Court Opinion

ID: 4499169
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:19.951194+00
Date Added: 2024-06-11T15:04:06.570360
License: Public Domain

Smith,
dissenting: In its income tax return for the fiscal year ended June 30, 1937, the petitioner deducted from gross income an increase of $4,600 in salaries voted to its president and treasurer. The increased salaries were to be paid monthly. They were to be paid, however, subject to approval by the Reconstruction Finance Corporation. At the close of its fiscal year, June 30, 1937, the petitioner had not received the authority of the Reconstruction Finance Corporation to pay the additional salaries and the amount of the salaries unpaid was $4,600. The respondent disallowed the deduction of these accrued salaries in the determination of the deficiency.
It is stipulated that the Reconstruction Finance Corporation on September 3, 1937, approved the increase in the salary of the president in the amount of $2,400 and $1,200 of that amount was paid to-*756the president on September 13, 1937. On October 11, 1937, the Reconstruction Finance Corporation approved the payment of an additional salary of $600 to the treasurer, which had theretofore been authorized by the petitioner for the taxable year, but disapproved the payment of the balance authorized.
In the Board’s opinion it is stated that:
* * * The stipulations of fact do not disclose whether petitioner is on the accrual basis of accounting and do not disclose how petitioner treated the amounts, paid and unpaid, of such salary increases on its books during the taxable year. * * *
I do not think that this statement is correct in view of the stipulated facts. The trial balance clearly shows that the petitioner was on the accrual basis. It includes among its assets inventories and deferred charges and among its liabilities accrued expenses, including officers’ salaries in the amount of $11,600. It is not necessary to stipulate specifically that the return was made on the accrual basis where the stipulated facts show that it was.
In United States v. Anderson, 269 U. S. 422, the Supreme Court held that the accrual system was incorporated into the law:
* * * to enable the taxpayers to keep their books and make their returns according to scientific accounting principles, by charging against income earned during the taxable period, the expenses incurred in and 'properly attributable to the process of earning income during that period. * * * [Italics supplied.]
Quite clearly the additional salaries voted the petitioner’s president and treasurer were “expenses incurred in and properly attributable to the process of earning income” during the taxable year. They were not expenses of the taxpayer of the years during which the payments were made.
It is furthermore to be noted that petitioner’s income tax return for the fiscal year ended June 30, 1937, was not due to be filed until September 15, 1937. Prior to that date the Reconstruction Finance Corporation had approved the payment of an additional salary to the petitioner’s president of $2,400. I do not see in any event how the Board can say that that was not an expense of the petitioner of the taxable year.
In Fawcus Machine Co. v. United States, 282 U. S. 375, it was held that additional excise taxes upon the profits of the petitioner for the year 1918 accrued in that year even though the Revenue Act of 1918 was not passed until February 24, 1919, and made changes in the rates. The court held that the change made by Congress in the rates of the excise tax was made in ample time to enable the taxpayer to deduct from gross income in its income tax return for *7571918 the excise taxes which, had accrued for the year 1918 at the increased rates authorized by the Revenue Act of 1918. By the same process of reasoning I think that it should be held that petitioner is entitled to deduct the additional salary for its president authorized by the petitioner’s board of directors during and for the taxable year to the extent of .$2,400.
The Reconstruction Finance Corporation did not authorize any additional payment of salary to the petitioner’s treasurer for „the taxable year until October 11, 1937. The additional salary of $600 was paid to the treasurer on June 9, 1938. I think, however, that under the principle of the cases above cited it must be held that the additional salaries voted to the petitioner’s president and treasurer for and during the taxable year should be allowed as deductions from the gross income of the taxable year to the extent approved by the Reconstruction Finance Corporation. They were not expenses of the year in which the payments were made.