Court Opinion

ID: 9752514
Source: CourtListenerOpinion
Date Created: 2023-08-28 18:11:59.517003+00
Date Added: 2024-06-11T09:45:51.892714
License: Public Domain

LITTLETON, Judge
(dissenting in part).
As shown by the findings, the Missouri Farmers Association was a state-wide organization of farmers. Plaintiff was a stock corporation organized under the laws of Missouri to act as business or sales agent of the Missouri Farmers Association. To become a member of the Missouri Farmers Association it was necessary that an applicant be eligible under its rules and regulations and that such applicant pay annual dues to the Association. Plaintiff had no such members. There was no connection between plaintiff’s stockholdings and the distribution by plaintiff of patronage dividends in the manner hereinbefore stated in the findings, since a stockholder of plaintiff was not entitled to receive such patronage dividends unless he was a farmer-patron of plaintiff and was also a member of the Missouri Farmers Association.
As used hereinafter the term “member” refers only to patrons of plaintiff who were members in good standing of the Missouri Farmers Association, and the term “non-member” refers to other persons who transacted business with plaintiff.
From the date of its incorporation in 1919 plaintiff’s by-laws provided, and so provided during the taxable years 1933 to 1935, inclusive, that all of plaintiff’s annual net income was to be distributed as follows: (a) Ten percent to a reserve fund until such fund equaled 50 percent of the outstanding capital stock (the reserve fund reached this amount long prior to the taxable years in question); (b) a dividend of not to exceed 8 percent to plaintiff’s stockholders; and (c) the balance of the net income to be distributed to all persons who transacted business with plaintiff who were members in good standing of the Missouri Farmers Association in proportion to the amount of business which each such member had with plaintiff.
During each of the taxable years in question plaintiff paid a dividend of 8 percent to its stockholders and distributed the balance of its net income, as specified in (c) above, to all farmers who transacted business with it who were members in good standing of the Missouri Farmers Association.
Plaintiff did not restrict its business to purchases from and sales to farmers who were members of the Missouri Farmers Association, but it dealt with anyone who desired to do business with it and handled both member and nonmember business on the same basis. However, only those of its- patrons or customers who were members of the Missouri Farmers Association shared in the patronage dividends. The profits which plaintiff realized from business done with persons who were not members of the Missouri Farmers Association *128were included in the total net profits for the year, which it distributed, after payment of the 8 percent dividend to stockholders, as patronage dividends only to farmers who dealt with it and who were members of the Missouri Farmers Association.
Plaintiff does not and, of course, cannot claim exemption from taxation under any provision of the taxing acts as a farmers cooperative association. See sections 103 of the Revenue Act of 1932 and 101 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev. Acts, pages 506, 688. But it contends that portions of the distributions of its net income remaining after payment of the 8 percent dividend which it made in the taxable years 1933 to 1935, inclusive, to its farmer patrons who were members of the Missouri Farmers Association, representing net profits which plaintiff made during such years from business transacted with persons who were not members of the Missouri Farmers Association, were rebates paid to such “members” and should therefore be excluded from plaintiff’s taxable net income.
Upon the facts in this case I think the distributions in question representing profits derived by plaintiff from transactions with persons or patrons who were not members of the Missouri Farmers Association, which the defendant has determined to be $2,596.93 for 1933, $1,375.88 for 1934, and $1,154.95 for 1935, were not rebates of such character as would justify their allowance as a deduction from tax- . able income as ordinary and necessary expenses under any provision of the applicable taxing statutes or regulations. The defendant has allowed plaintiff to exclude from taxable income the distributions which it made out of its net income in each of the years in question to farmers who dealt with it and who were members of the Missouri Farmers Association to the extent of the net earnings derived by plaintiff from the business which it did with such “members,” and those distributions are -not in controversy here.
Rebates or discounts allowed and given to specific customers on transactions specifically with them or to customers generally on transactions with them may, in a proper case, be allowable as deductions in determining taxable net income (cf. Uniform Printing & S. Co. v. Commissioner, 7 Cir., 88 F.2d 75, 109 A.L.R. 966), but distributions of net profits derived from dealings with certain customers to certain other customers who were in no way connected with the transactions from which such net profits were derived are not rebates or discounts of this character. On the contrary plaintiff’s net income was determined after taking into account all expenses and allowable deductions and such net income, from all sources, after payment therefrom of an 8 percent dividend to stockholders, was distributed to a selected group of customers. The taxing acts do not authorize deductions of such distributions in determining taxable income. Claimed deductions from net income which are not authorized specifically, either by the revenue acts or by any regulation applying to them, cannot be allowed. Brown v. Helvering, 291 U.S. 193, 205, 54 S.Ct. 356, 78 L.Ed. 725. The allowance of deductions from gross or net income does not turn on general equitable considerations. Deputy, Administratrix, et al., v. Du Pont, 308 U.S. 488, 493, 60 S.Ct. 363, 84 L.Ed. 416; White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 83 L.Ed. 172.
Upon the record in this case I think the portion of plaintiff’s net income in each of the taxable years representing profits earned by it from the business which it did with the public generally, that is with persons or customers who were not members of the Missouri Farmers Association and, therefore, not entitled to participate in any distribution of net earnings, constituted taxable income to plaintiff under the income-tax statutes. Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731.
I concur in the opinion of the majority with reference to the bad debt deduction.
I am of opinion that the petition should be dismissed.
WHALEY, Chief Justice, concurs in the foregoing opinion.