Roney v. Commissioner of Internal Revenue

• Decision Date: 03 October 1933
• Docket Number: No. 3492.,3492.
• Citation: 67 F.2d 165
• Parties: RONEY v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

67 F.2d 165 (1933)

RONEY v. COMMISSIONER OF INTERNAL REVENUE.

No. 3492.

Circuit Court of Appeals, Fourth Circuit.

October 3, 1933.

Wilton H. Wallace, of Washington, D. C. (E. F. Colladay, Joseph C. McGarraghy, and Colladay, McGarraghy, Colladay & Wallace, all of Washington, D. C., on the brief), for petitioner.

William Cutler Thompson, Sp. Asst. to Atty. Gen. (Sewall Key and J. P. Jackson, Sp. Assts. to Atty. Gen., and E. Barrett Prettyman, Gen. Counsel, Bureau of Internal Revenue, and J. A. Lyons, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals involving income tax of the petitioner for the year 1928 in the amount of $35,373.07. The opinion of the Board of Tax Appeals is reported in 26 B. T. A. 1213. The facts were stipulated and are as follows:

In 1919 the petitioner and one Morris Schapiro, who were engaged in the wholesale scrap iron and metal business, purchased from the Gwynnbrook Distillery, a corporation, the land, building, and equipment of said distillery located at Gwynnbrook, Md., with the intention of dismantling the distillery and selling the salvage material. They had purchased other distilleries in Kentucky, Maryland, and Pennsylvania, and disposed of them in that manner. After commencing dismantling operations, the owners decided that it would be profitable to manufacture whisky for medical purposes.

Late in the year 1920 a permit to manufacture medicinal whisky at Gwynnbrook Distillery was secured from the Commissioner of Internal Revenue, and shortly before its expiration this permit was renewed for another year. Between November, 1920, and January, 1922, the partnership Gwynnbrook Company, whose members were the petitioner and his partner Schapiro, manufactured whisky under these permits. To carry on this business, they hired a man who had been superintendent of the former corporation. The whisky manufactured was at first placed in a government concentration warehouse and warehouse receipts were given for it. In 1925, when the government ordered the removal of the whisky from the concentration warehouse, it was placed in the warehouse of the Baltimore Distillery Company. The original warehouse certificates were surrendered, and new certificates were issued to the owners of the whisky.

In 1925 the Gwynnbrook Company entered into an agreement to sell all the whisky represented by the certificates. Under this agreement, whisky was to be delivered and paid for at intervals during the years 1927 to 1932. In accordance with this arrangement, the whisky represented by certificates 1 to 9, inclusive, was sold in 1927. In 1928 the balance of the whisky represented by certificates 10 to 60 was transferred to and paid for by the purchasers. It was stipulated that the partnership, Gwynnbrook Company, realized a net profit of $630,027.29 in 1928, when the whisky covered by the certificates was sold, and that one-half of the net profit is taxable to this petitioner. The petitioner reported his profit as capital net gain.

The Commissioner of Internal Revenue held that the profit realized on the sale of the whisky in the year 1928 was taxable as ordinary income and this holding was affirmed by the Board. The petitioner contends that the profit realized was taxable as "capital gain" under section 101 of the Revenue Act of 1928 (26 USCA § 2101), which defines a capital asset as: "* * * Property held by the taxpayer for more than two years...