Court Opinion

ID: 4600869
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:27.893799+00
Date Added: 2024-06-11T07:52:23.235307
License: Public Domain

FLEXIBLE FILE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Flexible File Co. v. CommissionerDocket No. 13829.United States Board of Tax Appeals13 B.T.A. 909; 1928 BTA LEXIS 3159; October 10, 1928, Promulgated *3159  1.  Machines acquired for use in the petitioner's business which had never been used but were capable of use, became surplus equipment in 1920 because the business did not require their use.  They were stored away and preserved.  Some efforts to sell them were unsuccessful.  Held that the petitioner is not entitled to a loss deduction on account thereof.  2.  Held, on the evidence, that petitioner is entitled to a deduction as a loss on account of the worthlessness of a machine in 1920.  Herbert W. Nauts, Esq., for the petitioner.  Paul L. Payton, Esq., for the respondent.  TRAMMELL*909  This is a proceeding for the redetermination of a deficiency in income and profits taxes for the year 1920 in the amount of $3,542.81.  The errors alleged are: (1) That the respondent disallowed a deduction taken by the petitioner on account of supplies andequipment lost in a flood.  On this allegation of error no evidence was offered and the issue was withdrawn.  (2) That the respondent erred in disallowing a deduction taken by the petitioner for depreciation and loss of buildings, machinery and equipment.  (3) That the respondent erroneously increased*3160  petitioner's income by the amount of $312.31.  (4) That the respondent erred in disallowing a deduction on account of worthless debts.  The latter issue was withdrawn and no evidence was offered in support thereof.  On account of the withdrawal of the two issues, this leaves the second and third issues for decision.  FINDINGS OF FACT.  The petitioner is an Ohio corporation, with its office and factory at Fremont.  It is engaged in the manufacture of flexible files and other manicure instruments.  The making of manicure files constituted about 75 per cent of the petitioner's business in 1919 and 1920.  Prior to 1920 it was operating 18 patented Bishop file-cutting machines.  In 1920 the petitioner purchased 18 additional Bishop machines with which to fill certain orders which it had received and which its existing machines were insufficient to produce.  The new machines had been ordered in 1919 but were not delivered in time to fill the orders for which they had been purchased, and which for that reason were canceled.  The new machines were set up and with one exception were all operated in 1920.  In October, 1920, because of the cancellation of the orders referred to, the new*3161  machines were dismantled, disconnected *910  from the floor, belts and cutting tools removed and the machines piled up in a corner of the factory where they have remained ever since.  They were given a coating of oil when taken down but have not been touched since.  When the machines were taken down the officers of the petitioner determined that they would have no further use for them and during that year attempted to sell the machines through the manufacturer and also through a second-hand machinery dealer in Fremont, but were unsuccessful even in obtaining any offer except a junk price offer.  The machines were not sold as junk in 1920 because the price they would bring as junk was insufficient to justify the trouble and expense necessary to move them from where they were stored.  The 18 machines cost the petitioner $6,630.  As scrap they were worth not in excess of $30 in 1920.  The petitioner purchased in June, 1919, an Eaton electric tempering oven which it was compelled to discard in 1920 because of its failure to operate.  The petitioner attempted to repair it so that it would operate satisfactorily, but the attempt was not successful.  The oven was discarded as*3162  worthless in 1920 and an oil-tempering oven installed to replace it.  The oven cost $800.  This oven was worth as scrap not in excess of $3.  The petitioner incurred and paid as expenses for repairs during 1920 the amount of $312.21.  This amount was erroneously charged to capital account instead of an expense account.  OPINION.  TRAMMELL: The petitioner contends that it is entitled to a deduction as a loss in 1920 on account of the fact that it ascertained during that year that it had no further use for the machines and stored them.  It is claimed that the petitioner is entitled to a deduction as a loss simply upon the ground that there was no market for the surplus machinery.  The petitioner, however, could have substituted any of these machines for any machine which was in operation.  They were not obsolete but were as modern and as capable of use as any machines for the purpose.  They were simply surplus equipment.  We are not satisfied from the evidence that these machines were abandoned.  They were removed, oiled, and stored away.  They were preserved as working machines instead of being abandoned or treated as scrap or junk material.  They were the same kind of machines*3163  which not only the petitioner but other manufacturers in the same line of business were using.  In our opinion these facts are not sufficient to entitle the petitioner to the loss claimed.  *911  With respect to the oven, the evidence is that the oven was discarded during the taxable year because it could not be satisfactorily operated.  The oven cost $800.  The investment made in the oven became lost to the petitioner during the taxable year.  Its worthlessness had been demonstrated.  It had no value as a machine, leaving its only value as its scrap value, which value did not exceed $3.  This case is governed in principle by the case of the . In fact, the situation here presents a much stronger case than was presented in that case.  The petitioner is, therefore, entitled to the loss claimed with respect to the oven.  The amount of $312.21 which was added to income by the petitioner was in fact amounts expended by the petitioner for repairs and the petitioner is entitled to a deduction with respect thereto.  Judgment will be entered under Rule 50.