Court Opinion

ID: 4498105
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:46.491743+00
Date Added: 2024-06-11T08:00:21.425020
License: Public Domain

Murdock,
concurring: Although I concur in the result reached on all points, I do not subscribe to all that is said in the majority opinion or the methods used therein to reach the results. The petitioner has failed to show that the Kentucky contracts had any particular basis and that is sufficient reason for denying the belated claim for deduction on account of exhaustion of those contracts.
*1394Likewise, the belated claim for depreciation on the drums is not supported by sufficient evidence. The petitioner regularly employed a sound system of accounting for the drums which would return to it the full cost of those drums without any deduction for depreciation as such. It charged its customers for each drum furnished to them and was thus fully compensated for all drums which the customers failed to return or which were not accepted upon return. It charged off to profit and loss the cost of all drums which it discarded. It was fully compensated in those two ways for the cost of all drums which it was using in its business. This is not to say that it could not have offered proof to support a deduction for depreciation of the drums. For example, had it changed its accounting method in regard to the drums, set up upon its books a proper basis for depreciation for the drums, and proved what its or some other’s experience had been in regard to the exhaustion of cost of drums in such a business, together with proof of how many of the drums it was compensated for through sale of unreturned drums to its customers, some deduction might have been permissible. But in the absence of some such complete proof of a satisfactory method no deduction is permissible.
The petitioner apparently claims a deduction on account of loss for assets retired at the end of their estimated useful lives and also a deduction for loss when assets were retired prior to the end of their estimated useful lives. Obviously, assets abandoned in other years could not give rise to a loss deduction in the taxable year. But it appears that some of the assets were abandoned in the taxable years. The evidence does not show that the petitioner is entitled to any loss on account of any asset which was abandoned in the taxable year at the end of its estimated useful life. In fact, it is difficult to imagine any circumstances under which any taxpayer would be entitled to deduct a loss where an asset was abandoned at the end of its estimated useful life. Deductions for depreciation would apparently fully compensate any taxpayer for an asset thus abandoned.
A taxpayer might or might not be entitled to deduct a loss where an asset was abandoned prior to the end of its estimated useful life. That would depend upon the method used by the particular taxpayer in recovering the cost of its assets through deductions for depreciation and exhaustion. Such a deduction for loss might be proper under some methods but would not be proper under others, and many methods are properly used for recovering the cost of assets through depreciation and exhaustion. The record does not show adequately just what method has been used by this taxpayer, and, without rather complete knowledge of the method used in the past and the recovery under that method, it is humanly impossible to determine whether *1395or not the petitioner is entitled to a deduction for loss in the taxable years when it abandoned assets prior to the end of their estimated useful lives.
The Commissioner argues, however, that under the method which he seems to deem appropriate this taxpayer would be entitled in theory to a deduction for loss upon the abandonment of assets during the taxable years prior to the end of the useful lives of those assets. The loss, he says, would be the difference between the unrecovered cost of the asset, applying a rate of depreciation based upon the estimated useful life of that asset, and deducting salvage value, if any. This is a concession upon' the part of the Commissioner. The evidence in regard to the system used by the taxpayer in prior years is insufficient to enable me to say that this theory of the Commissioner is incorrect. The petitioner argues that the composite rate applying to all assets in the group should be applied to the particular asset in computing the loss, instead of a rate based upon the estimated life of that particular asset. It may be that such a method would be proper if consistently used by some taxpayer, but the evidence does not justify a reversal of the action of the Commissioner upon that basis. The estimated life of the separate assets retired during the taxable years has not been shown, and therefore no deduction is justified in excess of that allowed in the prevailing opinion.
Smith, VaN FossaN, Leech, Arnold, and Dishey concui in the above.