Opinion
No. 8145.
Argued April 21, 1943.
Decided April 23, 1943.
On Petition for Review of Decision of United States Board of Tax Appeals.
Petition by Bobrow Bros., Inc., to review a decision of the Board of Tax Appeals redetermining a deficiency in the tax imposed by the Commissioner of Internal Revenue. The petitioner was a corporation engaged in business as a manufacturer and seller of cigars. It maintained its books and filed its federal income tax returns on an accrual basis. On its returns for the years 1931 to 1940, inclusive, except for the year 1936 when the taxpayer reported a net income, it sustained net losses. During 1936 the taxpayer imported tobacco which was stored in a bonded warehouse, and the duties on such tobacco were paid by the taxpayer in 1937 and added to its cost of inventory as permitted by Treasury Regulations. The taxpayer claimed that it was entitled to deduct as taxes the import duties on the tobacco in computing its income tax for the year 1936 under Revenue Act 1936, § 23(c), 26 U.S.C.A. Int. Rev.Acts, page 827. The Board of Tax Appeals held that the taxpayer both on its books and in its income tax returns for all years prior to, subsequent to and including the tax year having consistently elected to treat import duties as cost of inventory and not as taxes could not secure a refund by being permitted to deduct the import duties involved as taxes paid or accrued under the Internal Revenue Act provision.
Decision vacated and cause remanded.
Leonard J. Schwartz, of Philadelphia, Pa. (Jerome J. Rothschild and Fox, Rothschild, O'Brien Frankel, all of Philadelphia, Pa., on the brief), for petitioner.
Arthur Manella, of Washington, D.C. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.
Before MARIS and GOODRICH, Circuit Judges, and GANEY, District Judge.
For the reasons set forth in the memorandum opinion of the Board of Tax Appeals the decision of the Board upon the right of the petitioner to deduct as taxes certain import duties in computing its income tax for the year 1936 is affirmed. The decision, however, includes an adjudication of the petitioner's liability for undistributed profits tax for the same year which may be affected by the provisions of Section 501(a)(3) of the Revenue Act of 1942, 26 U.S.C.A. Int.Rev.Acts. Accordingly upon the joint motion of the petitioner and the respondent the decision of the Board is vacated and the cause is remanded to the Tax Court of the United States for the determination by it of the application and effect, if any, of the provisions of Section 501(a)(3) of the Revenue Act of 1942 upon the liability of the petitioner for undistributed profits tax for the year 1936.