Wier Long Leaf Lumber Co. v. Comm'r of Internal Revenue
| Decision Date | 28 November 1947 |
| Docket Number | Docket No. 6223. |
| Citation | 9 T.C. 990 |
| Parties | WIER LONG LEAF LUMBER COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. Respondent's determination for 1942, eliminating depreciation deduction relating to mill equipment by reflecting adjustment in figure for salvage value of the assets, held not shown to have been erroneous.
2. On issue submitted, held depreciation deduction on automobile can not be disallowed merely by reason of the appreciated price received for asset.
3. A corporation which was in liquidation during 1943 and 1944 is not entitled during those years to the benefit of the unused excess profits credit carry-back provisions of section 710(c)(3)(A), I.R.C. Acampo Winery & Distilleries, Inc., 7 T.C. 629, distinguished. Thomas J. Reilly, Esq., J. A. Phillips, Esq., Milton H. West, Jr., Esq., and Harry R. Jones, Esq., for the petitioner.
Frank B. Schlosser, Esq., for the respondent.
Respondent determined deficiencies in declared value excess profits and excess profits taxes of petitioner for the calendar year 1942 in the respective amounts of $982.71 and $18,863.28. In an amended petition filed with the Court on April 11, 1945, petitioner claims the benefit of carry-backs to the taxable year in its unused excess profits credits for the calendar years 1943 and 1944, and alleges that it made an overpayment of its excess profits tax for 1942.
Three questions are presented:
(1) Is petitioner entitled to a deduction for depreciation of $9,768.71 on its mill property for 1942?
(2) Is petitioner entitled to a deduction for depreciation on certain automobiles which were sold during the taxable year?
(3) Is petitioner, in computing its excess profits tax for the year 1942, entitled to the benefit of unused excess profits tax credit carrybacks from the years 1943 and 1944?
FINDINGS OF FACT.
This matter was submitted to the Court on a stipulation of facts, which the Court hereby finds accordingly. The stipulated facts disclose the following:
Petitioner was incorporated in Texas in 1917, with its principal office in Houston, and it filed its income tax returns with the collector of internal revenue for the first district of Texas.
Its original capital stock of $400,000 was increased to $1,000,000 by a stock dividend in 1922.
During 1942 petitioner operated a sawmill at Wiergate, Texas, which operation was begun in 1918. At the beginning of operations it had acquired an extensive tract of standing timber and subsequently acquired a few relatively small adjacent tracts.
The useful life of the mill was controlled by the quantity of available standing timber upon which it could operate.
From the beginning of its operations petitioner had computed its depreciation upon the basis of the board feet of lumber produced. The depreciation rate was computed by estimating the available supply of timber and prorating the mill cost over this supply. From time to time, as outside tracts of timber were acquired, the estimate of uncut timber was increased and the depreciation rate of the mill and mill equipment was reduced accordingly.
Prior to 1936 the computation of depreciation was made without considering the mill as having any salvage value at the termination of its useful life. However, for the taxable year 1936 petitioner and respondent's examining agent agreed upon a salvage value of $15,000, and the rate of depreciation was modified accordingly. This modified rate, based upon an assumed salvage value of $15,000, has continued in each of petitioner's returns through and including the year 1941.
On January 1, 1942, petitioner's sawmill and mill equipment had a remaining depreciation cost of $24,768.71 and the estimated lumber remaining to be cut was 21,000,000 feet. Petitioner's estimate of its remaining lumber feet was low and petitioner in 1942 actually cut in excess of 28,000,000 feet of timber. Petitioner had been cutting approximately 35,000,000 feet of timber per annum. In its tax return for 1942 petitioner deducted the difference between the salvage value of $15,000 and the depreciated cost as of January 1, 1942, of $24,768.71, or $9,768.71, as a reasonable allowance for wear and tear of its sawmill and mill equipment in that year. Respondent determined that petitioner was entitled to no deduction in 1942 for depreciation of its sawmill and mill equipment.
The parties herein have stipulated that if the Court should hold that petitioner is entitled to any depreciation on its sawmill and mill equipment for the taxable year 1942, the amount thereof is $9,768.71.
On December 24, 1942, petitioner sold the mill, mill equipment, one automobile, and two tractors for a lump cash consideration of $75,000. By reason of war conditions existing throughout 1942, the price for which the mill and mill equipment could be sold was far in excess of the estimated salvage value of $15,000. On the same date and as a part of the same transaction petitioner sold to the same purchaser for a cash consideration of $100,000 the mill site and various lands which were in the vicinity of the mill and upon which there was some standing timber.
In 1942 petitioner sold three automobiles which had cost $2,854.85 and had a depreciation reserve of $1,148.39 accumulated to January 1, 1942. Petitioner, in its tax return for 1942, deducted $1,047.53 as a reasonable allowance for depreciation of these automobiles. Respondent has allowed for depreciation of these automobiles. Respondent has allowed as a deduction the sum of $592.94, his adjustment being explained as follows: ‘The depreciation has been reduced so that the net book value is equal to the sale price and no gain or loss results.‘ The depreciation rate taken by petitioner was 40 per cent per annum.
A tabulation showing the type of car, date purchased, cost, depreciation, claimed and allowed for prior years at the rate of 40 per cent per annum, remaining balance on January 1, 1942, depreciation claimed for 1942, and sales price follows:
+-----------------------------------------------------------------------------+
¦ ¦ ¦ ¦Depreciation ¦ ¦ ¦ ¦
+-----------+---------+--------+---------------+---------+------------+-------¦
¦ ¦Date ¦ ¦Allowed ¦Remaining¦Depreciation¦Sale ¦
+-----------+---------+--------+---------------+---------+------------+-------¦
¦Type ¦purchased¦Cost ¦_ ¦balance ¦claimed, ¦price ¦
+-----------+---------+--------+---------------+---------+------------+-------¦
¦ ¦ ¦ ¦1940 ¦1941 ¦1-1-42 ¦1942 ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦(1) ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Chevrolet ¦3/23/40 ¦$876.00 ¦$269.60¦$350.40¦$256.00 ¦$256.00 ¦$455.00¦
¦coach ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦(2) ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Chevrolet ¦2/26/41 ¦995.00 ¦0 ¦331.60 ¦663.40 ¦398.00 ¦275.00 ¦
¦sedan ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦(3) ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦Chevrolet ¦6/10/41 ¦983.85 ¦0 ¦196.79 ¦787.06 ¦393.53 ¦(1) ¦
¦sedan ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------+---------+--------+-------+-------+---------+------------+-------¦
¦Total ¦------- ¦2,854.85¦269.60 ¦878.79 ¦1,706.46 ¦1,047.53 ¦-------¦
+-----------------------------------------------------------------------------+
It has been agreed by the parties that if the allowable depreciation in 1942 upon the automobiles above mentioned was not controlled by the price received for the automobiles upon the sale thereof, then the amount of depreciation claimed by petitioner in its tax return is proper and should be allowed.
Petitioner, in determining the net long term gain on the sale in 1942 of its mill and mill equipment, two tractors, and the automobiles, offset against the sale prices a salvage value of $15,000 on the mill and mill equipment, a depreciated cost of $6,001.42 on the two tractors, and the depreciated cost of $658.93 on the three automobiles, a total of $21,660.35. No controversy exists as to the depreciated cost of $6,001.42 on the two tractors. Respondent has increased the salvage value of the mill and mill equipment and the depreciated balance on the automobiles by the depreciation disallowed for 1942 in the respective amounts of $9,768.71 and $454.29, a total of $10,223.30.
On December 19, 1942, the stockholders of petitioner met and voted in favor of the liquidation and dissolution of petitioner, and the following resolution was adopted at that meeting:
RESOLVED THAT, pursuant to written consent of stockholders to the liquidation and dissolution of this corporation, the Directors and Officers of this corporation be and hereby they are authorized and directed (1) to proceed promptly and in due order to take all necessary and appropriate action to accomplish dissolution of Wier Long Leaf Lumber Company; (2) to distribute in liquidation of the company and cancellation and redemption of all of its capital stock the net assets of the corporation remaining after making and/or providing for payment of its debts and liabilities; and (3) to make a liquidation...
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