Opinion
Docket No. 12823.
1948-06-30
THE SCHNEIDER GROCERY COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Roger K. Powell, Esq., for the petitioner. John O. Durkan, Esq., for the respondent.
A deduction claimed by and allowed to the petitioner in its 1937 return as a casualty loss from flood, held, properly disallowed by the respondent under section 711(b)(1)(E) in determining petitioner's average base period net income for the purpose of computing excess profits tax for 1943 and 1944. Roger K. Powell, Esq., for the petitioner. John O. Durkan, Esq., for the respondent.
The respondent has determined deficiencies in petitioner's excess profits tax for 1943 and 1944 in the respective amounts of $4,931.68 and $5,045.35. The sole question for our determination is whether in computing the petitioner's excess profits credit, under section 713, the respondent erred in excluding, under section 711(b)(1)(E), a deduction of $14,740.28 claimed and allowed in petitioner's 1937 return as a flood loss.
A further issue relating to the computation of petitioner's excess profit credit for 1943 and 1944, on account of a sales tax of $6,947.50 paid to the State of Ohio in 1936 but refunded to the petitioner in 1939, has been conducted by the respondent.
Some of the facts have been stipulated.
FINDINGS OF FACT.
The petitioner is an Ohio corporation , with its principal office in Cincinnati, Ohio. Its income and excess profits tax returns for 1943 and 1944 were filed with the collector for the first district of Ohio.
The petitioner for a number of years has owned and operated a chain of grocery stores in Cincinnati. In 1937, four of its stores and a warehouse were inundated by the flood waters of the Ohio River, which reached an unprecedented flood stage in that year of approximately 80 feet. The petitioner suffered extensive flood damage to inventory, equipment, and buildings. It was forced to move a large portion of its merchandise to other storage space, some of which it had to rent. It claimed and was allowed a loss deduction in its 1937 income tax return of $14,740.28, representing the damage to merchandise, equipment, and fixtures and the cost of necessary repairs.
In determining the petitioner's excess profits tax for 1943 and 1944, the Commissioner computed base period income by excluding the 1937 flood loss deduction claimed in its return for that year.
OPINION.
LeMIRE, Judge:
We think that the Commissioner's disallowance of the amount in question in computing the petitioner's excess profits credit was in accordance with the statute. Section 711(b)(1)(E) provides that in computing the base period excess profits income ‘Deductions under section 23(f) * * * shall not be allowed.‘ The petitioner does not deny that it claimed the deduction of the amount of $14,740.28 in its 1937 return under section 23(f), or that the deduction was allowed, but it contends that all or a part of such amount represented ordinary and necessary expenses which are not required to be disallowed in computing base period income.
It is to be noted that in this case the petitioner opposes the disallowance of the casualty loss under section 711(b)(1)(E), whereas, in the usual case the petitioner seeks to benefit from the disallowance, in order to gain an increase of average base period net income. The respondent explains this reversal of positions in his brief thus:
* * * In the instant case, should petitioner prevail, its excess profits net income for 1937 will be decreased but its base period income will be increased due to the application of section 713(f), the so-called ‘growth formula.‘
However, the petitioner has not asserted in this proceeding any claim under section 713(f). The allegations of error, as set forth in the petition, are the Commissioner's:
* * * Failure to exclude from the excess profits net income for the year 1937, as used in computing petitioner's excess profits credit, the sum of $7,976.24 (also $6,764.04, making a total of $14,740.28) erroneously included in said income as an abnormal loss, due to casualty.
Aside from the fact that the evidence falls far short of proving what part, if any, of the amount in question might properly have been treated in the 1937 return as ordinary and necessary expenses, the petitioner's contentions are not well founded under the law. The statute requires the disallowance not of losses in the nature of casualties, but of ‘Deductions under section 23(f).‘ We pointed that out in Consolidated Motor Lines, Inc., 6 T.C. 1066. The amounts there in dispute were not taken as loss deductions and did not come under section 711(b)(1)(E). In the instant case the disputed amount was taken and allowed as a deduction under section 23(f). The statute therefore requires its disallowance.
Decision will be entered under Rule 50.