*1 ' 'the mo overruling -with sanction. our the court committed new trial a . v. Improvement Co. Lake Eagle error 182; Mc Cir., States, 160 F.2d 5th United Pless, 35 S.Ct. 238 U.S. Donald v. States, 1300; Loney United
.59 L.Ed. Cir., F.2d rec- error in
We find no reversible
ord. judgment is affirmed. dissenting.
SIMONS, Judge, Circuit REVE INTERNAL OF COMMISSIONER ADOLPH MAYER v. CLEVELAND NUE CORPORATION. REALTY
No. 10363. Appeals, Sixth
Circuit Court Circuit. April Kutz, Henry Washington,
I. D. C. Monarch, (Sewall Key, and Helen Louis J. C., Goodner, Washington, all of D. petitioner. brief), for Loeser, Cleveland, Irwin Ohio N. Loeser, (Irwin N. and Daniel W. Loeser Ohio, Cleveland, brief), both of on the respondent. HICKS, SIMONS,
Before and MIL- LER, Judges. Circuit HICKS, Judge. Circuit Petitioner, Internal Commissioner Revenue, a seeks the decision review of the Tax that there are deficiencies taxpayer, 'tax due Cleve- in income Adolph Mayer Realty Corporation, land respondent, for the respective amounts $677.63, $950.55 $1021.19. organization Upon its tax- ‘which, payer acquired conced- predeces- edly, had been constructed $131,565.96. sor in 1915 at Until cost of and its December had taken predecessor on the building' annually upon at- *2 $165,000, excepting six own in Co." decision Mutual Fertilizer of supposed cost Commissioner, the full decided year 1915 and of the T.C. months the deprecia- the when no “allowable” for of and 1915, 1916, 1921 should be com- therefor 1917 and claimed and no deduction puted 2%; of revised rate where- at the allowed. n upon sought the Commissioner review. figured on rate 3% applicable the year 23(1) life for statutes are thirty-three a and Sec. third a 1, 1940, parties (B) the Sec. the Internal building. January (1) As of and of Code, Int.Rev.Code, agreed (26 Revenue for U.S.C.A. allowance upon fifty year 23(1), 113(b) pro- (1) 23(1) be life. Sec. (B). should a §§ part: vides in above, the income taxes for As indicated
years 1940, computing in- 1941 and 1942 “Sec. 23. net income there .at preciation was taken. of for volved. Our an depreciating adjusted three and a basis the half on remaining twenty-five is: How years, December building, to arrive no de- view ance for property * shall be allowed “(J) [*] Depreciation. ,” the used in [*] exhaustion, H* the trade deductions: - A [*] reasonable allow- wear and tear of [*] or business [*] part: Sec. 113(b) (B)-reads in and the de- The Commissioner 'the -$165,000 cost, 764.43. Under the smaller none was 814.43, preciation had the three to be calculated on the preciated er’s base life of ducted from covered cost of rate should be ciation reserve ods in sive, end 1939, aggregate er insisted that The Commissioner asserted that the $131,565.96 $18,406.36, tax less. building rate been $13,801.53. is used insistence, all 1941 and 1942 would be with a total used, thirty-three base, rate is claimed cost on December and a half taken, would, 1918-20 be used rate of had since both but determined deficiencies for which allowance for used, used, $131,565.96 $9209.60 a and since aggregate $113,059.60. of they and for under life of period recovered taxpayer’s claim, and allowed. The calculation should be 3% years (six had been claimed for since calculating facts known at failed parties agree on December the Commission- on fifty for which none third 31, 1939, 1921) had would cost the 1922-39, If cost the tax the tax If the 3% years. larger a months cost using agree supposed in which supposed total re- taxpay- depre- would larger $117,- inclu- unde- price peri- $13,- de- If be made— properly allowable pletion, tear, ** ** ciation allowance” than the amount in éffect after under take ever R. ruary 28, 1913, exist sale chapter or for on the basis (1)-1 (Italics ours.) “ * * * Treasury “(b) Adjusted providing “ * * * “(B) “(1) respect Ill), provide determining [******] acquired, advantage provided. obsolescence, amortization, and de- (and , * The determination subsection to take General Rule. in T.R. prior income respect Regulations Regulations 103, “Method disposition of facts The reasonableness of any A end shall-be extent allowed any depreciation same section in Ill) basis. "The property (a), shall, however, part: allowable) (and gain or exhaustion, any period provide reasonably known to adjusted tax laws. Proper adjustment of 103, Sec. is not computing the same shall property, adjusted 19.23(1)- Sec. loss (but permitted of his effect in T. in all the amount under determined as herein- part: since Feb- allowance. wear and * * * be made not less period. section when- cases ” 1940-1-2. shall following claim for determined lOlá (l)-5 exist at since known to tions since 1934 Sec. 19.23 the conditions statutory is 1921, during the return sec- which time period repeatedly with- tions been re-enacted made. have change. out *3 wider the permitted "A not 79, Winmill, In U.S. Helvering v. 305 his advantage in later to law take 83, 52, 45, 46, S.Ct. L.Ed. was said: 59 83 it depreciation al- any to take. ours.) (Italics “Treasury interpretations lowance. regulations and long change, continued without substantial in insists that utiliz- The Commissioner applying substantially re- unamended erroneously rate, Tax Court ing the statutes, enacted have deemed to re- are There apply regulations. failed to congressional approval and ceived have decision indi- nothing in Court’s of law.” the effect regulations at cating it considered Moreover, appears affirmatively it
all. considering 1932 in amendment Sec. Commission- Co. v. Fertilizer In Mutual (1) Senate Com- (B), the Finance opinion made'no er, majority supra, the Sess., mittee, S.Rep. 1st Congress, 72nd and that regulations reference to report p. approved regulations. Its appears from only all them considered part: appears in dissenting opinion of statement to-wit, thought I sit- not “As view this “Your committee nec- Judge Disney, has provision uation, opinion any express .majority disregards essary to include invalid; adjustments of without.saying against it is regulation retroactive » $ * # Treasury as part on the ciation adequate regulations of seem opinion simply majority In that case taxpayers protect the interests stated: require regulations such cases. These twenty-year in which a “The is one case allowances applied period1 mistakenly useful life then accordance proper appears now in 1934 permit facts, known and do not a retroac- thirty-three years. span times life all atwas change reason tive in these allowances it must be we think circumstances developed facts or ascertained after for ‘allowable’ held that the years by allowances .which such computed -the should be made.” period.” longer life useful Since claim for no opinion The concluded: depre was made 1915-16-17and “However, under the circumstances question pre was “allowed.” The ciation present, for the allowable is, what therefore sented open years use- the shorter answer found Sec. “allowable?” should, think, give way ful life we to that (1)-1, T.R. to wit: computation under a allowable prop- “The determination span.” the corrected erly allowable shall be made on whether the decision of the reasonably known to the basis of facts ex- accordance with Tax Court is in law period.” ist at the statutes, provisions of the tested language refers to conditions This known regulations, pre clearly especially of the existing the time and those as- Bingham v. Commission sented. Trust later, and the Tax Court certained er, 365, 370, seq., 65 325 et S.Ct. U.S. gave regula- disregarding reason 1670; Kelley Co. v. Com L.Ed. John permitting conditions ascertained tion and 299; 521,66 S.Ct. Dob missioner, 326 U.S. control and hence son v. U.S. S. the amount 239, L.Ed. 248. Ct. those Appeals, statute, Court 113(b). (B), The Circuit Sec. 19,113 reversing decision since 1932. Fifth Circuit been effect Sec. has Commissioner v. Court in Mutual regula- included in the Tax has (1)-1 been (b) not, counting period), Co., supra, 159 F.2d been has said Fertilizer “hindsight.” said: decision of is re- Tax Court lies “The error of The appears’, years versed and the cause majority’s it ‘now remanded for further view that proceedings ‘al- periods herewith. after the end of inconsistent determined, that must lowable’ amounts' SIMONS, Judge Circuit (dissenting). useful was the foreseeable is and plant The crucial life of the assets. factor I regret I am unable concur. appears’, is not ‘then what ‘now hut what I press am not of While those who would *4 appeared’ plant; the to he the the logical Dobson illogical useful life of doctrine is, that and reasonably what was known extremes, or who complacency view with end each ascertainable at the growing tendency of of subordinate periods reasonably great system of foreseeable constitutional courts ad- plant.” tribunals, ministrative useful it nevertheless life is of clear that the use- me determination of See also Goss DeLeeuw Mach. Co. & v. property ful life of one of fact within D.C., States, F.Supp., United 53 competence and province of exclusive Indeed, Supreme Virginian Court in Court, post-Dobson Tax whether in the 523, Corp. Helvering, Hotel 319 v. U.S. pre-Dobson era. 525, 1261, 1561, 1260, 152 63 87 L.Ed. S.Ct. When, 1915, building here involved 871, preliminary to A.L.R. discussion constructed, was it was assumed have a question, its of the main consideration years deprecia- useful life of so and 33% abundantly clear makes it that the amount by year tion was taken in each tax its sev- n “allowable”for depreciation must be taken eral at rate of owners 1940 it 3%. n “each year.” quote: We agreed assumption was that this was erron- “ * * * upon depre- basis The which eous building had a life and the useful of ciation is to be is the cost of ‘allowed’ years, 50 allowable with an annual property proper adjustments de- Depreciation ciation of this rate 2%. preciation (but not ‘to extent allowed 1940, was claimed 1941 and allowed and allowable) less under this than amount found, however, compu- 1942. It was pro- Act or tax laws.’ That income depreciation tation base, that depreciation plain vision that the makes it 1915, 1916, years half of and the full 1917 by amount ‘allowable’ reduced depreciation and had been claimed. not each whether or is claimed. taxpayer, accepting of the rule Vir- Moreover the be re- basis must ginian Corp. that Helvering, Hotel v. by though that duced amount no tax even by must be reduced base de- benefit results from the use of ductions allowable de- .as a deduction. and tearr do wait Wear not claimed, ductions were reduced the base cm net income. Nor can be open deductions from for the .accumulated and held for use in that of Commissioner asserted 2%. bring in which it will the most years. rate for those is- When the Congress has tax benefit. to make elected sue reached the Tax that tribunal had * * * .the the unit taxation. of first, circumstances, before it two Thus ‘allowable’ must he taken prospective of project- useful estimate year. (Italics each ours.) ed and an agreement second Ludey, See discussion in United States v. and 1940 between Commissioner 274 47 S.Ct. was, U.S. L. 71 that the useful life the building 1054; Kittredge fact, Ed. It made a finding, indicated 632; Cir., 88 F.2d States Syllabus United Industrial 2 of opinion, its the de- Helvering, Cir., Alcohol Co. v. preciation open 137 F.2d sustained And if is to be tak sustained rate at the rather than perforce year, up 3%, it must following en taken its own decision in Mutual understanding value, Company, on the basis of Fertilizer T.C. 1122. While (at .existing the end finding something at that time ac- in explicitness, lacks Co.urt, that the now finds perfectly it .is clear , of drawing experience, culminating infer- in the is committed- which n facts, agreement evidentiary concluded actual de- enees preciation always during open a useful had had that the course, includes years, life of 50 3%. involved, open My however, argue, brothers that this reasonably known or ascertainable fact was “hindsight,” must con- greater de- year. of each sidered understanding an preciation allowed deducteÜ existing value at the end of each annual course, beyond reach years was, of period. or accounting But a consideration Internal (lj (B) of the 113(b) reason óf § always of. deductions must ' Int.Rev.Code, Code, U.S.C.A: Revenue hindsight cannot be If a otherwise. —it applied .interpreted and (B), § is claimed in a tax return n case. Virginian Hotel challenged, an deprecia- allowed tion, must, it is tljat not claimed it never- urged by brothers my is now —if It *5 theless, allowable, to the extent be deducted drawing precluded .from Tax-.Court from the' But base. this as- inference, by Treasury Regulation did only certainment involves the base for tak- 19.23 T.R. 111 and .(1)-1, § § ing in subsequent years and is determi providing that the first (l)-5, the subsequent years. made in ap- This would properly allowable of the nation pear beyond to be dispute. So the- of facts reason shall made on came to consider Commis- the tax end of ably to exist known at deductions, sioner’s challenge preclud period, second, able - by present claimed taxpayer in the advantage in taxpayer taking from ing the. inclusive, 1940 1942 any it became nec- to take of his essary for the Tax Court to determine- The failure depreciation allowance. what was the actual in the- regulations is apply these Tax Court open years tax periods each court a this present said to This did, we must assume or else ex- law., . and; pertness in accounting, interpretation Doug- out was Mr. pointed It Justice valuation, with which the Supreme Court case, Virginian that under Hotel las in.the eloquently case, so credited it in the Dobson system there is machin- tax no our federal has no foundation in fact. It is inconceiva- of deductions ery for formal allowances with, ble that Tax Court was unfamiliar stand, if gross income. Deductions ignored Regulations, es- steps chal- takes no the ..Commissioner pecially in Disney’s Judge view of chal- -them, challenged- and if are lenge -they lenge Mutual It Fertilizer case. liability they allowed, since tax is then present noted that must be decision is. returns, the basis of determined on court a unanimous and the conclusion apart cases that is the- from contested inescapable the determination of only way in are “al- which deductions open allowable deductions at in the .said of allowed deduc- lowed.” What was reasonably facts more applies even to “allow- forcibly tions readily known ascertainable the end .,Up to the time of the able” deductions. open years here involved. challenge present , and when Commissioner’s no There -accumulation there was reached the case to be held subsequent ciation for use ain deduc- determination when it bring would during open The deduc- tions more taxable benefit. other here- tions claimed in ignoring does involve in the standing unchallenged by the deductions Commission- open years. simply except ap- It limited er,. had forecast of decision, plicable rate. Tax Court’s assumed to be cor- useful life eminently just when, result and Mr. reaches an of actual until rect dissenting observation in found to inaccurate. experience, it was Justice Jackson’s applies case Hotel Virginian ques- “The there. here than force greater Whether simply this: comes tion determining whether Commissioner, upon erred, may use faith good has helps Gov- in so far correction in so far mistake to the adhere
ernment that no taxpayer. 1 think injures the as it construc- to find be done straining should support re- will statutes
sult.” right and Tax Court
I think the affirmed. should
its decision
STRAUSS UNITED STATES. 103, Docket 20359.
No. Appeals, Second
Circuit Court Circuit.
April *6 Denied
Writ of Certiorari June
See