Legal Document

364 U.S. 92 80 Supreme Court Reporter 1424 4 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 1592 MASSEY MOTORS, INC., Petitioner,v.UNITED STATES of America, COMMISSIONER OF INTERNAL REVENUE, Petitioner, versus Robley or Haw. Hawai‘i KFH45 A2 EVANS and Julia M. Evans. HERTZ CORPORATION, a corporation (Successor by Merger to Judge Frank Connor, Inc., corporation), UNITED America. Nos. 141, 143, 283. the June 27, 1960 Mr. Edgar Bernhard, Chicago, Ill., for respondents. Justice CLARK delivered opinion Court. 1 These consolidated cases involve depreciation allowance automobiles used in rental allied service, as claimed under § 23(l) Internal Revenue Code 1939, 26 Annotated KF65 U5 which permits deduction income tax purposes 'reasonable exhaustion, wear tear * property trade business.' The applicable Treasury Regulations 111, 29.23(l)—1, defines such be 'that amount should set aside taxable year accordance with reasonably consistent plan whereby aggregate amounts so aside, plus salvage value, will, at end useful life depreciable property, equal cost other basis property.' Courts Appeals have divided on method is permissible relation assets, we therefore granted certiorari resolve this conflict. 361 810, 812, 64, 59. We concluded that reasonable question taxpayer's business calculated over estimated asset while actually employed taxpayer, applying base taxpayer less its resale value time disposal. 2 In Number Commissioner R.H. Evans, taxpayers are husband wife. 1950 1951, husband, was engaged leasing new Evans U-Drive, rate $45 per car month. U-Drive turn leased from 30% 40% cars customers long terms ranging 18 36 months, remainder were rented public call shorter periods. normally kept stock supply service he purchased factory price local automobile dealers. latest model required because demands fleet modern automobiles. 3 When had an oversupply short-term rental, it would return them sell them, disposing oldest least desirable ones first. Normally disposed been about 15 months driven average 15,000 20,000 miles. They ordinarily first-class condition. It likewise customary long-term termination their leases, after 50,000 miles use. also usually good could longer period, but customer demand rendered older styles little business. Because this, found more profitable dealers, jobbers brokers current wholesale prices. Taxpayer sold 140 147 1951. On all his returns four years no residual value. 1950, example, indicated each car's around $1,650; some months' use $1,380; charged $515 based years, without left him net gain $245, capital gains tax. 1951 same calculation approximately $350 car, computed. denied claims, however, theory not total economic (i.e., claimed), only period business; junk 17 $1,325; permitted difference between original cost. Tax accepted Commissioner's made separate findings. reversed, holding physical automobiles—not 264 Federal Reporter, 2nd 502. Massey Motors, States, franchised Chrysler dealer, withdrew shipments certain number assigned company officials employees Other these unaffiliated finance substantial profit. 5 personnel uniformly 8,000 10,000 miles' upon receipt models, whichever earlier. 40,000 models. For most part, than they taxpayer. During involved here, profit resulting sale $11,272.80 cars, $525.84. did computing sales rates depreciation. disallowed claimed. After paying being refund, filed suit. trial court decided against Commissioner. Fifth Circuit, sustaining views meaning 552. 6 First, may well orient ourselves. admits here are, purposes, assets rather ordinary trade. Such day business, generally decrease utility used. design Congress permit recover, free, assets; hence recognized value—depreciation—was legitimate expense. purpose regulations make meaningful allocation periods benefited asset. practical life, concerns do know how will utilized until capable functioning. But, entire has expected function profitably further if anything, scrap. 7 Some acquired intent full life. type asset, where experience clearly indicates utilization substantially concerned cases. Admittedly, retained and, concededly, salvage, second-hand Moreover, application full-economic-life formula taxpayers' businesses results 'profits' 'salvage' automobiles, contradicts usual concept. There, nominal. Furthermore, incur 25% rate. depreciation, deducted income. By translating statute regulations, able, through income, convert inflated lower rates. This, believe, Congress. 8 appears governing defined 'useful life' 'salvage value.' Act, provide 'wear arising out employment (Emphasis added.) Act Oct. 3, 1913, 38 Statutes-at-Large 167. This language, particularly emphasized above, fairly construed mean must arise taxpayer—i.e., measured abstract assert any 1918, language amended words above read 'used business,' 214(a) (8), 40 1067, section carried those 1942. Meanwhile, Treas.Reg. 45, Article 161, promulgated 1919 continued form 1941. provided: 9 'The proper suffice, place *.' 10 It, too, relates taxpayer—not, contended, class subject latter contention give strained phrase. might true 103, January 29, 1940, 1939. Its 19.23(l)—1 19.23(l)—21 complement seem advise compute what it. first describes allowance, sets computed 'plus second specifically applicable. said arguments regulation fail completely, since provides 'in details included within allowance. cut argument term 'property business' strange say both sections 103 thing, viz., hand, point issued 1942, deleted substituted 'depreciable might, claim, establish phrase merely referred involved. Certainly when considered isolation, true. But property' does refer back earlier identical still remaining section, appear, Massey, held, substitution expanded provision include held production change conformed amendment basic statute. 11 true, contend indicated, heretofore traced precise unambiguous life.' administrative practice regard thereto pointed example clarity, acquiesced inconsistent holdings. promulgation 1919, clear something zero equation. fact many cited parties controversies actual scrap resale.2 consistency position evidenced definition now incorporated light struggle takes significance, for, required, dollar-wise importance breadth diminished. can successfully claim means interpretation functional, economic, brings money pocket. consideration appropriate term, admitted there judicial decision favor, shall out. said, intended thereby, protect loss. concept is, say, accounting one add, exchangeable market place. Accuracy requires correct tabulations, artificial ones, neither accurate nor carry equation nothing received sums therefor. balance, therefore, weight fairness 12 Our conclusion buttressed, think, publication before controversy arose. known Bulletin 'F' reissued late 1955. While authority regulation, significance conclusive respective practice. Likewise widely authorities, Appeals. A careful examination bulletin, supports title page warns '(t)he lives averages prescribed particular case.'3 Again 2, 'F', discussing emphasizes 'the What significant simple clarity which, 7, realizable become demolished, dismantled, retired service.' even goes 'should serve reduce either reduction rate.' 13 aware prior prevailing based. Although believe action adopting 1954 noted, existing time, inserted statutory provision. accompanying House Report bill stated: 14 'Depreciation allowances invested recovered tax-free annual spreading H.R.Rep.No. 1337, 83d Cong., Sess. 22. noteworthy report states changes your committee's affect timing ultimate deductions respect Id., 25. 16 numerous business.4 others5 appear contrary. these, issue factual, i.e., lapse or, cannot prove conclusively following physically useful-life theory; affirmative showing finding length element compromise probable played predominant role result case. indication changed reflect judgments find precedents. Finally, primary integrity periodic statements making entailed (excluding maintenance expense) contributes. system approval Ludey, 1927, 274 295, 301, 47 608, 610, 71 L.Ed. 1054, Brandeis underlying using up plant gradual it.' analogy applies equally Detroit Edison Commissioner, 1943, 319 98, 101, 63 902, 904, 87 1286, said: (depreciation accounting) approximate financial consequences subtle effects assets. sound annually accrue replace investment therein.' 19 Obviously accrual estimation much total. failure take into account estimate prevents understatement during overstatement disposition. grown subtracting purchase determine base.6 calculate arbitrarily expense false assumption invite erroneous rate, over- under-depreciation If employing accident only. likelihood presenting inaccurate picture yearly operations offensive where, stoutly maintain renting selling them. alternative retirement. Of course, risk error projections, prediction very essence accounting. Besides, possibility significantly probabilities accidents relied produce hoped utilizing real duration relevant, insure mistake discovered, adjustments miscalculation made. 20 Accounting management federal focus need determination given fiscal period. approach taken computes manner far likely correctly business.7 21 conclude should, recover related follows affirmed, reversed. ordered. 22 Case 141 affirmed; case 143 23 HARLAN, whom WHITTAKER, STEWART join, dissenting concurring judgment 24 situations thought appealing part Government obscured weaknesses legal position, 143. 25 contained 1956 1954, define 'period *.'1 27 283 Commission seeks apply regulatory ended March 31, 1955, 1956. effect course enactment Code. See 506. 28 & N Dec. Immigration Nationality Decisions agree represent calculating Code, valid applied prospectively. wholly past, think retrospectively instances. consider 283, my I. 29 important understand nature issues Both contended urged purport allocate portion asset's holds methods allocated And methods, figure As notes, two involves extent able obtain capital-gains treatment realized excess undepreciated 30 theoretical standpoint simply this: anticipates retaining Thus, system, quotient subtracted Under Government's method, anticipated though exhausted. 31 exhausted, exactly result. Similarly, inaccuracies predictions wrong. Government, contends predicted certainty end, resale, starts amount, then among general world, accurately decline correspond roughly theretofore depreciated. present cases, great disparity depreciated method. 32 whether, matter, deemed preferable Apparently split question.2 sufficient note instances seems satisfactory results. Assuming unusual case, whole me whether nevertheless established contrary entitled rely him. question. II. 33 relies wording revenue statutes show opposed always regarded Concedly, appeared early never therein 1956, 107, 1424, took asserts. seizes directed problem support contention. situation follows: 34 business.'3 certainly says, taxpayer.' follow For, noted attributable circumstances yield 'holding-period' formula. 35 Tresury provided only, before, Accordingly, revised delete substitute therefor Reg. 29.23(l)—1. says meant already performed another regulation. That meant, hardly income.' quite evident different adverted to, connection apparently assumed worn reliance 300—301, 903, wide mark. Ludey virtually pre-1942 retirement, therein. dedicated end. misplaced. refers statement lifts appearing defining italicized again reveals exhaustion. to. 37 inconclusive, gleaned stand litigated Contrary uncertainty draws leave room doubt pre-1956 flatly takes. III. examining borne mind who happens dispose exhaustion depreciate held. 'may expected' 1.167(a)—1(b). Therefore, relevant past becoming junk, thus control depreciation.4 39 involving Merkle Broom Co., B.T.A. 1084, customarily years. attempted three-year life; asserted five-year allowed Kurtz, 679, three values. four-year agreed. 41 Sanford Cotton Mills, 1210, motor trucks one-half reasonable. 42 General Securities 1942 P-H BTA—TC Mem. 42,219, 43 apparent courts thinking solely despite one-seventh Given proposed had, half cost, proceeds brought giving rise loss difference. applied, time. traded year, two-thirds yet one-third avoided 44 distortion shift final physical-life outran disposition accorded 1942.5 However, adherence shifting various often entails serious consequences, 45 circumstances, subsequent acquire special significance. Pilot Freight Carriers, Commerce Clearing T.C.Mem. 1027, tractors trailers 32.6 months. 10% five six trailers, respectively, received, wartime inflation, large gains. Yet attempting disparity, increased equated 46 Lynch-Davidson Tomlinson, D.C., 172 F.Supp. dealer models out, $50. dispute proper. companion Davidson 165 455, year. $50 striking similarity facts elaborated. 1959, Hillard, KF6280 U55 961, operated 48 Thus us, offsetting existed; consistently adhered adopted controlled. 49 Court, vitiated several dealing cases,6 near lives, erroneously purposes. 50 Court's view fares better Bolta 1941 machines ceased businesses. projected 51 Koelling 171 214, cattle breeding, unreasonable deduct animals breeding price. 52 Cohn Cir., 259 371, flying schools contract Army Air Corps. arrangement last 1944, basis, varying ten equipment appeal usefullife ruling 53 salvagevalue Koelling, himself equivalent employee hybrid version failing adopt corresponding holding-period used, deducting third, Cohn, rejected attempt employ so, deducted. ever sought require controvert this. To contrary, infrequently capitalgains turned Indeed, Lynch-Davidson, Davidson, Hillard supra, indicate, recently, indistinguishable ones. unsuccessfully, curb possibilities contending 117(j) 117(j). Having conceded deduction, defeat own regards life'—a maintained 1926 1959 every our attention called—by requiring taxpayers, provisions depreciating Cf. Helvering R. Reynolds Tobacco 306 110, 59 423, 83 536, Griffiths, 318 636, 843. salutary principle embodied formal Reynolds, 313 428, 432, 61 971, 973, 85 1438; Higgins 312 212, 216, 475, 477, 783. 54 reverse affirm IV. 55 presented different. terminating respectively. All 11, 1956.7 concedes enacted can, retroactive effective date promulgated. 56 relying asserts interpreting force survived re-enactment statute, retroactively expressed regulations—which problem—but like wherein promulgated, previous informal practice, re-enacted interim. Application called Congress, availability accelerated depreciation—among so-called 'declining balance method,' here—dependent definition. maximum discretion integrating doing forward. 57 Since declining-balance more, properly Hertz' whose trucks, admittedly Hertz below considers validly Hertz, becomes Were stop' relatively short price, undiminished salvage. legislative history ambiguous best, becloud issue, construction stand. concur affirming 58 DOUGLAS joins Parts I, II, III opinion. He would, reserve 283—Hertz Corporation ground Leslie Salt 350 383, 396, 76 416, 100 441. 'Sec. 19.23(l)—1. Depreciation.—A tear, obsolescence gross convenience excluding idea mere obsolescence. (not necessarily uniform rate), determined 113. *' 19.23(l)—2. Depreciable property.—The necessity arises gradually approaches usefulness confined nature. tangible decay natural causes, due normal progress art, machinery replaced invention, inadequacy growing needs inventories trade, land apart improvements development added bodies minerals process removal suffer depletion, (See 23(m) 114.) Property repair may, nevertheless, 19.23(a)—4.) limited No vehicles pleasure, building residence, furniture furnishings therein, personal effects, clothing; properties costumes exclusively theatrical allowance.' E.g., 1080 (1953); W. Norris Lumber 728 (1948); 1067 (1945); Wier Long Leaf 990 (1947), affirmed reversed 1949, 173 549. bulletin schedule listing passenger salesmen supra. West Virginia Pennsylvania Coal Coke 790 (1925); James 1071 1084 (1926); Kurtz 679 (1927); Whitman-Douglas 694 Mills 1210 (1929). P—H Mem.Dec. 42,219 group directly money-wise theory. Hence isolated inconsistency areas volume here. industry amicus curiae brief American Automobile Leasing Association pending Circuit. Comprising 'about 65 cent country' 'is designed tax-free, copy file Several writers field addressed themselves, reference laws, content value' conclusions said. Grant Norton, Depreciation (1949), 145—146: '(Assets automobiles) positive Average values straight-line established. Salvage depend owner's policy disposal trade-in 3-year-old automobile.' Kohler, Dictionary Accountants (1952), as: 'Actual prospective material, scrap, fixed retired, product merchandise unsalable channels, estimated, disposition; Useful defined, id., 440, 441, 'Normal operating owner; fixed-asset group; commonly Saliers, Principles (1939) 72: 'Salvage article possesses devoted. possess cycle Junk worth broken up. whatever to.' Depreciation, 1.167(a)—1(b), Decision 6182, 1956—1 Cum.Bull. At trials below, expert witnesses testified standard. textbooks, 106, 1419, view. 114, Three 790; James, 1071; 694, dispositions evidence indicating regard. 151, 846, Int.Rev.Acts. 990; 728; 1080. additional 98. Prior 1939 force. 6091, 1954—2 47.

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