Opinion
No. 42086.
January 6, 1936.
Action by the Trojan Powder Company against the United States.
Petition dismissed.
This suit is for the recovery of $163,356.79, income and profits taxes alleged to have been overpaid for 1918. The two questions presented are (1) whether the plaintiff, having filed its return for 1918 in which it valued its inventories at cost, may now revise its income for that year by valuing its inventories on the basis of cost, or cost or market, whichever is lower; (2) whether amortization of war facilities allowable as a deduction under the revenue statutes from income for 1918 should be reduced for that year by the amount allowed and paid to plaintiff by the War Department subsequent to December 31, 1918, on account of the same war facilities, due to the cancellation of certain government contracts.
Special Findings of Fact.1. During the calendar year 1918 and at all times thereafter, except as hereinafter set forth, plaintiff was the parent corporation of a group of affiliated corporations consisting of the Trojan Chemical Company, Inc., a New York corporation; California Trojan Powder Company, a New York corporation; the Independent Non-Freezing Powder Company, a New Jersey corporation; and Pennsylvania Trojan Powder Company, a New Jersey corporation. During the year 1918, and from time to time thereafter, plaintiff succeeded to all the rights and claims, received all the assets, and assumed all the liabilities of all the other members of the affiliated group through the successive mergers and dissolutions of said members.
2. March 15, 1919, plaintiff filed a tentative consolidated income and profits tax return for itself and affiliated members for the calendar year 1918, in which its tax was estimated to be $26,598.05, and on March 22, 1919, it paid $6,649.57 of such estimated tax. June 16, 1919, plaintiff filed a consolidated return on form 1120 for itself and affiliated members for the calendar year 1918, showing a consolidated net income of $181,937.57 and a tax of $34,379.78. The difference between the installment of $6,649.57 paid upon the basis of its tentative return and the tax of $34,-379.78 reported on its return filed June 16, 1919, plus interest of $29.18, was paid during 1919.
In the consolidated return filed June 16, 1919, plaintiff was requested to state the basis upon which the inventories used in determining the net income shown in such return were valued and in reply to that request stated "cost basis."
Both the tentative return and the return filed June 16, 1919, were prepared by plaintiff's employees and were duly signed and sworn to by appropriate officers. of plaintiff.
3. Beginning December 29, 1923, plaintiff and each of its affiliated members jointly and separately filed waivers extending the statutory period for making assessments and collections of tax for the years 1918 to June 30, 1927. There were also on file waivers by plaintiff and each of its affiliated members for the years 1919, 1920, and 1921, effective until June 30, 1927, or thereafter.
Subsequent to the filing of the consolidated return for 1918 on June 16, 1919, controversies arose between the Commissioner and plaintiff with respect to the affiliated status of the various corporations. On or about May 15, 1920, plaintiff filed executed affiliated corporation questionnaires not only for 1918, but also for 1917 and 1919. From the facts presented, the Commissioner determined June 18, 1920, that plaintiff was not affiliated with any other corporation for 1917, but that it was affiliated with some of the corporations for 1918 and 1919. The subsidiaries excluded were held to be required to file separate returns. August 13, 1920, and November 3, 1924, the Commissioner made further rulings and modifications with regard to the affiliated status of plaintiff and its subsidiaries for 1918. March 23, 1927, the Commissioner determined that plaintiff and the various subsidiaries mentioned in the consolidated return were affiliated for 1918 and that plaintiff's tax liability, as finally determined by the Commissioner June 6, 1927 (finding 12), was on the basis of the affiliated status as set out in his letter of March 23, 1927.
4. During the World War, plaintiff was engaged in the production of war supplies, and at the termination of the war it had outstanding four contracts for the production of such supplies, for the completion of which the plaintiff and its subsidiaries had acquired plant facilities and materials. These were formal written contracts. In accordance with the terms of the contracts, the defendant, in December, 1918, notified plaintiff to suspend any further activity under the contracts pending negotiations of supplemental contracts providing for the cancellation, settlement, and adjustment of the existing contracts. Such notice was accepted by the plaintiff before December 31, 1918, and further activity under the contracts was forthwith suspended. However, no negotiations were had prior to the end of 1918 for the adjustment or settlement of the contracts. Such negotiations were begun soon thereafter.
The original contracts authorized cancellation and reimbursement under certain conditions in the event of the termination of the war. The following extract from one of the contracts is a typical provision contained in substantially similar language in all four contracts:
"Article IV. This contract being necessitated by a state of war now existing between the United States of America and the Imperial German and the Imperial and Royal Austro-Hungarian Governments, it is desirable and expedient that provision be made for its cancellation upon fair and equitable terms in the event of the termination or limitation of the war, or if in anticipation thereof or because of changes in methods of warfare the Chief of Ordnance should be of the opinion that the completion of this contract has become unnecessary. It is therefore provided that at any time, and from time to time, during the currency of this contract, the Chief of Ordnance may notify the contractor that any part or parts of the articles or material herein contracted for then remaining to be delivered shall not be manufactured or delivered.
"In the event of the cancellation of this contract, as in this article provided, the United States will inspect the completed articles or material then on hand and such as may be completed within thirty (30) days after such notice, and will pay to the contractor the price herein fixed for the articles or material accepted by and delivered to the United States. The United States will also pay to the contractor the cost of the component materials and parts then on hand in an amount not exceeding the requirements for the completion of this contract, which shall be in accordance with the specifications referred to in schedule 1 hereto attached, and also all costs theretofore expended and for which payment has not previously been made and all obligations incurred solely for the performance of this contract of which the contractor cannot be otherwise relieved. To the above may be added such sums as the Chief of Ordnance may deem necessary to fairly and justly compensate the contractor for work, labor, and service rendered under this contract."
As a result of the termination of the war, plaintiff found itself in a serious financial condition at the end of 1918, its current assets being approximately one-half of its current liabilities, and bankruptcy being imminent unless collection could be made from the defendant under the aforementioned suspended contracts. Plaintiff's responsible officers were accordingly busily engaged and exerting every possible effort from that time until some time in 1920 in effecting settlements under these contracts. The defendant, after the enactment of the Dent Act on March 2, 1919, 50 U.S.C.A. § 80 note, paid to affiliated members of plaintiff during 1919 and 1920 $221,256.25 on account of plant facilities and plant facility materials under three of the aforementioned contracts, and, in computing the amortization allowable to plaintiff and its affiliated members on the same facilities as set out in finding 5, that amount was deducted by the Commissioner.
During 1919 and 1920, pursuant to the Dent Act, defendant likewise paid to certain affiliated members of plaintiff, parties to two of the contracts mentioned above, $91,369.71 for the difference between the cost and market value of certain war contract inventories allocated to those contracts.
5. As indicated in finding 4, during the period of the war plaintiff was engaged in the production of articles for the prosecution of the war, and in its return for 1918 made claim for an amortization deduction of $786,994.20 on account of the facilities used in the production of such articles. Incident to such claimed allowance and as a result of differences between the Commissioner and plaintiff as to the correct amount allowable, various examinations were made of plaintiff's plant and facilities by the Commissioner's engineers, the first examination having been begun about March, 1922; after the original report on such allowance by one of the Commissioner's engineers on June 28, 1924, reports on a redetermination of the allowance were made September 22, 1926, and supplemental reports on November 24, 1926. Various conferences, both formal and informal, were held in connection with the engineers' examinations and the final determination of the amortization allowance. A summary of the amortization recommended for allowance in the reports of November 24, 1926, which shows the amounts allowed by the Commissioner in his final determination of plaintiff's tax liability, was as follows:
Amortization allowed by engineer before deducting amounts received by taxpayers under Dent Act ................................ $655,483.63 Amounts received by taxpayers during 1919 and 1920 under Dent Act, which amounts have been treated by engineer as further reduction of cost ............................. $221,256.25 Amount of amortization allowed by engineer in report dated November 24, 1926 ............. $434,227.38
6. Plaintiff's tax liability for 1917 was not finally determined until November 28, 1923, and during the period of its consideration from September 25, 1918, to the aforesaid date of final determination, various field examinations were made by internal revenue agents, protest and briefs were filed by plaintiff, and conferences were held between representatives of plaintiff and the Commissioner. The general questions which were in controversy for 1917 were invested capital, depreciation, obsolescence, and affiliation.
7. Plaintiff kept its books and rendered its returns on the accrual basis, and in the use of such a method of accounting in the business carried on by it inventories were a necessary factor. Its books and those of its affiliated companies were not closed until the early part of 1920.
8. December 31, 1918, plaintiff and its affiliated members had on hand inventories of raw materials, goods in process, and manufactured goods, herein referred to as commercial inventories, the cost of which appears on their books and was reported in their consolidated return for 1918 filed June 16, 1919, as $366,928.37. The actual cost of such inventories was $369,358.46, that is, $2,430.09 in excess of the cost shown on their consolidated return filed June 16, 1919. The cost or market value thereof, whichever was lower, was $285,513.16 at December 31, 1918. The difference between the latter amount and the cost as shown on the return, $81,415.21, was an adjustment disallowed by the Commissioner in his final determination of plaintiff's tax liability for 1918 as referred to in finding 12.
9. December 31, 1918, the members of the affiliated group, referred to in finding 4 as having certain war contracts, had on hand raw materials and goods in process allocated to those contracts and referred to herein as war contract inventories. The cost of the foregoing inventories as shown by their books and reported in the consolidated return filed June 16, 1919, was $261,768.26. The actual cost of such inventories was $257,069.19, that is, $4,699.07 less than the cost shown on the return. The cost or market value thereof, whichever was lower, was $170,398.55. The difference between the latter amount and the cost as shown on the return, that is, $91,369.71, was an adjustment disallowed by the Commissioner in his final determination of plaintiff's tax liability, referred to in finding 12.
No inventories of raw materials, goods in process, and manufactured goods included in the commercial inventories referred to in finding 8, or the war contract inventories referred to in this finding, were held by plaintiff and/or its subsidiaries on December 31, 1918, for delivery upon firm sales contracts, at fixed prices, theretofore entered into.
10. In September, 1924, plaintiff tendered to the Commissioner an amended consolidated income and profits tax return for itself and affiliated companies for 1918. In that return the basis of valuation of inventories was cost or market, whichever was lower, and in other respects, except for amortization, the information contained therein was substantially the same as that set out in the amended return filed February 11, 1927. At the time plaintiff submitted the amended return in September, 1924, its representative was advised that the Commissioner had reconsidered his prior affiliation ruling and that the amended return as prepared was not in accordance with the proposed revised ruling. The amended return was accordingly not accepted by the Commissioner.
As shown in finding 3, the Commissioner, on November 3, 1924, formally advised plaintiff of a change in the affiliation ruling shortly after the amended return was tendered. January 21, 1927, plaintiff was advised orally of the Commissioner's determination that plaintiff and the various subsidiaries here involved were affiliated throughout 1918. Such advice was confirmed by the Commissioner in his letter of March 23, 1927, as shown in finding 4. February 11, 1927, plaintiff filed an amended consolidated income and profits tax return for itself and affiliated members for 1918 which showed a consolidated net income of $155,270.43 and a total tax liability of $25,931.59. Such return conformed to the final affiliation ruling of the Commissioner as set out above, and in that return plaintiff stated that its inventories were valued on the basis of cost or market, whichever was lower. The schedules accompanying that return, except for amortization, were the same as those attached to the amended return as having been tendered to the Commissioner.
11. April 7, 1927, the Commissioner mailed a thirty-day letter to plaintiff setting out his determination of plaintiff's tax liability and that of its subsidiaries for 1918 and 1919. This letter was the first communication from the Commissioner advising plaintiff of the Commissioner's determination of plaintiff's tax liability and that of its affiliated members for 1918. In that letter the Commissioner used the net income and invested capital as shown in the amended return filed February 11, 1927, as a starting point for his determination and made various adjustments in connection therewith. Among the items disallowed was an item, "Inventory loss, $172,784.92," which is made up of two inventory adjustments of $81,415.21 and $91,369.71, referred to in findings 8 and 9, respectively. The reasons given for such disallowance were as follows:
"1. On your original return the cost basis was adopted and having exercised an option it cannot now be changed.
"2. It appears that the material included in the inventory at December 31, 1918, was for Government contracts and must be valued at cost for the reason that these contracts are considered to be firm sales contracts. The remaining goods included in this inventory covered by contracts with individuals are also firm sales contracts. Article 1584, Regulations 45 and 62."
12. June 6, 1927, the Commissioner mailed plaintiff a sixty-day deficiency notice showing his final determination of a deficiency of $149,688.02 for 1918 and advising plaintiff of its right to appeal to the United States Board of Tax Appeals. In such determination the Commissioner adhered to the ruling referred to in finding 11 with respect to the disallowance of the inventory loss.
No proceeding was filed by plaintiff in the Board of Tax Appeals on account of the deficiency set out above and the deficiency was assessed on the Commissioner's September, 1927, list, together with interest of $13,668.77, which was satisfied as follows: $2,738.53 credited from overpayment of 1919 tax; $160,368.20 paid November 10, 1927; and $250.06 abated.
The above payment of $160,368.20 was accompanied by a letter of November 5, 1927, from plaintiff in which plaintiff stated that it was making the payment under protest and called attention to certain alleged errors in the Commissioner's determination, among them being the inventory adjustment hereinbefore referred to.
13. Subsequent to the receipt of the letters from the Commissioner of April 7, and June 6, 1927, plaintiff filed a protest with the Commissioner and held three conferences with the Commissioner's representatives in which plaintiff urged that it should be allowed to value its inventories for 1918 at cost or market, whichever was lower, regardless of the manner in which its inventories were valued in its original return, but the Commissioner refused to change his position with respect to that item from that shown in the letters referred to above.
14. Plaintiff stated in its original returns for 1917 and 1919 that its inventories were valued upon the basis of cost. In each year there was a rising market in which market was in excess of cost. In its original return for 1920 plaintiff indicated that its inventories were valued upon the basis of cost or market, whichever was lower, and the same basis of valuation was used in returns for subsequent years.
15. Prior to the issuance of the deficiency notice of June 6, 1927, namely, March 14, 1924, plaintiff had filed a claim for refund of $34,379.78 for 1918 and had assigned the following basis therefor:
"That since filing the original return, amended claim for amortization of war facilities has been filed pursuant to request of the Commissioner of Internal Revenue, which discloses the fact that the taxpayer did not claim a sufficient deduction for amortization in its original return and that the amortization deduction, together with other adjustments of net income for the year 1918 results in a net loss for this taxpayer, thus disclosing an overpayment of income and profits taxes to the amount originally paid as above stated. It is suggested that this claim for refund be not treated as a separate case but that it be held in the files to await the final determination of the taxes payable by these taxpayers upon 1918 net income; such final determination will automatically fix the amount of the refund to which these taxpayers are entitled." This claim was rejected September 19, 1927.
16. November 5, 1931, plaintiff and its affiliated members filed a claim for the refund of $163,356.79, income and profits tax and interest paid for 1918, and assigned the following basis therefor:
"1. The Commissioner of Internal Revenue erred in disallowing a deduction from income for the calendar year 1918 for the adjustment of raw material, finished stock, and in process inventories at December 31, 1918, to cost or market, whichever is lower, thereby increasing in an unwarranted manner the net taxable income for the year 1918 in the amount of $81,415.21 involving a tax of $67,086.13.
"2. The Commissioner of Internal Revenue erred in applying certain amounts determined and received subsequent to December 31, 1918, pursuant to a settlement contract entered into between the taxpayer and the Ordnance Department of the U.S. Army under the Dent Act (an Act of Congress enacted during March 1919), which contract was negotiated and completed subsequent to December 31, 1918, as a reduction of the cost of the amortizable facilities amortized in 1918 which has for its effect the reverting of income received subsequent to December 31, 1918, to the calendar year 1918 thereby increasing the net taxable income for 1918 in an unwarranted manner in the amount of $221,256.25 involving a tax of $165,112.84."
October 3, 1932, plaintiff filed a statement under oath as an amendment of the aforesaid claim for refund as follows:
"As an additional reason for the allowance of the original claim for refund, the undersigned claims that the Commissioner of Internal Revenue erred in disallowing as a deduction from income for the calendar year 1918 losses sustained on account of raw materials and in process materials, provided for Government contracts and on hand at December 31st, 1918, in the amount of $91,369.71 on the basis that the cost thereof exceeded the market value at December 31st, 1918, involving a tax of $75,288.64. Legal justification for this deduction from income is found in decisions of the United States Supreme Court in United States Cartridge Company v. United States (Court Decision 460) 284 U.S. 511, 52 S.Ct. 243, 76 L.Ed. 431."
October 26, 1932, the Commissioner advised plaintiff that the above claim for refund would be rejected for the following reasons:
"1. That the method of reporting the inventory as at December 31, 1918, in your original return meets the requirements of the regulations with respect to the valuation of inventories. It is held that inasmuch as your company has exercised its option as to the basis for the valuation of its inventory as at December 31, 1918, it may not several years later attempt to change the basis of valuation. Therefore, your contention is denied.
"2. That a careful consideration of the amortization previously allowed for the calendar year 1918 indicates that it has been correctly computed in accordance with existing regulations, and your contention for an allowance of additional amortization is denied."
The claim was rejected November 8, 1932.
Warren W. Cunningham, of New York City (Chester M. Patterson, of New York City, on the brief), for plaintiff.
Guy Patten, of Washington, D.C. and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Section 203 of the Revenue Act of 1918 ( 40 Stat. 1060) provides for the use of inventories whenever in the opinion of the Commissioner of Internal Revenue they are necessary in order correctly to determine the income of the taxpayer and also authorizes the Commissioner to prescribe the basis upon which the inventories should be taken. Accordingly, the Commissioner on April 17, 1919, published Art. 1582, Regs. 45, which provided that inventories must be valued at (a) cost, or (b) cost or market, whichever is lower. This regulation further provided that "a taxpayer may, regardless of his past practice, adopt the basis of `cost or market whichever is lower', for his 1918 inventory, provided a disclosure of the fact and that it represents a change is made in the return." The return, as contemplated by the statutes and the regulations, was the return filed June 16, 1919. Florsheim Bros. Drygoods Co., Ltd., v. United States, 280 U.S. 453, 50 S.Ct. 215, 74 L.Ed. 542. The past practice of plaintiff, as disclosed in its 1917 return, was to value its inventories at cost, and at the time the 1918 return was filed the regulations above mentioned had been promulgated. The plaintiff, however, made no change in its 1918 return from the cost basis previously followed and it likewise followed the same practice of using cost in its return for 1919. No change was made in the basis of valuing the inventory until the 1920 return was filed, and a disclosure, to that effect, was set out in this return. Authority to make the change in the 1920 return was provided in a revised regulation (Art. 1582, Regs. 45, promulgated January 28, 1921). When the change was made in the 1920 return, no request was made by plaintiff for permission to revise the inventories for prior years on the new basis. The first suggestion of an intention to adopt a new basis for the valuation of inventories for 1918 occurred in 1924 when an amended return was tendered on the new basis, but this return was not accepted by the Commissioner because of other necessary adjustments, and it was not until 1927 that an amended return, disclosing the change, was submitted for 1918. In the meantime, the 1918 return had been under consideration for about eight years. The Commissioner refused to allow the change of basis for valuing the inventories from cost to cost or market, whichever was lower. We find no reason for reversing his decision. The use of the inventories and the basis on which they were to be valued were matters which, in the first instance, were delegated to the Commissioner and, where he has exercised the authority thus conferred upon him by Congress, the burden rests on plaintiff to show that his action was plainly arbitrary before a reversal of his decision can be had. Lucas v. Kansas City Structural Steel Co., 281 U.S. 264, 50 S.Ct. 263, 74 L.Ed. 848. The record in this case does not satisfy that burden.
Inventories for one year have a direct bearing on income of the prior and of the succeeding years. The opening inventory for 1918 should, unless a change in the basis of valuing the inventories be permitted, be also the closing inventory for 1917, and the closing inventory for 1918 should be the opening inventory for 1919. In carrying out the statutory authority to fix the basis for the valuation of inventories, the Commissioner provided for the use of either "cost, or cost or market, whichever is lower." By reason of the extent to which inventories of one year affect income of the prior and succeeding years, it would not further the orderly administration of the taxing acts to permit taxpayers to change their inventories from year to year at their pleasure. For these reasons, the Commissioner accordingly provided how a change could be made and that a change, once made, could be altered only with his permission. These were reasonable requirements and, inasmuch as plaintiff failed to comply therewith and has failed to present any exceptional circumstances which might have justified the Commissioner in departing from his regulations, we should not disturb his action. This conclusion is not in conflict with J. W. A. P. Howard Co. v. Commissioner, 15 B.T.A. 1096, for the reason that in that case the authority to make the change for the year in which it was sought had not been issued at the time the return was filed. See B. L. Marble Chair Co. v. United States, C.C.H. 1932, vol. 3, par. 9059, where a change was denied.
The next question is whether the amortization which the revenue statute authorized as an allowable deduction from plaintiff's income for 1918 should be reduced for that year by the amount allowed and paid to plaintiff by the War Department subsequent to December 31, 1918, on account of the same war facilities in respect of which the Commissioner was called upon to determine the allowable amortization deduction. The amount allowed and paid to plaintiff by the War Department arose from the suspension and cancellation of certain formal contracts with the government. During the World War, plaintiff was engaged in the production of war suppies under four contracts which were in full force and effect on November 11, 1918, and had acquired, or constructed, plant facilities and materials for the carrying out of these contracts. During December, 1918, the War Department notified plaintiff to suspend operations under the contracts with a view to negotiating supplemental contracts for the cancellation, settlement, and adjustment of the formal war contracts theretofore made, and during the same month the plaintiff, in pursuance of this notification, suspended operations under the contracts. No negotiations, however, were had between plaintiff and the War Department prior to December 31, 1918, for the settlement and adjustment of the contracts. Before any settlement had been arrived at or agreed upon between plaintiff and the War Department, as a result of the cancellation of the contracts, the act of March 2, 1919, 50 U.S.C.A. § 80 note, known as the "Dent Act," was enacted which authorized the Secretary of War to adjust, pay, or discharge any agreement, express or implied, which had been entered into during the war for the production of equipment, materials, supplies, or facilities connected with the prosecution of the war.
During 1919 and 1920, the War Department allowed and paid plaintiff the total of $221,256.25 on account of plant facilities, constructed or acquired, and for materials acquired incident to carrying out its war contracts. The amount allowed and paid by the War Department was referred to in the settlement agreement as having been made under the "Dent Act" although the contracts under which the amount was allowed and paid were formal written contracts.
When the Commissioner of Internal Revenue came to determine the amount of amortization deductible from gross income for 1918, he first computed the total amount allowable under the Revenue Act in the sum of $655,483.63, from which he then deducted the amount of $221,256.25, which had also been allowed and paid to plaintiff by the War Department in reimbursement of the war facilities constructed or acquired by plaintiff, for which amortization was allowable and on which the revenue statute authorized a reasonable deduction for amortization. The Commissioner thus determined and allowed the amount of $434,227.38 as a deduction from gross income for 1918. Plaintiff contends that the amount allowed and paid by the War Department should not have been used to reduce the amortization, otherwise allowable under the Revenue Act, inasmuch as the Dent Act, which authorized such payment by the War Department, was not enacted until March 2, 1919, and, therefore, that plaintiff had no claim against the defendant prior to December 31, 1918, which could be used in reduction of amortization allowable for that year. We cannot agree with this contention. The war contracts were suspended and in effect canceled prior to December 31, 1918. They were formal contracts and contained provisions for the payment by the government to the plaintiff of compensation in the event of their cancellation. At the time of cancellation in December, 1918, plaintiff had a claim against the government for full compensation for such cancellation and the War Department had authority under the contracts and existing law to adjust and settle such contracts independently of the Dent Act of March 2, 1919.
It is further urged by plaintiff that the Commissioner should have included the entire amount received by it from the War Department as a part of its gross income for 1919, though there is no suggestion by plaintiff that it reported that amount as income for 1919, or that any tax has been paid thereon.
The purpose of the amortization provision in the revenue statute was to give relief to taxpayers through reasonable deductions from war income on account of investments in war facilities which were not useful or could not be used to their full capacity after the termination of the war. It was a relief measure and should be construed liberally in order to accomplish its end, but liberality in construction should not be carried to the point of allowing a taxpayer a deduction on account of facilities in respect of the cost on which it has already received compensation or reimbursement. At the end of 1919 plaintiff had borne, or had obligated itself to bear, the cost of facilities on which the Commissioner of Internal Revenue computed the total amortization allowance. The contracts with the War Department provided for cancellation "upon fair and equitable terms" in the event of termination of war, and upon the termination of the war the contracts were canceled. Promptly after cancellation negotiations between the government and the plaintiff were begun for the purpose of arriving at the amount due plaintiff on account of facilities constructed and acquired by it for the fulfillment of the canceled contracts, and the amount of $221,256.25, which was allowed and paid to plaintiff, represented reimbursement in part for the cost of war facilities previously borne by plaintiff. The amount clearly did not represent income, but was a return of capital and, therefore, served to reduce the cost of the facilities in respect of which plaintiff was otherwise entitled to amortization under the revenue statute. In effect, the amount paid by the War Department was a part of the costs incurred by plaintiff which were assumed by the government. Inasmuch as plaintiff has been paid for these costs in their entirety, no occasion exists for giving any further relief on the same costs in the form of an amortization deduction. Appeal of G. M. Standifer Construction Corporation and Vancouver Home Co., 4 B.T.A. 525; Appeal of Peninsula Shipbuilding Co., 5 B.T.A. 739; Liberty Iron Works v. Commissioner, 6 B.T. A. 181; Rosenwald Weil, Inc., v. Commissioner, 11 B.T.A. 921; and A. J. Tower Co. v. Commissioner, 16 B.T.A. 101, affirmed (C.C.A.) 38 F.2d 618. No decisions to the contrary have been cited and we have found none. It follows that the petition should be dismissed, and it is so ordered.