner a ‘Notice and Order Establishing Federal Possession and Control and Appointing a Federal

Manager,‘ which read as follows: Notice and Order Establishing Federal Possession and Control and Appointing a Federal Manager

To each of the motor carriers named in an Executive Order of the...