Renziehausen v. Commissioner of Internal Revenue

• Decision Date: 07 March 1929
• Docket Number: No. 3940,3941.,3940
• Citation: 31 F.2d 675
• Parties: RENZIEHAUSEN v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. RENZIEHAUSEN.
• Court: U.S. Court of Appeals — Third Circuit

31 F.2d 675 (1929)

RENZIEHAUSEN v. COMMISSIONER OF INTERNAL REVENUE.

COMMISSIONER OF INTERNAL REVENUE v. RENZIEHAUSEN.

Nos. 3940, 3941.

Circuit Court of Appeals, Third Circuit.

March 7, 1929.

Smith, Shaw & McClay, of Pittsburgh, Pa. (Wm. A. Seifert and W. W. Booth, both of Pittsburgh, Pa., of counsel), for appellant.

Mabel Walker Willebrandt, Asst. Atty. Gen., and Sewall Key, Sp. Asst. Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Clark T. Brown, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

These cases are brought here on appeal and cross-appeal on petitions to review a decision of the United States Board of Tax Appeals adjudging deficiencies in the petitioner's income taxes for the years from 1918 to 1922, inclusive, except 1921, for which year there was an overassessment. The deficiency for the year 1918 was $174,159.60; for 1919, $22,495.44; for 1920, $156,362.99; and for 1922, $67,745.39. The overassessment for 1921 was $23,924.57.

Mr. Renziehausen is a resident of Pittsburgh, and during the years in question he was the sole owner of the Large Distilling Company and a half owner of Schuetz, Renziehausen & Co. The business of these companies was principally that of distilling whisky, which they sold to wholesale dealers under uniform contracts. They also carried on a warehousing business. After the whisky was distilled under these contracts, it was stored in bonded warehouses, and there remained until withdrawn by the owners, who held warehouse receipts for it and paid monthly storage charges therefor.

The assets of these two companies consist of both tangible and intangible property, and the taxpayer contends that he is entitled to a deduction for the obsolescence of this property for the years in question. The intangible property for which a deduction is claimed are trade-marks, trade brands, trade-names, and good will.

Sections 214 of the Acts of 1918 (40 Stat. pt. 1, p. 1067) and 1921 (42 Stat. pt. 1, p. 240) provide "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."

The first question is whether or not a deduction in income may be allowed for the obsolescence of the trade-marks, trade brands, trade-names, and good will. There is no dispute as to the value of the intangible property of these companies, and the amount of the deduction, if any, to which they are entitled is not in dispute.

Trade-marks, trade brands, and trade-names are closely related to good will and no attempt has been made to segregate or differentiate them. The Circuit Court of Appeals for the Eighth Circuit in an exhaustive opinion by Judge Kenyon in the case of Red Wing Malting Co. v. Willcuts, 15 F.(2d) 626, 49 A. L. R. 459, held that a deduction for the obsolescence of the good will of a brewing company was not allowable on account of the passage of the National Prohibition Act, because the allowance for obsolescence is limited to such property as is susceptible to exhaustion, wear and tear by use in the business, and good will is not such property.

The clause, "including a reasonable allowance for obsolescence," enlarges the allowance made for exhaustion, wear and tear of property used in the business. The first allowance is made for depreciation resulting from exhaustion, wear and tear, or the use of the property in the business. The second allowance is made for depreciation resulting from obsolescence, or the disuse of the property in the business. The cause of depreciation in the one case is from use, and in the other from disuse. They are antithetical. The property, however, is the same in both cases, and must be such as may be, or has been, subject to exhaustion, wear and tear, and obsolescence. Is good will such property as the Congress had in mind? Does it have the attributes implicit in the language used?

Prior to the Red Wing Case, the Commissioner had decided both ways as to good will: That there could be an allowance for its depreciation, and that there could not be. Since that case, he has uniformly disallowed it. Consequently his action is not persuasive either way. The able dissenting opinions of Mr. Trammell in the Manhattan Brewing Company Case, 6 B. T. A. 952, and of Judge Swan in the case of Haberle Crystal Springs Brewing Co. v. Jesse W. Clarke, Collector of Internal Revenue for the Twenty-First District of New York (C. C. A.) 30 F.(2d) 219, are persuasive. However, we are not convinced of the unsoundness of Judge Kenyon's reasoning in the Red Wing Case, and so hold that obsolescence in this subsection is limited to property which is subject to depreciation by exhaustion, wear and tear, and that good will does not have such attributes and is not such property.

The taxpayer claims deductions from income for the years from 1918 to 1921, inclusive, for obsolescence of the tangible property of...