Court Opinion

ID: 4490827
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:33.572482+00
Date Added: 2024-06-11T15:03:05.656417
License: Public Domain

*648OPINION.
James:
The first point alleged above, that is, that the taxpayer is entitled to deduct in 1919 a fee of $343.47, paid to the Commonwealth of Pennsylvania on account of an increase in capital stock, must be disposed of on the assumption that the sum paid represented a fee and not a tax. Taxes are deductible without regard to their relations to capital or to income transactions. United States v. Woodward, 256 U. S. 632. But fees must rest upon a different basis and we must take the allegation here as we find it. The fee is alleged to have been paid for the authorization to increase the capital stock, a capital transaction, and it is therefore not deductible.
The second point is disposed of by the decision of the United States Supreme Court in United States v. Flannery, 268 U. S. 98.
This brings us to the third and last of the allegations of the taxpayer. If the allegations above quoted in paragraph 5 (c) are all the allegations of ultimate fact necessary to meet the conditions imposed by section 327 of the Revenue Act of 1918, then, under the answer of the Commissioner admitting, for the purpose of the motion, those facts as true, we must find that the taxpayer is entitled to have its tax computed under the provisions of section 328 of that Act. If, on the other hand, the so-called facts pleaded are mere propositions of law, or if they are not all the facts required by section 327, we must find that the taxpayer has not pleaded facts sufficient to state a cause of action, and must sustain the Commissioner in his determination. Assuming the facts pleaded to be ulti*649mate facts and not conclusions of law, we find, by an examination of tlie facts laid down as conditions precedent in section 327 to assessment under the provisions of section 328, that the first fact as set forth in that section is as follows:
* * * That the tax if determined without benefit of this section would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship, evidenced by gross disproportion between the tax computed without the benefit of this section and the tax computed by reference to the representative corporations specified in section 328.
It would appear that the above requirement is matched by the pleadings in paragraph 5 (c). But the section of the Act goes on to provide:
This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital, nor (2) in which 50 per centum or more of the gross income of the corporation for the taxable year (computed under section 233 of Title II) consists of gains, profits, commissions, or other income, derived on a cost-plus basis from a Government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive.
The pleadings of the taxpayer are silent as respects these conditions laid down in the proviso in section 327. We must qonclude, therefore, as judgment is asked on the pleadings, that the taxpayer has not proved that it is not within one or both of the above-mentioned provisos, and that it is not entitled to have its excess-profits tax computed under the provisions of section 328.
Akundell not participating.