Providence Journal Co. v. Broderick

• Decision Date: 13 June 1939
• Docket Number: No. 3429.,3429.
• Citation: 104 F.2d 614
• Parties: PROVIDENCE JOURNAL CO. v. BRODERICK, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — First Circuit

104 F.2d 614 (1939)

PROVIDENCE JOURNAL CO. v. BRODERICK, Collector of Internal Revenue.

No. 3429.

Circuit Court of Appeals, First Circuit.

June 13, 1939.

Harold B. Tanner, of Providence, R. I. (Tillinghast, Collins & Tanner, of Providence, R. I., on the brief), for appellant.

John R. Gage, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and Lester L. Gibson, Sp. Assts. to Atty. Gen., and J. Howard McGrath, U. S. Atty., and George F. Troy, Asst. U. S. Atty., both of Providence, R. I., on the brief), for appellee.

Before WILSON, Circuit Judge, and PETERS and SWEENEY, District Judges.

PETERS, District Judge.

The Providence Journal Company, plaintiff, appellant, brought a suit against the defendant, appellee, as Collector of Internal Revenue, to recover some nine thousand dollars assessed as a deficiency in the plaintiff's income tax payment for the year 1933. The assessment resulted from the Commissioner's refusal to permit the plaintiff to take as a loss the undepreciated value of certain buildings it voluntarily demolished in 1933. Judgment for defendant was given in the District Court and the case is here on appeal from that judgment.

The question presented is whether the plaintiff, appellant, under the circumstances shown, was entitled to the deduction it claimed.

The applicable provisions of law are Section 23(f) of the Revenue Act of 1932, 26 U.S.C.A. § 23(f), and Article 172 of Regulations 77 promulgated under that Act.

There is little or no dispute about the facts, which, in the main, were stipulated. The District Court made certain other findings, clearly warranted by the evidence, and the plaintiff asks us to consider still other alleged facts, not included in the District Court's findings, which the plaintiff deems deducible from the evidence, and which we have considered in arriving at our conclusion.

It appears that the plaintiff, publisher of a newspaper in the City of Providence, deeming its facilities inadequate, in October, 1925, bought certain land with buildings thereon in that city with the avowed and recorded purpose of clearing the land of the buildings and erecting a new structure adapted to requirements of the business, as soon as certain leases on the property had expired.

The purpose that the officers and directors of the company had in mind in making the purchase is clearly shown by written evidence. The minutes of the Board of Directors, under date of October 8, 1925, contain the following entry:

"The future need of more ample space for our continued growth has long been recognized, and informally discussed at meetings of the directors. In line with this sentiment the president, after conference with the directors, purchased for the company the entire block with buildings thereon, bounded. * * *"

The action of the officers was approved on February 3, 1926, as shown by the vote of the Directors when express approval was voted, and a reserve of $100,000 was set up toward a new building. Additional reserves were set up from time to time, for the same purpose, up to and including 1931, and in May of that year the Treasurer of the Company made affidavit that,

"This real estate was obtained for the express purpose of clearing the land and erecting a new building at the expiration of the lease then in force, which had a period of 104 months to run."

In June, 1931, in a letter by the Company protesting additional assessments, it was stated in substance that when the property was purchased it was decided,

"To purchase the property but to postpone the erection of a new building until May 31, 1934, the date upon which the leases on the old buildings would expire."

Cancellation of the leases as a result of the business depression enabled the Company to begin demolition of the old buildings in May, 1933, somewhat earlier than anticipated.

The Company paid for the buildings and land $535,000. Of this purchase price the Company allocated $129,491 to the buildings. This sum was increased by improvements to $132,274, and, at the time of the demolition of the buildings to make room for the new structure, the undepreciated balance of the cost of the buildings was fairly represented by the $67,028 which the plaintiff company claimed was its actual loss sustained in 1933, "not compensated for by insurance or otherwise".

The property purchased, subject to certain leases, did not adjoin the newspaper plant operated by the company at the time of the purchase, but was several blocks removed therefrom.

The following findings are included among those made by the District Court 25 F.Supp. 940, 942:

"(2) That the plaintiff, at the time of the purchase of the parcel of land known as the `Fountain Street property', upon which were situated buildings varying in age from twenty to forty years, intended to demolish the said buildings, since the purchase was made for the primary purpose of erecting a new and modern home for itself upon obtaining possession of the property.

"(3) That the plaintiff carried out the purpose of the purchase and at the date of the demolition of the buildings the undepreciated value thereof was $67,028.91."

The court held that —

"It is the intention of the taxpayer which governs. At the time the plaintiff purchased the property demolition of the buildings was contemplated. It acquired the site with the definite intention of removing the buildings. The undepreciated value of the buildings destroyed became a part of the plaintiff's capital investment."

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