A. Backus, Jr., & Sons v. Commissioner

1927 BTA LEXIS 3466 | B.T.A. | 1927

Lead Opinion

OPINION.

Smith :

The petitioner alleges error on the part of the respondent in disallowing, as deductions from gross income for the year 1920, $8,000 for traveling expenses and $6,200 for interest upon an alleged indebtedness of • the corporation to Henry N. Backus of $10,000 from 1909. The answer of the respondent admits that, during the years of control by Newton H. Backus, Henry N. Backus personally expended money for traveling expenses in connection with the sale of the corporation’s products, but for want of information or knowledge sufficient to form belief as to the amount of such expenditures neither admits nor denies the amount thereof but calls for strict proof of such amount; it further admits “ that in 1909 land was acquired by the taxpayer at a cost of $15,000 of which amount said Henry N. Backus personally paid $10,000.”

At the time Henry N. Backus personally expended money for traveling expenses and advanced money for the acquisition of real estate, title to which was apparently taken in the name of the corporation, the corporation denied liability to him in respect of the traveling expenses and of the money advanced for the purchase of , the real estate. In 1915- Henry N. Backus acquired control of the corporation and a new board of directors and new officers were elected who were responsive to his will. No steps were immediately taken, however, to charge upon the books of account amounts alleged by Henry to be due to him. In 1920 Henry acquired practically 100 per cent of the stock of the corporation. It was then that there was placed upon the books an amount of $8,000 for traveling expenses for Henry and an amount of $6,600 for interest upon the $10,000 advanced by him in 1909 for the purchase of real estate. Although the answer of the Commissioner demanded strict proof of the amount of money spent for traveling expenses the evidence as to the amount . spent is entirely lacking. Neither is the Board advised as to the amount of traveling done nor is it in possession of any information which would enable it to approximate the amount spent. Further-jniore, there is no proof that the corporation was ever under any liability to pay interest upon the $10,000 advanced by Henry in ■ the purchase of real estate in 1909. With respect to the real estate transaction it appears that Henry thought the corporation should own certain real estate and his brother, who was in control of the corporation and of the corporation’s books of account, thought otherwise and refused to allow the corporation to pay more than $5,000 for the property. Henry, without any authority from the corporation or from his brother, advanced the money and acquired the property. We can not determine from the evidence that there was ever any liability on the part of the corporation to pay Henry N. Backus for traveling expenses or for interest upon the money invested. So far as the record-shows, the charges made upon the books of account in 1920 were simply a distribution to Henry N. Backus, who owned practically 100 per cent of the stock, of the profits or earnings of the corporation. Upon the record the dis-allowances made by the respondent must be affirmed.

With respect to proper rates for depreciation it appears that the revenue agent allowed depreciation at the following rates:

Per cent.

Buildings_ 4

Machinery and equipment_ 10

Furniture and fixtures_ 10

These were reduced by the Commissioner to the following percentages : 3 per cent, 5 per cent, and 8 per cent, respectively. At the hearing the petitioner conceded the correctness of the 3 per cent rate on buildings. The evidence indicates that depreciation uj)on machinery and equipment, and furniture and fixtures was sustained at the rate of 10 per cent per annum upon each class of assets. The deficiencies should be redetermined by allowing depreciation at the following rates:

Per cent.

Buildings_ 3

Machinery and equipment_ 10

Furniture and fixtures_ 10

Judgment will he entered on 15 days' notice, under Bule 50.