Sugarland Industries v. Commissioner of Internal Revenue
| Citation | 15 BTA 1265 |
| Decision Date | 05 April 1929 |
| Docket Number | Docket No. 25063. |
| Parties | SUGARLAND INDUSTRIES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Robert Ash, Esq., for the petitioner.
Frank S. Easby-Smith, Esq., for the respondent.
This proceeding results from the determination of the respondent of a deficiency in income and profits taxes for the calendar year 1920 in the amount of $46,000. Petitioner assigns as error the failure of the respondent to find that a donation of $100,000 made by petitioner to the Laura Eldridge Hospital Association for the benefit of its employees and for their dependents was for the purposes connected with the operation of its business and allowable as a deduction from income. Respective counsel have filed a stipulation of facts and from the same we make the following findings of fact.
FINDINGS OF FACT.
(1) Petitioner is a common law trust association existing under and by virtue of a certain declaration of trust dated January 1, 1919, wherein I. H. Kempner and D. W. Kempner of Galveston County, Texas, and W. T. Eldridge, Jr., and G. D. Ulrich of Fort Bend County, Texas, are trustees, and such trust association has its chief or principal place of business at Sugar Land, Fort Bend County, Tex.
(2) The organizers of the petitioner were officers and stockholders of the Imperial Sugar Co., the Sealey Mattress Co., and the Sugarland Manufacturing Co., which companies owned and operated a sugar refinery, mattress factory, merchandising company, other manufacturing establishments, bank, printing establishment, electric light and power plant, farm, and other lesser activities at the company town of Sugar Land, Tex. On January 1, 1919, the Sugarland Industries was organized and all the properties of the above named companies were transferred to it. During 1919 and 1920 petitioner owned and operated such properties, which included lands and buildings in the company town of Sugar Land and approximately 20,000 acres of adjoining land. Practically the only property in the company town or in its vicinity which was not owned by the petitioner consisted of rights of way for highways, quasi-public institutions and a railway serving the town which was owned by the Sugarland Railway Co. The industries gave employment to several hundred persons, all of whom are housed in the company town and adjacent thereto. Sugar Land is about 23 miles from Houston, Tex., which was the nearest place having hospital facilities for the care of the sick and injured employees of the petitioner and their families.
(3) The Laura Eldridge Hospital Association was created by a Declaration of Trust dated December 1, 1920.
(4) At a meeting of the Board of Trustees of the Laura Eldridge Hospital Association, held December 20, 1920, with the full board present, officers were elected and the trustees accepted the donation of $100,000 and 10 acres of land from the Sugarland Industries.
(5) On December 14, 1920, the petitioner executed a deed conveying 10 acres of land to the Laura Eldridge Hospital Association. On December 31, 1920, the petitioner entered on its books the following entry:
(Journal Entry 690)
12-31-1920 Profit and Loss Account ___________________ $100,000.00
to
Hospital Fund Account _________________________________ $100,000.00
Donation made to Laura T. Eldridge Hospital Association
for the benefit of the Sugarland Industries
employees and their dependents
This represents its donation to the Hospital Association referred to in paragraph (4). Petitioner kept its books on the accrual basis. On February 28, 1921, the hospital fund was debited $115,000 and "Accounts Payable, C. B. Gillespie, Treasurer" credited with the same amount; also, checks in the amounts of $75,000 and $15,000, dated March 1, 1921, and in the amount of $25,000, dated February 27, 1922, were paid to the treasurer of the Hospital Association. The checks were deposited to the credit of the Hospital Fund in the Imperial Bank & Trust Co., which is a branch of the Sugarland Industries.
The entry of February 28, 1921, charging the Hospital Fund Account with $115,000 and crediting "Accounts Payable, C. B. Gillespie, Treasurer" with the same amount was made to correct an error in posting and to set up the amount in accounts payable, where it was intended originally that it should be posted.
(6) From 1920 until March, 1922, temporary hospital facilities were provided in buildings owned by the petitioner. In March, 1922, the buildings erected by the Hospital Association were occupied. In 1921 hospital equipment costing $14,169.79 was acquired and installed in temporary quarters. In 1922 a frame building was erected to serve as hospital quarters, and by the close of that year the total investment in the hospital building and equipment aggregated $29,928.58.
(7) There was originally contributed to the fund $100,000 in cash by the petitioner and $50,000 by the Sugarland Railway Co. Additional contributions were made of $7,000 by the petitioner and $2,000 by the railway company. There were accretions to the fund through interest earned in the amount of $38,540.35, and income derived wholly from fees charged to hospital patients in the amount of $21,248.40. The total expenses of the hospital up to December 31, 1926, were $50,454.02, and the net worth at that date was $183,334.83. The net operating deficit of hospital over the six-year period was $29,500.
(8) Because many of the records for 1920 and 1921 were destroyed by fire, no exact data is on record as to the total expense incurred by the petitioner for hospitalization of its employees in 1919 and 1920, although it is known that 32 persons were sent to Houston hospitals in 1918 and 47 in 1919, out of a total of 74 accidents in 1918 and 171 in 1919 requiring medical or surgical attention. The number of employees treated in the hospital in 1923 was 96; in 1924 the number was 152; in 1925 the number was 172; and in 1926 the number was 201, making the total number of patients treated during these four years 621.
Prior to the creation of the Hospital Association no hospital facilities for the care of employees were available at Sugar Land, nor at any place nearer than Houston, which is 23 miles distant.
The petitioner had difficulty in maintaining an efficient staff and an adequate supply of labor at reasonable salary and wage scales. The purpose in creating the Hospital Association and making a donation thereto was to insure the petitioner an adequate, stable supply of loyal labor.
The labor turnover for the years 1918, 1919, and 1922 was as...
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