Court Opinion

ID: 4493372
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:55.251213+00
Date Added: 2024-06-11T15:03:59.524034
License: Public Domain

*422OPINION.
AnAivrs:
The first issue presented for our decision is whether petitioner, a corporation, may deduct from its gross income, for the purpose of determining its net income subject to tax, contributions made to certain charitable organizations.
The petitioner urges that the contributions made by it to various charitable organizations were advertising expenses and are, therefore, to be treated as ordinary and necessary expenses incurred in carrying on its business during the taxable year.
The relevant sections of the statute are set out in the margin.1
Section 28 provides that certain deductions shall be allowed in computing net income, most of which are common to both corporations and individuals, but charitable and certain other contributions are allowed only to individuals. The prior revenue acts are substantially the same in this respect as the Act of 1928. Corporations *423have never been allowed, as in the case of individuals, to deduct contributions or gifts made to organizations operated exclusively for charitable purposes. This has not been the result of any failure of Congress to consider such deductions in respect to corporations. It is the result of deliberate Congressional action.
The legislative history of these provisions is conclusive as to the intent of Congress. When the Revenue Bill of 1918 was being considered by the House, an amendment was offered providing that corporations be allowed the same deductions as individuals with respect to charitable contributions. After a debate on the floor of the House this amendment was defeated.2 In the debate it was urged, among other reasons, that it would be dangerous to encourage directors to be generous with the money of their stockholders even for such laudable purposes. When the Revenue Bill of 1921 was under consideration the House Bill extended to corporations the provisions of the existing law allowing individuals to deduct contributions made for charitable purposes, but limiting the amount of such deductions to 5 percent of the net income. The Senate struck out the provision and the House receded.3 Hone of the subsequent revenue acts allow the deduction.
In all of the revenue acts, both corporations and individuals have been allowed to deduct the “ ordinary and necessary expenses ” paid or incurred during the taxable year in carrying on any trade or business. In Consolidated Gas, Electric Light & Power Co. v. United States, 65 Ct. Cls. 252, the Court of Claims points out that the words “ ordinary and necessary expenses ” in the Act of 1916 could not have been intended to be given the wide meaning now urged, but related to expenses paid in the maintenance and operation of the business. When the Act of 1916 was amended deductions for charitable contributions were allowed individuals, but were not extended to corporations. The subsequent revenue acts have never confused charitable contributions with the ordinary and necessary expenses of the business and have very guardedly limited the latter to expenses paid or incurred in carrying on the business.
In the Consolidated Gas, Electric Light & Power Co. case, supra, the court said:
Mnding the words we are called upon to construe in a taxing act, we must recognize the “ literal meaning ” of the words employed is most important because such statutes are not to be extended by implication beyond the clear import of the language used. Doubts are to be resolved in favor of the taxpayer. See Gould v. Gould, 245 U. S. 151, 153; United States v. Merriam, 263 U. S. 179, 188. In the latter case is cited with approval the rule stated by *424Lord Cairns in Partington v. Attorney General, L.R. 4 H.L. 100, 122, in tlie course of which it is said:
“ In other words, if there he admissible in any statute what is called an equitable construction certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.”
In Holt Plaid Mills, Inc., 9 B.T.A. 1360, the Board said: “The deduction of contributions by a corporation is not expressly authorized by statute, and is allowed only upon a clear showing of direct benefit to the corporation so as to clearly come within the term ‘ ordinary and necessary business expenses.’ ” See also Thomas Shoe Co., 1 B.T.A. 124; Poinsett Mills, 1 B.T.A. 6. Where the benefit has appeared direct we have allowed the deduction, cf. Sugarland Industries, 15 B.T.A. 1265; Evening Star Newspaper Co., 28 B.T.A. 762, and where it was remote we have disallowed it, cf. Elm City Cotton Mills, 5 B.T.A. 309, but in every case the burden rests with the taxpayer to prove the business character of the item. Cf. Killian Co., 20 B.T.A. 80; Alfred A. Nahman, 21 B.T.A. 121.
We can not speculate on what direct benefit flowed to petitioner from its contributions to the charitable organizations here enumerated. Apparently, it was motivated by the business received from the organizations as well as its own charitable inclinations. But petitioner has not shown a direct benefit flowing to it from its contributions. There is no claim that petitioner is the only department store in Buffalo that contributes, nor that such organizations trade exclusively with petitioner, and there is no'showing that the contributions influenced either the organizations or their employees to trade with it. The evidence does not convince us that the business received was given as a return for petitioner’s donations or that such donations were necessary to retain it. The amounts contributed to the various organizations bear no definite relation to the amount of .business received from them. Moreover, petitioner has given us no method by which we can determine what portion of the amount was due to its charitable inclinations and what portion was due to business received from the organizations. These contributions were undoubtedly a benefit to the community of which petitioner Avas a member. They were commendable, and may have had some effect in building up a general good will. Moreover, such contributions by business organizations are expected by the community and perhaps a refusal to support local charities would have some effect upon petitioner’s business. But we must assume that all these things Avere knoAvn to Congress at the time the revenue laAvs were enacted. Deductions must be supported by some legislative authority, and where Congress has made no provision for a deduction we can not supply that authority.
*425It is our opinion that contributions of this character do not fall within the classification of “ ordinary and necessary expenses ” as that phrase is used in the revenue laws, unless it is clearly shown that the expenses bear some direct relation to petitioner’s business. They rather fall within the charities enumerated in section 2S (n) of the Revenue Act of 1928. Congress has provided that such expenditures are, within certain limitations, deductible by individual taxpayers, but not by corporations. Such contributions if made public may have some advertising value, but they can hardly be classed as “ ordinary and necessary ” expenses of advertising. The respondent is sustained as to this issue.
The petitioner alleges it was affiliated with P. Centemeri & Co. during the taxable year 1928. In support of its allegation it has produced evidence to the effect that during 1928 and for many years prior thereto the certificates of stock of P. Centemeri & Co. were in the possession of petitioner’s treasurer, and that petitioner voted all but the qualifying shares at the stockholders’ meeting in February 1928. While these facts are evidentiary, they do not prove ownership in the petitioner. The stock was voted by the holders of record at the annual stockholders’ meeting in 1927, and at all meetings prior to that date and the treasurer of petitioner testified that no changes took place between March 1927 and February 1928. Petitioner has not shown how or when it acquired the stock, nor has it shown any fact conclusive of ownership. In this situation the determination of the respondent is sustained as to this issue. Having decided petitioner was not affiliated with P. Centemeri & Co. during the taxable year, it becomes unnecessary to consider the affirmative issues raised by the respondent.
Reviewed by the Board.

Decision will be entered for the respondent.

SteRNHageN and Trammell concur in the result.

 Revenue Act of 1928 :
SEC. 23. DEDUCTIONS PROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
(a) Expenses. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *.
* * * * * * *
(n) Charitable and other contributions. — In the case of an individual, contributions or gifts made within the taxable year to or for the use of:
*******
(2) any corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.
*******
SEC. 142. CONSOLIDATED RETURNS OP CORPORATIONS — TAXABLE YEAR 1928.
*******
(b) Computation and payment of tax. — In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of the net income properly assignable to each. There shall be allowed in computing the income tax only one specific credit computed as provided in section 26 (b).
(e) Definition of affiliation. — Por the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the stock of the other or others, oi (2) if at least 95 per centum of the stock of two or more corporations is owned by the same interests. As used in this subsection the term “ stock ” does not include nonvoting stock which is limited and preferred as to dividends.

 See Congressional Record, House, Sept. 17, 1918, vol. 66, pp. 10419-10421.

 Con. Kept. 486, 67th Cong., 1st sess., p. 36.