Appeal of Standard Brewing Co. , 6 B.T.A. 980 ( 1927 )

OPINION.

Marquette:

The first question presented by the record in this appeal is whether the petitioner is entitled to a deduction for obsolescence of good will and trade-marks in computing its net income under the Revenue Act of 1918. Counsel for the Commissioner admit that the petitioner had built up a good will of substantial value but contend that such good will did not become worthless when the petitioner abandoned the manufacture of beer, ale, and porter, but on the other hand was of value in the “ near beer ” business in which the petitioner continued to engage.

In passing on this question it is not necessary, for us to determine the value of the petitioner’s good will and trade-marks, or whether that value was destroyed by the advent of national prohibition. We have heretofore held in the Appeal of Manhattan Brewing Co., 6 B. T. A. 952, that under the Bevenue Act of 1918 a taxpayer is not entitled to any deduction from gross income on account of obsolescence of property of the character involved herein.. The. discussion in the opinion in that appeal is at length and fully sets forth the reasons upon which our conclusion is based, and its repetition will serve no useful purpose here. Upon the authority of the decision in the Appeal of Manhattan Brewing Co., supra, we hold that the petitioner herein is not entitled to any deduction in the year 1919 on account of obsolescence of its good will and trade-marks. See also Red Wing Malting Co. v. Willcuts, 15 Fed. (2d) 626; certiorari denied, 273 U. S. 763.

The second question is whether the petitioner in computing its net income for the year 1920 is entitled to deduct the amount of $25,000 deposited with the collector of internal revenue at Scranton, as an offer in compromise of certain claims of the Government against it arising from alleged violations of the National Prohibition Act. The petitioner contends that the amount in question represented a business expense.

We are of the opinion that the petitioner is clearly not entitled to the deduction claimed, regardless of whether an expenditure of the kind under consideration constitutes an ordinary and necessary business expense, which question we do not feel called upon to decide. The amount deposited by the petitioner with the collector in 1920 was for the purpose of compromising certain taxes and penalties to which the United States claimed the petitioner had become liable. The offer was not accepted, and, in March, 1921, it was increased to $45,000. The total offer was accepted by the Commissioner on May 10, 1921, and until that date the money so deposited with the collector remained the property of the petitioner. If the offer in compromise had not been accepted the Government would have been required to return the amount thereof to the petitioner. It is, therefore, apparent that the amount which the petitioner seeks to deduct from gross income for 1920 does not in fact represent an expense either paid or incurred in that year.

The third question involves the right of the petitioner to a deduction from gross income for the year 1920 on account of a loss claimed to have been sustained by it in that year upon the surrender of a certain policy of insurance. The record discloses that in the year 1916 the petitioner took out a life insurance policy on the lives of certain of its officers. During the years 1916 to 1919, inclusive, it paid in premiums on this policy the amount of $11,178.60, which it capitalized upon its books. In the year 1920, the petitioner surrendered the policy and received as the cash surrender value thereof $6,647. In computing its net income for the year 1920, it claimed as a deduction the difference between the total amount of premiums paid and the amount received upon the surrender of the policy. The deduction was disallowed by the Commissioner.

’ We regard the action of the Commissioner as correct. To the extent that the premiums paid by the petitioner created in it a right to a surrender value, they constituted a capital investment. To the extent they exceeded the surrender value, they constituted payment for earned insurance and were current expenses. Appeal of E. A. Armstrong, 1 B. T. A. 296. The surrender value of the policy was the measure of the investment and upon the surrender there was no capital lost.

Judgment will be entered for the respondent on 15 days’ notice, under Bule 50. .