Yamhill Elec. Co. v. Commissioner

YAMHILL ELECTRIC CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Yamhill Elec. Co. v. Commissioner Docket No. 29270. United States Board of Tax Appeals 20 B.T.A. 1232; 1930 BTA LEXIS 1950; October 10, 1930, Promulgated *1950 Contribution made to the endowment fund of a local college, to assure its continuation as a substantial patron of petitioner, allowed as an ordinary and necessary business expense. Clarence Butt, Esq., for the petitioner. A. H. Murray, Esq., for the respondent. ARUNDELL *1232 Proceeding for the redetermination of a deficiency of $50 in income tax for the year 1923. The single error alleged is the failure of the respondent to allow as a business expense the sum of $400 contributed to the endowment fund of Pacific College. Most of the facts were agreed to. FINDINGS OF FACT. The petitioner is an Oregon corporation will its principal office in Newburg, Oreg. At some undisclosed time Pacific College, a small incorporated denominational school located at Newburg, Oreg., not being operated for profit, in order to meet the requirements of the United States Bureau of Education for the standardization of schools of its classification, started a campaign among the people residing in and around Newburg to raise an endowment fund of $100,000. Had the college not been able to raise the endowment fund to meet the requirements of the United States*1951 Bureau of Education it would not have been able to offer the same inducements as other like colleges or to function and continue its existence. Prior to 1922 the petitioner received "good returns" annually from Pacific College for light and power furnished it. In 1922 it received from the sale of light and power to the college the sum *1233 of $535.72, and in 1923 the sum of $663.03. If Pacific College discontinued its operations the petitioner would lose the revenue derived by it from the school. By raising the endowment the business flowing from the college to the petitioner would continue and become a valuable asset of the latter. In 1923 the petitioner paid the sum of $400 to the endowment fund of the college. The said amount was subscribed and paid to help the college raise the endowment fund required by the United States Board of Education and because of the fact that the college was a substantial patron of the petitioner. OPINION. ARUNDELL: Whether an item such as the one here is deductible as an ordinary and necessary expense of carrying on a trade or business depends largely upon the facts of each individual case. The facts here are not in controversy. *1952 The governing rule has been expressed in various ways. In , we said that the donation must represent "a consideration for a benefit flowing directly to the corporation as an incident to its business." In , it was said that the contributions, to be deductible as a business expense, "must have in a direct sense some reasonable relation to the taxpayer's business." In a recent Board case, , we said the deduction must fail unless the evidence shows in fact that the contribution is "reasonably motivated by or related to the proper conduct of the business." The latest court decision involving a question of this character says "The question always is whether, balancing the outlay against the benefit to be reasonably expected, the business interests of the taxpayer will be advanced." , reversing, in part, . Judging the issue in the light of these statements of the determining factor, we are convinced that the petitioner should prevail. The contribution, *1953 minor in amount when compared with the results accomplished, had for its purpose the continuation of the college as an institution sufficiently endowed to attract students to the city and financially able to purchase the petitioner's product. Inability of the college to raise the required fund would have made it necessary for the school to discontinue its operations, with a consequent loss of revenue by the petitioner. The raising of the fund enabled the college to remain in business and continue its business relations with the petitioner, an asset shown by agreement of the parties to be valuable. Decision will be entered for the petitioner.