Source: https://law.justia.com/cases/federal/appellate-courts/F2/434/373/246487/
Timestamp: 2020-04-01 12:35:51
Document Index: 298630356

Matched Legal Cases: ['§ 23', '§ 311', '§ 311', '§ 311', '§ 280', '§ 7442', '§ 297', '§ 273']

Transport Manufacturing & Equipment Company, a Delaware Corporation, Transferee, Appellant, v. Commissioner of Internal Revenue, Appellee.transport Manufacturing & Equipment Company, an Illinois Corporation, Appellant, v. Commissioner of Internal Revenue, Appellee, 434 F.2d 373 (8th Cir. 1970) :: Justia
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Transport Manufacturing & Equipment Company, a Delaware Corporation, Transferee, Appellant, v. Commissioner of Internal Revenue, Appellee.transport Manufacturing & Equipment Company, an Illinois Corporation, Appellant, v. Commissioner of Internal Revenue, Appellee, 434 F.2d 373 (8th Cir. 1970)
U.S. Court of Appeals for the Eighth Circuit - 434 F.2d 373 (8th Cir. 1970) October 1, 1970
As Amended On Rehearing November 5, 1970
COPYRIGHT MATERIAL OMITTED Guy A. Magruder, Jr., Kansas City, Mo., for appellants, and filed brief and reply brief.
It is argued that the Commissioner produced no evidence of his own to demonstrate that the amount paid Richard as president of TM&E was unreasonable compared to similarly situated executives of other companies. However, this contention overlooks the essential issue. In dispute is not the salary of simply the president of a corporation, but rather, the salary paid to Richard as president. The Tax Court properly considered Richard's prior salaries in comparison, his lack of qualifications and executive experience, his virtually non-existent authority, and the basis of his compensation computation. Standard Asbestos Mfg. & Insulating Co. v. Commissioner, 276 F.2d 289 (8 Cir. 1960); Heil Beauty Supplies v. Commissioner, 199 F.2d 193 (8 Cir. 1952); Helvering v. Superior Wines & Liquors, 134 F.2d 373 (8 Cir. 1943); Julia Dahl et al., Executors, 24 B.T.A. 1167 (1931); Meyer Hecht, 2 B.T.A. 319 (1925). Cf. Robert Louis Stevenson Apartments, Inc. v. Commissioner of Internal Revenue, 337 F.2d 681 (8 Cir. 1964); Baltimore Dairy Lunch, Inc. v. United States, 231 F.2d 870 (8 Cir. 1956); Oscar Mitchell, 27 B.T.A. 101 (1932). We are satisfied there is nothing in the record which demonstrates the Tax Court's finding to be clearly erroneous. United States v. United States Gypsum Co., 333 U.S. 364, 394-395, 68 S. Ct. 525, 92 L. Ed. 746 (1948). See also Jackson v. Hartford Acc. & Indem. Co., 422 F.2d 1272, 1275 (8 Cir. 1970) (concurring opinion).
Although conceding that payment of utilities and salaries of household employees were of substantial benefit to the occupants, the taxpayer contends that insurance, depreciation and identifiable maintenance costs should be deductible under § 23 of the 1939 Internal Revenue Code. Section 23(a) (1) (A) authorizes deductions for " [a]ll the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *" Section 23(l) authorizes deductions for the depreciation "(1) of property used in the trade or business, or (2) of property held for the production of income." The Tax Court found the evidence affirmatively established that the property had no business use in conjunction with TM&E's leasing rolling stock and terminals to Riss & Co. We agree.
During the tax years in question the residence was used for the periodic occupancy of Riss, Sr.'s former wife (divorced in 1949) and their daughter and son Richard, Jr. Taxpayer contends the use as a family residency was at the recommendation of the real estate agent who advised the company that an occupied house would sell better. While the property was purportedly listed confidentially with several realtors, there was other evidence produced by the Commissioner which disputed TM&E's good faith attempt to sell. The home was shown only about eight or ten times in ten years. The rental proceeds amounted to a mere one-fourth of the deductions sought. TM&E purchased no similar "investments" which were not occupied by members of the Riss family. A combination of all of these factors fully justified the Tax Court in finding that the primary motive in owning the property was not for business or investment purposes but rather for the personal benefit of the Riss family. See e. g., Mel Dar Corp. v. Commissioner of Internal Revenue, 309 F.2d 525 (9 Cir. 1962) cert. denied, 372 U.S. 941, 83 S. Ct. 933, 9 L. Ed. 2d 967 (1963); International Trading Co. v. Commissioner of Internal Revenue, 275 F.2d 578 (7 Cir. 1960).
The taxpayer additionally asserts that the only direct evidence on the investment motive was from the Riss family and that the conclusion reached by the Tax Court was not permissible under the undisputed evidence. As the government points up, the trial court is not conclusively bound by the taxpayer's stated intention. Helvering v. National Grocery Co., 304 U.S. 282, 295, 58 S. Ct. 932, 82 L. Ed. 1346 (1938). See also Investors Diversified Services, Inc. v. Commissioner of Internal Revenue, 325 F.2d 341, 350-352 (8 Cir. 1963); Midland Ford Tractor Co. v. Commissioner of Internal Revenue, 277 F.2d 111, 115 (8 Cir. 1960), cert. denied, 364 U.S. 881, 81 S. Ct. 169, 5 L. Ed. 2d 102; Seletos v. Commissioner of Internal Revenue, 254 F.2d 794, 797 (8 Cir. 1958); Cullers v. Commissioner of Internal Revenue, 237 F.2d 611, 615-617 (8 Cir. 1956); Heil Beauty Supplies v. Commissioner of Internal Revenue, 199 F.2d 193, 195 (8 Cir. 1952).
Both terminals had been built upon unstable ground and required extensive replacement and rebuilding within one year of their completion. The evidence is undisputed that the resultant deterioration was not the effect of normal wear and tear but rather the consequence of faulty construction. It has been observed that, "Where the line should be drawn between capital and current expenses often presents a practicable question of considerable difficulty and the decision of the Tax Court in such a case should not be disturbed unless manifestly wrong." P. Dougherty Co. v. Commissioner of Internal Revenue, 159 F.2d 269, 272 (4 Cir. 1946), cert. denied 331 U.S. 838, 67 S. Ct. 1515, 91 L. Ed. 1850 (1947). Upon a review of the record, we affirm the Tax Court decision that these expenditures constituted a part of the original construction and as such must be capitalized. See e. g., Stewart Supply Co. v. Commissioner of Internal Revenue, 324 F.2d 233 (2 Cir. 1963); Stoeltzing v. Commissioner of Internal Revenue, 266 F.2d 374 (3 Cir. 1959); Jones v. Commissioner of Internal Revenue, 242 F.2d 616 (5 Cir. 1957); Driscoll v. Commissioner of Internal Revenue, 147 F.2d 493 (5 Cir. 1945); Wadsworth Mfg. Co. v. Commissioner of Internal Revenue, 44 F.2d 762 (6 Cir. 1930). See also Griffin & Co. v. Commissioner of Internal Revenue, 389 F.2d 802, 182 Ct. Cl. 436 (1968).
"When, therefore, it becomes necessary to consider the scope of the system of jurisprudence as to transferee liability, set up for the first time in the Revenue Act of 1926, section 280 et seq., Phillips v. Commissioner [of Internal Revenue] 283 U.S. 589 [51 S. Ct. 608, 75 L. Ed. 1289], there is no justification for confining such system within an assumed general purpose to keep interest out of the Board's focus. Unhampered by such a restriction, it is clear that as to a transferee the Commissioner may determine a liability not only for a deficiency but also for `interest, additional amounts, and additions to the tax provided by law,' and that such a determination is subject to the same process as the determination of a deficiency, that is, a proceeding in the Board for redetermination. Section 280(a), Revenue Act of 1926, appears in the margin. The Board has, in several earlier decisions in transferee proceedings, included interest in its determination, Henry Cappellini, 16 B.T.A. 802; Wayne Body Corp., 24 B.T.A. 524; Louis Costanzo, 16 B.T.A. 1294; J. E. Duval, 21 B.T.A. 1357. A fresh consideration of the question confirms the propriety of those decisions." 28 B.T.A. at 155-156.
Section 280 of the Revenue Act of 1926 is identical to § 311 of the Internal Revenue Code of 1939. The difficulty in construing § 311(a) (1) as a jurisdictional basis for the Tax Court to pass upon post-assessment interest is that § 311(a) (1), as its forerunner § 280 of the Revenue Act of 1926, merely empowers the Commissioner to collect from the transferee the tax as well as "interest, additional amounts, and additions to the tax provided by law." Section 311 was not designed to expand the jurisdiction of the Tax Court as defined in 26 U.S.C.A. (I.R. C.1954) § 7442. Section 311 is a procedural statute only and merely gives authority to the Commissioner to act in a transferee case as he would in any other case involving non-transferee taxpayers. Commissioner of Internal Revenue v. Stern, 357 U.S. 39, 42, 78 S. Ct. 1047, 2 L. Ed. 2d 1126 (1958); Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 594 n. 4, 51 S. Ct. 608, 75 L. Ed. 1289 (1931); Burnet v. San Joaquin Fruit & Investment Co., 52 F.2d 123, 128 (9 Cir. 1931). The Tax Court is still one of limited jurisdiction, fixed solely by statutory limitations. Commissioner of Internal Revenue v. Gooch Milling & Elev. Co., 320 U.S. 418, 64 S. Ct. 184, 88 L. Ed. 139 (1943); Page v. Commissioner of Internal Revenue, 297 F.2d 733 (8 Cir. 1962); Jefferson Loan Co. v. Commissioner of Internal Revenue, 249 F.2d 364 (8 Cir. 1957).
It was early adjudicated that the Tax Court does not have jurisdiction over interest in a normal deficiency determination.10 The reasoning is that (1) at the time of the deficiency determination the interest has not been assessed, Schuster v. Commissioner of Internal Revenue, 312 F.2d 311 (9 Cir. 1962);11 Commissioner of Internal Revenue, v. Kilpatrick's Estate, 140 F.2d 887 (6 Cir. 1944), and (2) ordinary interest is not within the issues before the Tax Court since such interest can only be determined after a final judgment in the deficiency proceeding, United States v. Globe Indem. Co., 94 F.2d 576 (2 Cir. 1938), cert. denied, 304 U.S. 575, 58 S. Ct. 1047, 82 L. Ed. 1538;12 Standard Portland Cement Co. v. Commissioner of Internal Revenue, 80 F.2d 585 (3 Cir. 1935). We think it clear that § 297 and § 273(i) similarly contemplate a final redetermination by the Tax Court of the deficiencies and interest assessed before the collection of post-assessment interest can be enforced.
" [I]t seems clear that until the jurisdiction of the Board is further enlarged whatever procedural convenience might be attained by having a formal redetermination of the excess profits taxes in this particular instance must give way to the greater necessity for recognizing and giving effect to the limited statutory jurisdiction of the Board." 125 F.2d at 516.
Other cases cited by the Commissioner to support its jurisdictional argument, Fong v. United States, 368 F.2d 325 (9 Cir. 1966); United States v. Glasser, 287 F.2d 433 (7 Cir. 1961), also involved appeals from the federal district court