Court Opinion

ID: 4597326
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:18:56.992943+00
Date Added: 2024-06-11T07:51:46.155920
License: Public Domain

SANITARY EARTHENWARE SPECIALTY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Sanitary Earthenware Specialty Co. v. CommissionerDocket Nos. 31161, 31162.United States Board of Tax Appeals19 B.T.A. 641; 1930 BTA LEXIS 2351; April 22, 1930, Promulgated *2351  Amounts representing costs defending against an indictment charging a violation of a Federal statute are not deductible from gross income as ordinary and necessary expenses.  John A. Moore for the petitioner.  J. E. Marshall, Esq., and C. A. Ray, Esq., for the respondent.  LANSDON *641  The respondent has asserted deficiencies in income taxes for the years 1923 and 1924 in the respective amounts of $940.28 and $513.22.  The only error alleged is that in each of the taxable years the respondent disallowed certain payments as ordinary and necessary expenses.  The two proceedings have been consolidated for hearing and decision.  FINDINGS OF FACT.  The petitioner is a New Jersey corporation, with its principal office at Trenton, where it is engaged in the manufacture and sale of sanitary earthenware for use in bath rooms.  Throughout each of the taxable years the petitioner was a member of the Sanitary Potters' Association.  Such organization, a trade federation or league, was made up of manufacturers in the same line of production.  As a member of such association, petitioner was *642  obligated to pay regular monthly dues in the amount*2352  of $7.50 for each kiln operated by it.  It had two factories, one at Trenton, N.J., and one at Columbus, Ohio, but the record does not disclose the total number of kilns regularly operated at each factory.  Prior to the taxable years, the petitioner, together with twenty-two other corporations and twenty individuals, was indicted in the United States District Court for the Southern District of New York for criminal violation of the Sherman Anti-trust Law.  The action was defended, but the defendants were convicted in the trial court.  On appeal, the Circuit Court of Appeals reversed the District Court and the case went to the Supreme Court of the United States, which reversed the Court of Appeals and reinstated the judgment of the District Court.  The expenses incurred by the defendants were very heavy and for the most part were paid by the Sanitary Potters' Association with funds raised by assessments against its members.  In the years 1923 and 1924 the petitioner paid dues and assessments to the Sanitary Potters' Association in the respective amounts of $13,806.45 and $4,698.60, and in its income-tax returns for such years deducted such respective amounts from gross income as*2353  ordinary and necessary expenses.  Upon audit of such returns the respondent disallowed $7,122.45 and $3,110.10 as ordinary and necessary expenses because they were paid to the Sanitary Potters' Association for the purpose of defending an action for an alleged violation of the Sherman Anti-trust Law and determined the deficiencies here in controversy.  OPINION.  LANSDON: The evidence is conclusive that some part, if not all, of the amounts disallowed by the respondent as ordinary and necessary expenses were incurred in defending the petitioner for violating a Federal law.  This Board has heretofore decided the question here involved adversely to the contention of the petitioner.  On the record here and upon the authority of many prior decisions, the determination of the respondent must be affirmed.  ; ; ; . Decision will be entered for the respondent.