Charles M. Monroe Stationery Co. v. Commissioner

CHARLES M. MONROE STATIONERY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Charles M. Monroe Stationery Co. v. Commissioner Docket No. 18336. United States Board of Tax Appeals 15 B.T.A. 1227; 1929 BTA LEXIS 2709; April 2, 1929, Promulgated *2709 1. The doctrine of res adjudicata did not, under the Revenue Act of 1924, operate to make a decision in a former case involving the years 1918 and 1919 conclusive as to a subsequent proceeding for the years 1920, 1921, and 1922. Union Metal Manufacturing Co.,4 B.T.A. 287, followed. 2. Loss of a department of the business carried on by petitioner denied where loss was sustained in years prior to those here involved and where cost of assets constituting the department of the business not proven. George C. Mackay, Esq., for the petitioner. Brice Toole, Esq., for the respondent. MILLIKEN *1228 This proceeding results from the determination of the respondent of deficiencies in income and profits taxes for the years 1920, 1921, and 1922 in the respective amounts of $1,382.59, $2,412.08, and $215.48. Six errors were assigned by the petitioner to the determination of the respondent, as follows: (1) Refusal of the Commissioner to permit the taxpayer to deduct $25,000, or any part thereof, for the loss of useful value of intangibles or for loss of the taxpayer's mail-order department in operating for the years 1920 to 1922, *2710 inclusive. (2) Including as additional net income for the year 1920 excessive depreciation of $148.96; gain on sale, $528.73; and obsolescence of trade-marks, $5,000. (3) Adjusting and charging in 1920 the invested capital as reported by taxpayer by making additions thereto to reflect the above items and specifically restoring trade-marks that had been charged off by the taxpayer. (4) Including, as additional net income for the year 1921, excessive depreciation of $343.28; additions and betterments, $928.59; and trade-marks charged off, $5,000. (5) Adjusting and charging invested capital as reported by the taxpayer for the year 1921 by making additions thereto to reflect the above items and particularly restoring trade-marks, $15,000. (6) Including as additional net income for the year 1922 excessive depreciation, $392.48; trade-marks and obsolescence, $5,000; and gain on sale, $124.31. FINDINGS OF FACT. The findings of fact in , except as they relate to the mail-order business subsequent to the war, are incorporated in and made a part of the findings of fact in this proceeding as fully as if set forth in full*2711 herein. When petitioner was incorporated in 1905 it paid capital stock in the amount of $25,000 to Charles M. Monroe for certain trade-marks, trade-brands, and a mail-order business which the latter had acquired and built up over a period of years. The mail-order business was carried on under the name of Monroe Tablet and Box Paper Co. and as an independent and individual unit of petitioner. At the date of organization the petitioner placed on its books an entry of $25,000 evidencing the assets acquired from Monroe and so carried the asset account unimpaired by any charge thereto until the year 1918. In the year 1918, by reason of certain regulations of the War Industries Board, the petitioner was unable to place orders for merchandise that bore its trade-names, trade-marks, etc., for the reason that the manufacturers who were then operating under the regulations of the War Industries Board refused to accept or fill *1229 such orders. Due to its inability to secure such merchandise, the board of directors of petitioner decided to discontinue the mail-order business acquired from Monroe. Accordingly, an entry was made on the books of account charging off at the rate*2712 of 20 per cent per year, or $5,000 each year, beginning in the year 1918 and continuing through the year 1922. The mail-order business was carried on and developed by means of advertising, sending catalogues, writing letters, and sending samples. After the first eight months of the year 1918 practically no orders were received by the mail-order department and by the years 1920, 1921 and 1922, no orders whatsoever were received. Petitioner has not, since the year 1918, sought to revive the mail-order business. Petitioner continued to use, and still uses, in its business many of the trade-marks and trade-names which it acquired from Monroe. Petitioner purchased an automobile truck for use in its business, but found that its trucking could be carried on with less expense by employing outsiders. It then sold its automobile truck to one of its employees, who agreed to pay therefor by the application of trucking charges to the sales price. The owners of a building adjoining the building which petitioner occupied had been furnishing the latter with heat, and when the former increased the charge for supplying heat from $27.50 per month to $107 per month, petitioner decided that*2713 it would be less expensive to install a furnace in the building which it occupied and rented. Petitioner in the year 1921 installed a furnace at a total cost of $900. The lessor of the building agreed to reduce the monthly rental by reason of the installation of the furnace by petitioner. The furnace installed by petitioner was given to the lessor of the building at the expiration of petitioner's lease. OPINION. MILLIKEN: Counsel for the respondent objected to the introduction of any evidence in this proceeding on the ground that the doctrine of res adjudicata precludes the introduction of any proof as competent evidence in this appeal and asks us to affirm the deficiencies now asserted on the basis of the decision in . We have heretofore passed on this question adversely to the respondent's contentions in . Counsel for the petitioner at the hearing had in this proceeding stated that the principal error to be alleged was as concerns the claim for a loss deduction by reason of the abandonment of the mail-order business. No testimony was introduced relative*2714 to the loss claimed as concerns trade-marks or trade-brands or other intangibles. Petitioner claims it is entitled to *1230 a deduction of $5,000 for each of the years in question due to the loss of the mail-order business which it discontinued in the year 1918. There was paid to Monroe the sum of $25,000 for trade-marks, trade-brands, and the mail-order business which that individual had built up prior to the organization of petitioner and which upon incorporation he sold to petitioner. The mail-order business was discontinued, due to the inability to secure merchandise with which to carry on the same. Petitioner believed that it would take five years to sell the merchandise then on hand and hence the cost of the assets purchased from Monroe should be deducted over a period of five years. The decision in the prior proceeding, , was consistent with the facts there presented and the contention of the petitioner. In this proceeding we have a different state of facts with reference to the continuance of the mail-order business, as well as different contentions of the petitioner. The evidence is now clear that prior to the years in question the*2715 mail-order business had ceased to function and not one cent was derived therefrom by petitioner during the years in controversy. In fact, the mail-order department ceased to be an income-producing factor in the business in the year 1918. The loss, if any, was sustained prior to the years before us. The mail-order business, along with certain valuable trade-marks and trade-brands, was purchased from Monroe for the lump sum of $25,000. We do not know the amounts specifically paid for the mail-order business. The petitioner has continued to use, and still uses, in its business many of the trade-marks and trade-brands which it acquired from Monroe and from all we know, the chief value represented in the purchase may relate and attach to the same. The respondent did not err in failing to allow the deduction claimed. Petitioner seeks a deduction of a loss incident to the sale of an automobile truck. We do not know the cost of the truck, the depreciated cost at date of sale, or the price at which the truck was sold by petitioner. Respondent sustained. Petitioner also seeks a deduction representing cost of a furnace which it installed in the building which it rented. Petitioner*2716 had a lease on the building which it rented. The cost of the furnace should be spread over the life of the lease. We do not know the terms or conditions of the lease or other valuable concessions which petitioner may have received from the lessor that would have an important bearing as concerns the deductibility of the item in question. Respondent sustained. Relative to the other errors alleged, no evidence was introduced and respondent is accordingly sustained. Judgment will be entered for the respondent.