Niagara Falls Brewing Co. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 7952.
| Decision Date | 16 October 1928 |
| Docket Number | Docket No. 7952. |
| Citation | 13 BTA 1040 |
| Parties | NIAGARA FALLS BREWING CO., AND PAUL SCHOELLKOPF, CHARLES E. HAEBERLE, FRED H. KRULL, EDSON P. PFOHL, ALBERT T. MAYLE, FREDERICK CHORMANN, RUDOLF V. ROSE, AND GEORGE F. NYE, AS DIRECTORS AND TRUSTEES IN DISSOLUTION, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Basil Robillard, Esq., and Edward C. Gruen, C. P. A., for the petitioners.
M. E. McDowell, Esq., for the respondent.
This is a proceeding for the redetermination of deficiencies in income and profits taxes of $20,975.05 for 1918 and income tax of $5,013.65 for 1919. The deficiencies result principally from the respondent's having disallowed for 1918 a deduction of $110,047.52 and for 1919 a deduction of $57,139.99. The deductions were taken by the petitioner in its returns for the respective years as obsolescence on tangible assets resulting from the enactment of war-time prohibition legislation and the ratification of the Eighteenth Amendment. It was admitted by the respondent at the hearing that he had failed to allow as a deduction an amount of $5,000 representing a part of a loss sustained on the sale of certain property in 1918. From the pleadings, a stipulation, documentary evidence and depositions, we make the following —
FINDINGS OF FACT.
The petitioner, a New York corporation, was organized February 26, 1902, and had its office and place of business at Niagara Falls.
The business of the petitioner prior to the incidence of the Eighteenth Amendment to the Constitution of the United States and the Acts of Congress in the enforcement thereof, was the manufacture, production, distribution and sale of a malt and spirituous liquor known as beer, containing more than one-half of one per cent of alcohol by volume. The petitioner's business and good will were created by the manufacture and sale of such beverage. In 1902 the petitioner purchased the buildings and equipment of the Niagara Falls Brewing Co., a joint stock association existing in Niagara Falls, N. Y., and assumed the current liabilities of the association.
The petitioner thereafter constructed some new buildings and purchased and installed some additional machinery, fixtures and equipment, all of which were specially constructed, designed or adapted to the petitioner's business of manufacturing beer, and were not available or practicably or readily adaptable to other uses. This property and equipment were devoted solely to the business of the petitioner in making beer and "Pep" beer, containing less than one-half of one per cent of alcohol by volume prior to the incidence of war-time prohibition and the Eighteenth Amendment and the statutes in enforcement thereof.
About July 1, 1918, the petitioner commenced the manufacture of soft drinks in a separate building, with machinery distinct from that used in the manufacture of beer or cereal beverages and which was carried in a separate account on petitioner's books.
The making and sale of beer and malt and spirituous liquors was discontinued because of the incidence of the Eighteenth Amendment and the statutes in enforcement thereof, but the making and sale of soft drinks and of beer of an alcoholic content of less than one-half of one per cent continued after the incidence of such amendment and statutes. Petitioner continued to make "near beer" after it had discontinued the manufacture of beer, in order to see if the plant could be made to pay by making this product, and also to keep the plant in action and save the machinery.
No part of the obsolescence or extraordinary depreciation taken by the petitioner for the years in question was computed upon or taken on account of the depreciation of buildings, machinery and equipment used for the manufacture of soft drinks other than dealcoholized beer.
The investment in equipment for the manufacture of soft drinks other than dealcoholized beer, and the depreciation accrued thereon were as follows:
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Year | Investment | Depreciation
-------------------------------------------------|------------|-------------
1918 ___________________________________________ | $5,033.09 | ____________
1919 ___________________________________________ | 8,175.98 | $553.31
1920 ___________________________________________ | 9,027.54 | 1,448.49
1921 ___________________________________________ | 9,200.79 | 1,448.49
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The buildings, machinery and equipment for the manufacture of beer and malt and spirituous liquors were acquired for the most part prior to March 1, 1913, and the cost, accrued depreciation, and depreciated cost thereof on March 1, 1913, were:
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| | Accrued | Depreciated
| Cost | depreciation | cost
------------------------------------|-------------|--------------|------------
Land ______________________________ | $100,000.00 | ____________ | $100,000.00
Buildings _________________________ | 196,667.97 | $48,475.79 | 148,192.18
Machinery _________________________ | 71,769.68 | 11,111.33 | 60,658.35
Casks and tanks ___________________ | 27,643.00 | 6,668.54 | 20,974.46
Horses, wagons, etc _______________ | 8,988.50 | 948.87 | 8,039.63
Office furniture and fixtures _____ | 2,238.90 | 302.25 | 1,936.65
Auto trucks _______________________ | 4,900.00 | 703.00 | 4,197.00
Signs _____________________________ | 500.00 | 125.00 | 375.00
Small cooperage ___________________ | 2,576.50 | ____________ | 2,576.50
Saloon furniture and fixtures _____ | 22,852.06 | 6,961.52 | 15,890.54
Outside property __________________ | 38,128.55 | ____________ | 38,128.55
|-------------|--------------|------------
Total _________________________ | 476,265.16 | 75,296.30 | 400,968.86
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On March 1, 1913, the plant and buildings had a value equal to the amount at which they were set up on the books.
The cost, accrued depreciation and depreciated cost of the buildings, machinery and equipment on December 31, 1917, were as follows:
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| | Accrued | Depreciated
| Cost | depreciation | cost
------------------------------------|-------------|--------------|------------
Land ______________________________ | $100,000.00 | ____________ | $100,000.00
Buildings _________________________ | 229,999.32 | $80,851.25 | 149,148.07
Machinery _________________________ | 117,618.07 | 23,524.58 | 94,093.49
Casks and tanks ___________________ | 40,399.35 | 7,855.76 | 32,543.59
Horses, wagons, etc _______________ | 8,643.50 | 1,391.76 | 7,251.74
Office furniture and fixtures _____ | 3,091.24 | 878.50 | 2,212.74
Auto trucks________________________ | 13,073.94 | 5,934.10 | 7,139.84
Small cooperage ___________________ | 18,497.78 | 17,595.56 | 902.22
Saloon furniture and fixtures _____ | 27,758.14 | 19,414.98 | 8,343.16
Outside property __________________ | 76,719.59 | 1,299.84 | 75,419.75
| ----------- | ------------ | -----------
Total _________________________ | 635,800.93 | 158,746.33 | 477,054.60
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At the end of 1917 petitioner's buildings and machinery had a value fully equal to that at which they were carried on its books.
The book cost and the net depreciated book cost of the fixed assets of the petitioner at December 31, 1918, and December 31, 1919, were:
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| Dec. 31, 1918 | Dec. 31, 1919
|---------------------------|--------------------------
| | Net | | Net
| Book cost | depreciated | Book cost | depreciated
| | cost | | cost
------------------------------------|-------------|-------------|-------------|------------
Land ______________________________ | $100,000.00 | $100,000.00 | $100,000.00 | $100,000.00
Buildings _________________________ | 229,999.32 | 108,057.31 | 229,999.32 | 63,008.03
Machinery: | | | |
Beer ___________________________ | 131,675.21 | 32,500.00 | 134,542.63 | 19,966.71
Soft drink _____________________ | 4,533.09 | 4,533.09 | 7,400.18 | 6,946.87
Casks and tanks ___________________ | 40,399.35 | 5,000.00 | 40,399.35 | 2,000.00
Horses, wagons, etc _______________ | 8,639.50 | 1,000.00 | 8,570.50 | 932.00
Office furniture and fixtures _____ | 3,101.74 | 600.00 | 3,173.87 | 400.00
Auto trucks: | | | |
Beer ___________________________ | 15,283.85 | 3,000.00 | 15,568.60 | 3,284.75
Soft drink _____________________ | 500.00 | 500.00 | 775.80 | 675.80
Small cooperage ___________________ | 2,632.71 | 500.00 | 2,232.71 | 100.00
Saloon furniture and fixtures _____ | 28,383.06 | 100.00 | 28,733.06 | 0
Outside property __________________ | 38,128.55 |...To continue reading
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