Case Name: Appeal of Levine Brothers Co., Inc.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-11-30
Citations: 5 B.T.A. 689
Docket Number: Docket No. 6832
Parties: Appeal of Levine Brothers Co., Inc.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 5
Pages: 689–693

Head Matter:
Appeal of Levine Brothers Co., Inc.
Docket No. 6832.
Promulgated November 30, 1926.
Benjamvin Mahler, Esq., for the petitioner.
M. N. Fisher, Esq., for the Commissioner.

Opinion:
OPINION.
Morris:
The first assignment is that the " Commissioner erred in not stating in his communication of July 16, 1925, the details of the deficiency but incorporating them by reference to prior communications not part of the deficiency letter." This question is one of administrative policy and procedure within the Internal Revenue Bureau. We have said in connection therewith, in Appeal of Cleveland Home Brewing Co., 1 B. T. A. 87, 91:
It is no part of the duty of this Board, nor has it the right, to decide in any manner questions of policy in the administration of the office of the Commissioner.
See also Appeal of Clois L. Greene, 2 B. T. A. 148; Appeal of Southern California Loan Association, 4 B. T. A. 223.
The petitioner withdrew the second assignment of error that the Commissioner erred in disallowing the deduction of legal expense in the sum of $130.36.
The next question presented is the proper rate of depreciation to be applied to the petitioner's machinery, the Commissioner having allowed a rate of 10 per cent. The testimony shows that the machinery was used overtime during the greater part of the year, that much additional strain was placed on the machinery due to substitutes which had to be used, and that labor conditions were such that inexperienced workers and unskilled labor had to be used in order to operate the machines'. In view of these facts, we are of the opinion that 15 per cent, as claimed by petitioner, is a reasonable rate for depreciation.
The next allegation of error relates to the reduction of invested capital for the year 1918 by reason of additional taxes paid for 1917. Since the filing of this appeal the Revenue Act of 1926 has been passed by Congress. Section 1207 of that Act approves the regulations of the Commissioner applicable to reducing invested capital on account of the payment of additional taxes for a preceding year. See Appeal of Russel Wheel & Foundry Co., 3 B. T. A. 1168; Appeal of Hutchins Lumber & Storage Co., 4 B. T. A. 705; Appeal of Manville Jenckes Co., 4 B. T. A. 765.
The fifth error assigned is the reduction of invested capital on account of inadmissible assets. The Commissioner's action was apparently based on an understanding that during the taxable year the petitioner owned stock of.Strauch & Company. The evidence shows, however, that advances were made to Strauch & Company and that shares of stock of that company were held as security for the loan, but prior to January 1, 1918, these shares were exchanged for notes, and on that date the petitioner held notes amounting to $5,100. The Commissioner was therefore in error in reducing invested capital on account of inadmissible assets.
The next question, namely, the correctness of the Commissioner's action in reducing current earnings by a tentative tax to determine the amount of such earnings available for the retirement of capital stock, has already been decided adversely to the Commissioner. Appeal of L. S. Ayers & Co., 1 B. T. A. 1135; Appeal of Hutchins Lumber & Storage Co., supra. Upon the authority of these decisions we must hold that the Commissioner's action in this respect is in error.
The seventh assignment of error is the reduction of net income for the prewar years 1911 and 1912. The Commissioner admitted the reduction of income for the two years but denied reducing them without cause. Petitioner offered no evidence whatsoever other than the net income returned and the reduction sustained. In the absence of proof of error the reduction must be sustained.
The final assignment of error, which was presented by an amendment to the original petition, relates to the allowance of a loss of useful value on four machines which were purchased in 1918 and discarded prior to the close of that year. These machines, purchased and installed by the petitioner to manufacture cocoa and wrap chocolate almond bars, were, with the exception of the wrapping machine, in use at a time when the trade was clamoring for powdered cocoa. The Sterling Company was able to manufacture powdered cocoa because the process was the same as in the manufacture of solid chocolate up to a certain step. In 1918 the demand was exceptionally good and the price was high, being about 30 cents per pound. The same general conditions existed as to the almond bars which petitioner attempted to place on the market. But after the Armistice the demand practically ceased, stocks available for distribution were large, and the price fell to about 3 cents per pound.- Only the larger manufacturers were able to produce powdered cocoa at such prices. Many concerns placed their machinery on the market for sale. Petitioner has repeatedly offered its "machines for sale but has not been able to secure an offer at any price. As to the wrapping machine, the manufacturer failed to ship it to petitioner in. time for more than a week or so of use before the drop in prices made the manufacture of almond bars prohibitive. The petitioner has been ready and willing at all times since 1918 to sell the machines for one-tenth of their original cost, but has been unable to sell them. The machines have been idle and of no use since 1918. On these facts, we are convinced that the petitioner is entitled to deduct the difference between the cost of these machines and the salvage value thereof, which is 10 per cent of such cost, in its 1918 return. Appeal of Automatic Transportation Co., 3 B. T. A. 505.
Judgment will be entered on 15 days' notice, wider Bule 50.