Weber Flour Mills Co. v. Commissioner of Internal Revenue

• Decision Date: 25 March 1936
• Docket Number: No. 1353.,1353.
• Parties: WEBER FLOUR MILLS CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Tenth Circuit

82 F.2d 764 (1936)

WEBER FLOUR MILLS CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 1353.

Circuit Court of Appeals, Tenth Circuit.

March 25, 1936.

Charles H. Garnett, of Oklahoma City, Okl. (Phil D. Morelock and Perry W. Shrader, both of Kansas City, Mo., on the brief), for petitioner.

L. W. Post, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

PHILLIPS, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals affirming a deficiency in income taxes of $6,467.92, proposed by the Commissioner against the Weber Company for the fiscal year ended May 31, 1929.

The stipulated facts are as follows:

The Weber Flour Mills Company, hereinafter called the old corporation, was organized under the laws of Kansas on August 7, 1924, with an authorized capital stock of 10,000 shares having a par value of $100. Eight thousand four hundred shares were issued. It was in receivership from August 19, 1926, to December 19, 1927. During such period, notices of default in the payment of license fees to the state of Kansas and notices that the charter of the old corporation would be forfeited if the fees were not paid were sent to Leo Weber, a former Secretary of the old corporation. He failed to notify anyone of the receipt of such notices. On December 13, 1926, the Charter Board declared the charter forfeited under the provisions of 17 — 706, R.S. Kan.1923. Sometime in May, 1928, the persons who had been officers and directors of the old corporation learned that its charter had been forfeited, but the period, within which the charter could have been reinstated under the provisions of 17 — 224, R.S. Kan.1923 had expired. A new charter was applied for and on May 18, 1928, The Weber Flour Mills Company, hereinafter called the new corporation, was organized. The stock of the new corporation was issued share for share to the former stockholders of the old corporation, the persons who had been officers and directors of the old corporation became officers and directors of the new corporation and the business was continued as formerly.

In its return for the fiscal year ended May 31, 1929, the new corporation deducted from its income, net losses sustained as the result of business operations for the years of 1927 and 1928.

The Commissioner refused to allow such losses to be carried forward, asserting that the new corporation was not the same taxable entity as the old corporation or the entity which existed during the interim from the date of forfeiture of the old charter to the securing of the new.

Whether, and to what extent deductions of losses shall be allowed in computing income taxes depends upon legislative grace, and only as there is clear statutory provision therefor, can any particular deduction be allowed. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; Helvering v. Independent Life Ins. Co., 292 U.S. 371, 54 S. Ct. 758, 78 L.Ed. 1311; Barbour Coal Co. v. Commissioner (C.C.A.10) 74 F.(2d) 163; Darby-Lynde Co. v. Commissioner (C.C.A. 10) 51 F.(2d) 32.

In Pennsylvania Co. for Insurances on Lives and Granting Annuities v. Commissioner (C.C.A.3) 75 F.(2d) 719, 721, the court said:

"Deductions in calculating federal income taxes are not matters of personal right. `Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed.' New Colonial Ice Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348. And further, the right of deduction, when accorded by statute, is available only to the taxpayer who suffered the loss."

The statute permitting prior year losses to be taken as deductions follows, section 117, Revenue Act of 1928, 45 Stat. 791, 825 (26 U.S.C.A. § 117 note):

"(b) Net loss as a deduction. If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called `second year'), and if such net loss is in excess of such...