Court Opinion

ID: 4499175
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:20.126134+00
Date Added: 2024-06-11T15:04:06.582245
License: Public Domain

Smith,
dissenting: During 1936 the petitioner, which kept its books of account and made its returns upon the accrual basis, was required to pay an additional Oregon excise tax of $912.24, based upon its net income for 1934. The occasion for the payment of this tax was that the respondent in the adjustment of petitioner’s income tax return for 1934 disallowed the deduction of a part of the allowance for depreciation claimed by the petitioner in its income tax return. The petitioner acquiesced in the disallowance of the deduction of the depreciation and paid any additional income tax arising therefrom to the United States. It adjusted its books of account in 1935 to show an increase in the surplus for 1934. The State of Oregon in 1936 claimed an additional excise tax for 1934 and the petitioner in 1936 paid the $912.24 demanded. The Board approves the respondent’s disallowance of this deduction upon the ground that the amount was properly chargeable against the petitioner’s gross income for 1934.
The question as to when an expense becomes an accrued liability is covered by-the Commissioner’s regulations. It was early recognized in the administration of the income tax law that oftentimes some of a taxpayer’s accrued income and some of his accrued deductions were not determined until a later year. It was impracticable to follow meticulously the rule that every accrued item of income and every accrued item of expense be reported in the year of accrual. The Commissioner therefore provided in his regulations (see article! 43-2 of Regulations 86 and Regulations 94, promulgated under the Revenue Acts of 1934 and 1936, respectively) that taxpayers making their] returns c f income upon the accrual basis should allocate to the proper year accrued items of income and accrued items of expense. The regulations provided, however:
⅜ * * It is recognized, however, that particularly in a going business of any magnitude there are certain overlapping items both of income and deduction, and so long as these overlapping items do not materially distort the income they may be included in the year in which the taxpayer, pursuant to a consistent policy, takes them into his accounts. * * *
In the instant proceeding it was clearly impossible for the petitioner to know in 1934, or at the time it was required to file its income tax return for 1934, the additional excise tax which would be demanded of it by the State of Oregon for the year 1934. There was no additional excise tax due the State of Oregon at that time. Demand was made upon petitioner for the payment of the additional excise tax for 1934 in 1936. The petitioner treated it as an accrued item for 1936.
I see no reason why petitioner should not be allowed the deduction from gross income of 1936 of the $912.24 which was demanded! of it by the State of Oregon and paid in that year. It was impossible for the petitioner to know prior to 1936 that it had this liability.
*782The income tax acts should be administered in a sensible fashion. A sensible construction of the income tax acts warrants the petitioner to deduct from the gross income of 1936 the $912.24 here, in question. It is unreasonable in my opinion to say that the petitioner is not entitled to the deduction. The Commissioner’s regulations allow it.
Aiujndell agrees with this dissent.