Commissioner of Internal Revenue v. D. B. Anders
414 F.2d 1283
10th Cir.
1969
Check Treatment

pay both Aetna contracts conclusion in termined ly on a construction Court’s neither of which regard furnished for all to memorandum covered that Aetna, materials and Continental regard for construction Aetna by the District appear the directly the to was respective the two obligated record. or liability underlying was Court indirect- that bonds, based the de- its In to ing’ the claimant a of Civil upon and the notice [*] claim’ that will ‘short [*] contrary, is made which [*] of what grounds Such to set Procedure he all plain possible by simplified the out bases give the Rules upon plaintiff’s do not statement detail his claim. To which * * ‘notice the require *1 require the it claim is * liberal plead- rests. facts fair the is a opportunity discovery building Wes- the contract between and the since Light ley pretrial procedures was & Power and Florida established incorporated precise- reference. into the bond the Rules to disclose more liability ly However, denied Court the basis both claim and the defense provision ground narrowly and to that the define the dis- bond on more * * * incorporated puted was facts the contract which issues. designed reject approach Federal Rules into the bond that appel- game parties pleading a third such as is benefit of skill Continental, misstep by Dis- regard may one to lant. In counsel be decisive that, accept con- principal outcome trict determined to the Court also purpose to- struing pleading contract and the bond that is party proper gether, appellant third was not a facilitate a decision beneficiary the bond. or merits.” contract record, there in the Without the contracts ap- We feel that under this standard support the District Court’s basis to allegations pellant’s than more suf- regard judgment Aetna either ficient to withstand motion to a dismiss. Continental. Therefore, foregoing for the reasons judgment of the District Court appellees al have Each pro- reversed and remanded for further judg argued any event so ceedings inconsistent with be Court should ment the District opinion. appellant to set failed because affirmed complaint essential certain forth in its Reversed and remanded. appellees.

facts enumerated appellees

Specifically, contend judgment af should District Court’s allege appellant failed firmed because Light on the Florida lien it had a right property or it had & Power necessary had taken the lien opin protect steps are of it. We COMMISSIONER OF INTERNAL REV pleading ion, however, that such detailed ENUE, Petitioner, required specific facts is v. Gibson, Conley Federal Rules. ANDERS, Respondent. D. B. 47-48, L.Ed. 78 S.Ct. No. 9987. rejected Supreme (1955), the 2d 80 Appeals following United States Court of a similar contention Tenth Circuit. language: June argue respondents also “The specific complaint to set forth failed Rehearing Aug. Denied allega- general support its facts * * * dismissal and that tions an- proper. The decisive is therefore Rules the Federal this is

swer to *2 Atty., Dept. Graney, M.

Melva Justice, Washington, (Mitchell D. C. Rogovin, Gen., Atty. and Lee A. Asst. Meyer Attys., Rothwacks, Jackson Justice, C., Washington, Dept. of D. were brief), petitioner. with her for City, Hahn, Mo. J. Glenn Kansas (Hoskins, King, Springer, McGannon & King Hahn, and B. and Walter Harlow Kennedy, Davis, J. & Graham Denver, Stubbs, Harry, and Robert H. brief), Colo., were with him on the respondent. PICKETT,

Before Circuit Senior Judge, HOLLOWAY, and HICKEY and Judges. Circuit Judge. HOLLOWAY, Circuit challenges petition This for review against decision the Government Tax Court Anders T.C. issue involved for rental whether amount received apparel, like items of towels preceding corporate a sale of assets May from the erties of On liquidation was a Service. Service’s complete provisions passed of directors and stockholders resolu- property within sale approving Code tions Revenue the terms of sale and Internal non-recognition adopting plan complete of 1954 pursuant May of such 337. On corporation where agreement fully expensed executed a when written of sale items had been *3 gain purchasing such with the individuals the busi- purchased, or whether were acting ordinary ness ly income who were in of a behalf new- as taxable was corporation principles. corporation formed Kansas also known tax benefit under Inc., Cleaners, due as that Service Industrial contends The Government through purchasers when desired to car- obtained the tax benefit charges made, ry May on were expense business. On 22 and accounts ordinary question as items in gain treated and sub- should be stantially taxpayer1 maintains all of Service’s assets were The income. apply purchasers. Compliance by and sold to the principles do tax benefit gain requirements the sale Service only from with the there was § non-recognition complete liquidations for such is not property- dis- puted. The liquidations. on provisions of 337 § taxpayer’s sustained Tax Court agreed In the terms of sale Service position. purchasers specific with the on consider- the fol- undisputed show facts paid ation to be for the of rent- Cleaners, lowing. Industrial Service question al items in specified and also corporation Inc., (Service) Kansas awas paid consideration to furniture, for be providing a engaged in the business realty, goodwill and accounts receivable. towels, seat of laundered service rental purposes For the of this it is materials, dusting wiping covers, and reported sufficient to note that Service items coats, other coveralls, shirts and gain $446,601 from the sale of all life of a useful apparel. had The items such non-recogni- and claimed longer de- or somewhat 18 months 12 to gain tion of gain under 337. This Serv- them. pending the use made on $233,000 included received for the rental cleaning general and on a ice also carried laundering items in fully use whose cost had been items for business expensed giving them a zero It basis. laun- industrial an others owned is disposition from of the rental tax income dry For business. items says in use which the Government charged the full purposes Service should ordinary be taxed as income due expense items described to tax benefits obtained when the cost end At the purchased. when accounts of the pense charged rental items to ex- expense accounts years the of its tax purchase. The tax return of of items credited Service in issue was on an accrual basis. year. The during the placed in service position essentially Government rental replacement cost expensed exceptions 337 carries the same annually. $200,000 ran about items and gains applicable capital limitations propriety dispute toas no There is general- treatment under the-Code charges. of these ly, which is shown similar definitions Anders, 1961, respondent May, In in capital 337 and of assets directly or of Service owner of the stock in statutory provi- agreement nominees, through an sions;2 prop- exceptions that such de- the business include sale of for the respondent 2. undisputed Anders 337 of the Internal Revenue Code of It provided pertinent part: in in distributions received a stockholder as against deficiency “SEC. 337. Gain or loss on sales asserted excess exchanges as liable corporation be connection would with certain liquidations. corporation is liable if the transferee (a) deficiency. General Rule.- —If— imposing ordinary any event, income taxa- cisions deductions taken an rule where under the tion items of the rental gross income amount deducted depreciation were in the nature deduc- year; later is recovered in a one subject recapture. tions and not that under these rejecting conten- Government’s disposition of from the tions the Tax Court stated: ordinary income should against purchasing expense of which the “Assuming, purposes for the of this charged; where the items was case, question rep- amount apprecia- representing there is recovery expenses resents is no basis afford- tion value there previously gross deducted from income ing as a the transaction treatment corporation re- and that such non-recognition entitled *4 to covered amount would taxable taxpayer’s position in substance The corporation recovery in the of constitut- sale of items there was a circumstances, under other it is never- ing property definition broad within the theless to which resulted the cor- by not covered of term in 337 and poration from the of all assets sale its exclusions; specified the tax its pursuant plan complete liquida- to a of application, limited benefit cases are of nonrecognizable tion and to the cor- assignment anticipatory involving those poration provisions sec- of by the on of income others relied and 820-821) (48 that, tion 337” T.C. at being inapposite; and Government part providing plan adopts corporation In the of the 1954 Code (1) a of a Capital Determining “General complete liquidation Rules In after June on or Losses,” provided 22, 1954, And in Gains pertinent part: 1221 and period begin- (2) 12-month within the Capital adoption “SEC. 1221. asset defined. ning of of the such on the date purposes subtitle, corpora- For of this the term plan, all the assets of the of ‘capital by property liquida- means complete asset’ held in are distributed tion taxpayer (whether claims, not tion, or connected meet less retained to assets recognized business), with his or but trade does loss shall be or then corporation include— or ex- from the sale such to change (1) taxpayer by property in or stock trade of the 12- within such it of property other of a which period. kind would month properly inventory Property (b) be included in Defined.— purposes if at (1) of on hand the close of In sub- General. —For year, property ‘property’ or (a), taxable held term does section taxpayer primarily for sale cus- include— ordinary corporation, (A) tomers in the course of his in trade of stock business; property trade or of a kind which would or other (2) property, properly used in trade or his busi- of be included in ness, subject corporation of a character which is if on at the hand close provided depreciation year, property the allowance for held the taxable and of by 167, property primarily in corporation section or real in used for sale business; ordinary his trade or course of its customers in (3) copyright, literáry, business, musical, a a or trade acquired composition, property, obligations artistic (B) or similar installment ” * * exchange (with- respect held the sale or in —* regard whether sale or ex- Government also relies 111 out imposed before, on, change the 1954 Code or after the which certain occurred application adoption plan restrictions on of the tax ben- referred date provision (a)) rule. in efit This is said evi- of stock trade in subsection legislative approval subpara- property in dence decisions described or other graph fashioning paragraph, (A) rule. is also Reference of this ruling obligations acquired a (C) made to denied treatment installment liq- non-recognizable gain (other property respect in a § as 337 than coal, involving plumb- (A)) subparagraph uidation the sale of sold or described supplies adop- ing exchanged and small tools. See Rev. the date of before ” * ** 61-214, liquidation. plan Rui. 1961-2 Cum.Bull. tion of such

1287 Savings interpret 337 as Citizens Federal & Loan See do We transac special Association Cleveland v. United having effect on States, If finds. F.2d 154 305 290 Ct.Cl. the Tax Court tion which (i.e., (1961), Bank circumstances” West Seattle National “under question with Seattle v. 288 F.2d 47 sale of (9th 1961). liquidation) tax benefit Cir. out a § have would similar rule and turn to a consideration of such from the sale made the principles. this case under income, ordinary taxable question items in had a zero ordinary taxable as should also be fully basis and their had ex- been Congress dealt income here. pensed its problem taxation on with the income tax returns deduc corporation stockholders both tions were taken therefor Service.5 subsequent sale of assets and where a recovery In similar circumstances arising occur, the de property by was treated as Hold cisions Commissioner v. prior charitable deduc ing Co., S.Ct. tions and as taxable income. Phel Alice (1945), United L.Ed. 981 States Corporation States, an Sullivan v. United Co., 338 U.S. Cumberland Public Service 399, 402, 381 F.2d 180 Ct.Cl. 659 (1950).3 L.Ed. 251 S.Ct. charging In view of Service’s the full *5 provide employed means was to And the expense, cost of rental items to the the “ non-recognition * gain * * to the of the increment realized in this (as corporation on of the sale beyond adjusted area over and basis does liqui 337) by its it before defined in represent any not capital § then in of used definition The statute dation. asset value.” West Seattle National parallel of property in as 337 supra Bank of Commissioner, Seattle v. More 1954 sets in 1221 of the Code.4 288 F.2d at 49. The West Seattle case in over, provision in the statute is no there volved the transfer of loans at receivable ap showing or bar the an intent to alter face recoupment thereby value with af plication in of tax prior cases under 337 charges. fected of bad debt principles other logic fashioned under benefit conclude that the of tax benefit Therefore, provisions principles here, applies we despite of the Code. various principles suggested are conclude that distinctions between Service’s statutory applicable existing here as under case and tax benefit decisions. provisions principles proceeds no Under and intended such 337 the of the disregard properly cases. rental in them items should be treated as Cong., conducting S.Rep.No.1622, 83d 2d Sess. the 3. aforesaid See rental service ; H.R.Rep.No.1337,83d Cong., (1954) At 258 business. the end of each taxable Pridemark, ; expense (1954) Inc. A106 2d Sess. accounts were credited Commissioner, (4th ending Cir. F.2d 35 v. 345 costs Kuckenberg, 1965) ; placed items v. had and Commissioner which not been in serv- 1962), denied, (9th year. ice at 202 cert. the end of 309 F.2d Cir. such taxable 909, 1296, Buyer, the sale 83 10 L.Ed.2d 373 U.S. S.Ct. business herein- paragraph hereof, after referred to in 411 8 $233,000 the sum of of the consideration supra, Commissioner, 4. v. See Pridemark paid was allocated for the items use.” 45, National F.2d at and Merchants 345 opinion states, The Tax Court T.C. 48 Commissioner, F. Mobile 199 Bank of v. at 823: (5th 1952), applying the tax Cir. 2d 657 “Respondent questioned pro has not gains denying capital rule benefit priety expensing items when predecessor 1221. treatment purchased, or the fact that stipulation parties 446(a) in- (c), of the 5. The written inventoried. I.R.C.1954; See sec. following paragraph: 1.446-1(c) (iv), cluded sec. Income purposes Regs.; I.R.C.1954; income tax Tax For Federal “6. sec. 471 sec. expense charged 1.471-1, Regs.” accounts Income Tax Service purchased items used when 1288 charges. expense contends further See charges expense Corporation v. were the same Alice Phelan Sullivan subject depreciation States, supra; as is not Citizens United recapture, proceeds Savings of Cleveland Loan Association & States, supra; rental items should Seattle be United West v. depreciated from a sale Bank of Commis above a basis National v. Seattle zero, Naviga relying Fribourg sioner, at supra; First v. Commissioner 1004, Co., Commissioner, Stratford, tion Inc. F.2d v. 383 168 Bank State 272, 1948), (5th 862, 86 L.Ed.2d cert. S.Ct. 15 751 A.L.R.2d 738 Cir. 137, (1966).7 Fribourg However, denied, case 335 U.S. 69 S.Ct. emphasizes (1948); follows National such treatment L.Ed. 412 Merchants Commissioner, supra depreciation use of tax Bank v. method ac of Mobile counting dealing (taxing proceeds of sale and tear or 199 F.2d with wear at charged gradual basis); expiration of notes zero of the useful life off to a property. Eugene Jr., 862; Monday, T.C.M. at 86 S.Ct. William Id. Monday C.I.R., per curiam, West Seattle National Bank of v. affirmed Seattle 1958), (6th supra F.2d at cert. 252 F.2d 789 Cir. denied, comparisons may While some 358 U.S. 79 S.Ct. drawn depreciation charges Faidley, (1958); Lloyd between L.Ed.2d 112 H. expense purchase (1947).6 at T.C. 1170 items, conclude that we sub maintains stance the methods are not the same. may apply since By charging expense full literally question come rental items general meaning items at disposi Thus, argued, capitalizing them, it there was real of the rental depreciation tion employed coming method sale from the be treated as must Fribourg qualify within the case so as to *6 agree. The fact property. do not of We disposition the items of rental the disposition transaction that a involves gain treatment as from a sale above de a compel of not treatment does of preciated basis. There nowas realization gain trans proceeds as such a from

the appreciation of entitled value Co., Motor Commissioner Gillette fer. v. treatment. Commissioner v. Gillette 130, 134, 1497, 4 L.Ed. 80 364 U.S. S.Ct. Co., supra, 134, Motor 364 at 80 (1960); Eid v. United 2d 1617 States 1497; Savings S.Ct. Citizens Federal & 111, (5th son, Cir. 113-114 F.2d 310 Loan Association of Cleveland v. United grounds, 1962), 312 modified on other States, supra F.2d 290 at (5th 1963); Seattle F.2d 744 Cir. West of v. Commis Bank National Seattle taxpayer says, controversy As the the supra; Dyer sioner, cf. v. clearly by any is not decided of these cas- 1961) (10th Com F.2d 294 123 Cir. However, recoupment es. the the Bank Strat missioner v. First State charges reasonably involved here comes ford, Instead, supra. that we conclude principles the tax benefit and sim- principles treatment call for tax benefit cases, ilar 337 does not alter or bar proceeds the sale the not as application. their In these ordinary circum- property, income but as purchase. stances we do not on its believe that deducted treat- which was Reynolds Boos, argu- 7. In view of 26 188 F.2d U.S.C.A. see 6. But 1951). Moreover, dispositions (8th seems the Anders ment foreclosed oc- Cir. curring years beginning opinion tax and such taxable has been followed after Spit- inapplicable depre- involving December held decisions benefit F.Supp. alny States, ciation after deductions taken v. United December case (D.Ariz.1968), a § 337 expenses involving charged cattle off supplies. and similar feed placed in- had not at non-recognizable was been service ment as year. end of In the sale such taxable Congress. tended Buyer, hereinafter of the business is reversed. decision hereof, paragraph to in referred $233,000 sum of consideration FOR PETITION DENYING ORDER paid was allocated for items REHEARING use.” stipulation, have considered the petition for considered We have findings Tax to the same ef- rehearing raises it and conclude fect, the related facts and all the cited are These comments issue. material new regulations. Accepting proposition among contentions, made due Service’s Treasury Regulation 1.162-3 was ref- others, was based that the taxpayer’s expense not the basis regulation to an incorrect erence charges, any the result is the same. pertinent alter- did not discuss it event items was theory. native fully expensed at and tax de- expensing argued regulation It is therefor ductions taken. The was not items permitting the deductions is not control- Regula Treasury ling. 1.162-3 of Therefore, opin- under § as stated in the dealing Tax ion, on Income tions we conclude that under originally stated Materials” as “Cost of received for the taxpayer Instead, opinion. in the properly rental items should opinion of in the to the statement prior refers deductions “Respondent has that: the Tax Court and as taxable income. expensing propriety questioned It is also al contended that an purchased, or the rental items when theory ternative was they See were inventoried. fact argument considered. The is that if the (c), I.R.C.1954; 446(a) sec. sec. not treated as are Regs.; (c) (iv), sec. Income Tax 1.446-1 337(b), under then are entitled to I.R.C.1954; 1.471-1, Income sec. prop treatment as stock in trade or other Regs.” 1.162-3 at 823. Tax T.C. erty includible in brief, but cited the Government was (b) It is said that since the items proof it record find no we person sold to one in one transac regulation relied Service. tion the is still entitled to non regulations Tax Court have cited recognition 337(a). under § *7 general provisions inventories theory strengthen The does Serv- expense ac of the method for use cash position. ice’s dealt We with the conten- method counts an accrual literally tion that items come (which was) do and others which Service general meaning property within the apply. therefore consider what We ef opinion stated, theAs we con- regulations applicability fect clude that fact that a transaction in- may the Tax cited Court have. disposition property volves the findings, note the Tax Court We meaning compel 337 does not 816-818, in re-stated 48 T.C. at substance proceeds treatment of it as parties: following stipulation of the property. from a transfer pur- reasoning applies income tax same if “6. For expense meaning charged poses as within the (b) (2). purchased Where the cost of accounts when fully conducting expensed afore- the items used deducted for tax purposes, At tax said service business. benefit reasona- bly expense call for end of each taxable treatment of the prior charges the costs credited with and or- accounts were dinary ending inventory By Congress of items which income. prin- no intention discard such showed

ciples. substituted is corrected

pages 8 to omit reference to 3 and Regulation Treasury also 1.162-3. We statement, which one followed omit opinion, that the the Tax agreed parties trade, et cetera. This is done stock

to show that the has asserted theory 337(b) alternative

(2), discussed above. grounds conclude neither the urged nor others warrant

discussed above rehearing altering the decision. The rehearing

petition denied. MACON,Appellant,

Willie Charles America,

UNITED STATES of Appellee.

No. 23201. Appeals

United States Court of

Ninth Circuit.

Aug. *8 Macon, pro. per., ap-

Willie Charles pellant. Davis, Atty., Edward E. U. S. Law Turoff, Atty., Phoenix,
rence Asst. U. S. Ariz., appellee. HAMLIN, Before MERRILL and
ELY, Judges. Circuit