Opinion
Docket No. 22763.
1951-01-25
McDONNELL AIRCRAFT CORPORATION, A CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Thomas S. McPheeters, Jr., Esq., for the petitioner. George E. Gibson, Esq., for the respondent.
Thomas S. McPheeters, Jr., Esq., for the petitioner. George E. Gibson, Esq., for the respondent.
Jacquin D. Bierman, Esq., filed brief as amicus curiae.
1. Petitioner entered into a financing agreement with nine lending institutions to acquire funds necessary for financing its performance under war contracts with the War and Navy Departments, and under subcontracts with other prime contractors. This arrangement was made in accordance with Regulation ‘V‘ of Federal Reserve System, and was of the type commonly referred to during World War II, as a ‘V-Loan.‘ Petitioner's borrowings pursuant to this arrangement were evidenced by its notes, and the Government acted as guarantor for 90 per cent of the indebtedness evidenced thereby.
Held: The primary obligation to pay the principal and interest rested with petitioner, and not with the Government. Accordingly, the amounts received by petitioner under the ‘V-Loan‘ arrangement constituted borrowed invested capital within the purview of section 719, I.R.C.
2. Petitioner paid $5,000 to Washington University toward the establishment of an aeronautical engineering course within the latter's Engineering school.
Held: The payment so made is not deductible under section 23(a)(1)(A) as a business expense of petitioner.
This case involves deficiencies determined against petitioner, McDonnell Aircraft Corporation, for its fiscal years ended June 30, 1943, 1944, and 1945. The taxes involved are income taxes for fiscal years 1943 and 1944, excess profits taxes for fiscal years 1943 and 1945, and declared value excess-profits tax for the fiscal year 1943. The detail of such deficiencies follows:
+---------------------------------------------+ ¦ ¦ ¦Declared value¦Excess ¦ +----------+--------+--------------+----------¦ ¦Year ended¦Income ¦excess-profits¦profits ¦ +----------+--------+--------------+----------¦ ¦ ¦tax ¦tax ¦tax ¦ +----------+--------+--------------+----------¦ ¦6/30/43 ¦$803.12 ¦$2,216.87 ¦$26,427.76¦ +----------+--------+--------------+----------¦ ¦6/30/44 ¦9,864.70¦ ¦ ¦ +----------+--------+--------------+----------¦ ¦6/30/45 ¦ ¦ ¦293,728.32¦ +---------------------------------------------+
Three issues are raised by the petition. One has been withdrawn and the two remaining are:
1. Whether the amounts received by petitioner under a financing arrangement, commonly known as a ‘V-Loan‘, constituted borrowed capital of the petitioner within section 719 of the Internal Revenue Code.
2. Whether petitioner is entitled to a deduction under section 23(a)(1)(A) of the Internal Revenue Code for $5,000 paid to Washington University during its taxable year 1944, which it claimed on its return for that year as a contribution under section 23(q) and which has been disallowed in part because of the 5 per centum limitation contained in the latter section.
FINDINGS OF FACT.
The facts stipulated are so found.
Petitioner, McDonnell Aircraft Corporation, was incorporated under the laws of the State of Maryland, July 6, 1939. It was licensed to do business in the State of Missouri immediately after its incorporation. Petitioner was incorporated for the purpose of designing and manufacturing aircraft and aircraft parts. It has been engaged in that business since its incorporation. Its original place of business was located at Lambert-St. Louis Municipal Airport in the County of St. Louis, Missouri. During the calendar years 1941 through 1946, inclusive, it carried on its business of designing and manufacturing aircraft and aircraft parts in a number of locations in the City and County of St. Louis, Missouri, and in Shelby County, Tennessee. The business of petitioner from July 1, 1942, to June 30, 1946, consisted exclusively of designing and manufacturing aircraft and aircraft parts in accordance with prime contracts with the War and Navy Department of the United States of America, and with subcontracts under prime contracts between other manufacturers and the War and Navy Departments. Certain prime contracts and subcontracts called for the manufacture by petitioner of completed aircraft and of component parts of aircraft to be completed by others. Certain of such contracts called for the design and development by petitioner of aircraft and aircraft parts (including guided missiles and self-propelled practice target aircraft) on an experimental and developmental basis.
During 1942 and the early part of 1943 the petitioner financed its manufacturing and experimental operations under its prime contracts and subcontracts with the War and Navy Departments, all of which were cost-plus-fixed-fee contracts, by obtaining advance payments from the War and Navy Departments or the prime contractor. These funds were advanced under the customary advance payment agreements that were in effect at that time by the Services. This form of financing required petitioner to have a separate bank account for each advance payment agreement. It also involved detailed procedures and a great amount of accounting work. Petitioner was invited to bid on certain additional work by the Government which was to be let on a fixed-price basis, but felt that to intermingle its cost-plus-fixed-fee contracts with fixed-price contracts would bring about a situation which probably could not be properly administered from an accounting standpoint.
Disagreements as to accounting practices in connection with certain types of war contracts arose between the General Accounting Office and the Army Air Forces auditors. The contracting officer of the Army Air Forces, assigned to the petitioner's operation, thought this disagreement would perhaps delay reimbursement of costs to petitioner. With that thought in mind, and knowing that funds had to be made available to petitioner in order for it to perform its war contracts with the United States, he called to the attention of Lawrence A. Smith, petitioner's vice-president, who had charge of its finances and accounting, the following provision in the War Department's procurement regulations:
81.319 General— (a) War Department policy. It is the policy of the War Department that, in general, guarantees of loans, not in excess of 90 percent of the principal amount of the loan, are to be employed rather than direct loans or participations in loans; and that likewise, guarantees of loans are, in general, to be employed in preference to advance payments. It is not intended entirely to supplant advance payments, especially where the supply service concerned concluded that the negotiation or performance of a particular contract will be facilitated by the use of advance payments.
(b) Policy in connection with prime contractors. Guaranteed loans to a prime contractor are particularly preferable to advance payments to such a contractor in the following situations:
(1) Where a number of supply services are involved,
(2) Where the prime contractor is at the same time a subcontractor under other prime contracts,
(3) Where the prime contractor has contracts with several branches of the government,
(4) Where the prime contractor has a large number of contracts and purchase orders.
In the above situations, guaranteed loans avoid the difficulties of segregation, accounting and supervision which are inherent in advance payments.
(c) Policy in connection with subcontractors. Guaranteed loans to subcontractors are preferable to sub-advances even though the guarantee may exceed 90 per cent of the principal amount of the loan.
Thereafter, in December 1942, Smith, on behalf of the petitioner, started negotiating with the First National Bank, Mercantile-Commerce Bank & Trust Co., and the Federal Reserve Bank (all of St. Louis, Missouri) for a financing arrangement under Regulation ‘V‘ of the Federal Reserve System, which was in accordance with the War Department policy set out above.
These negotiations culminated in a financing agreement commonly known as a ‘V-Loan.‘ The Bank Credit Agreement dated January 2, 1943, was executed by petitioner and the nine participating banks on or about March 24, 1943. In this agreement and the supplements thereto, the petitioner is referred to as the ‘Company‘ and the Mercantile-Commerce Bank & Trust Company and the First National Bank in St. Louis as ‘Agents.‘ The latter bank is also referred to as ‘Trustee.‘ The stated purpose of the agreement was to create a line of credit in the amount of $6,000,000 for the purpose of financing the performance of the contracts and subcontracts (set forth in the agreement and the six supplements) which the Company had with the War and Navy Departments and other prime contractors. Under the terms of this agreement, portions of the amounts payable to the petitioner under some of these contracts were assigned as security to the First National Bank in St. Louis as agent for all of the banks and also for petitioner itself. Funds received under such assignment were to be deposited in a special account. They could be used by the petitioner to perform the contracts in question or to reduce its indebtedness to the banks.
The agreement recited:
1. The BANKS, each for itself and not for the others, hereby grant to the COMPANY a bank credit in the amount set opposite their respective names above, and the COMPANY hereby accepts said bank credit, which said bank credit shall be severally made and kept available for the period beginning from the date of this Bank Credit Agreement until December 31, 1945, or the date of the final audit by the Government of the last to be finally audited of the contracts hereinabove mentioned (whichever is earlier); provided, however, that the COMPANY, by giving thirty (30) days' written notice to the AGENTS, may terminate in whole or in part the bank credit hereby granted to it. The COMPANY covenants and agrees to pay to the BANKS, in case this bank credit be terminated in whole by the COMPANY so as to enable the COMPANY to obtain another Bank Credit Agreement, in which agreement the several BANKS are not offered the right to participate to the same extent in dollar amount as they participate in this Bank Credit Agreement, a termination fee of one-quarter of one per cent (1/4 of 1%) of the principal amount of this bank credit.
It further provided that the COMPANY should give at least five days' notice prior to the time funds were to be made available for its use; that each borrowing should be in an aggregate amount of $60,000 or multiple thereof; that each such borrowing should be apportioned among the participating banks, and that each should be evidenced by notes of the Company in a prescribed form set forth therein. In addition it contained restrictive covenants with respect to:
(a) the acquisition of its own stock by petitioner.
(b) the creation of mortgages or other bias or encumbrances on petitioner's property,
(c) other borrowings,
(d) the maintenance of net current assets by the petitioner,
(e) maintenance of insurance and payment of taxes,
(f) general covenants with respect to the conduct of petitioner's business and affairs.
The obligations of the bank to lend money under this agreement were conditioned upon the banks receiving, as additional protection to them, Guarantee Agreements executed by the War Department acting through the Federal Reserve Bank of St. Louis. Such Guarantee Agreements were authorized by the First and Second War Powers acts, 50 U.S.C.A.,App.sec. 601 et seq. and Executive Order No. 9112, 7 F.R. 2367, and were executed concurrent with the Bank Credit Agreement by the Federal Reserve Bank to each of the nine banks. Each Guarantee Agreement provided in substance that the War Department (Guarantor), upon demand, would purchase from each bank (financing institution) 90 per cent of the unpaid principal amount of the loans which it made to petitioner pursuant to the Bank Credit Agreement.
Within ten (10) days after the receipt by the Reserve Bank of written demand made by the Financing Institution, Guarantor will purchase from the Financing Institution for cash and subject to the terms and conditions herein stated, 90 per cent of the then unpaid principal amount of a loan which the Financing Institution proposes to make to McDonnell Aircraft Corporation, Robertson, Missouri, (herein called 'Borrower'), * * *
They also gave protection to the petitioner and the participating banks against cancellation of contracts by the Government without fault by the petitioner. They further provided the right to the Department to purchase 90 percent of the loans voluntarily at any time,
and contained numerous provisions with respect to administration of the loans, the disposition of collateral and similar matters. In substance and effect, the Agreements constituted 90 per cent guarantees of the loans.
The Guarantor, at any time subsequent to ninety (90) days after the date of the original advance on the loan and after giving ten (10) days' notice in writing to the Financing Institution, may purchase, and the Financing Institution shall sell to it, the entire unpaid principal amount of said loan.
Pursuant to the foregoing agreements the banks from time to time advanced money to the petitioner. The average daily amounts of these advances outstanding during the fiscal years of petitioner shown below were as follows:
+-------------------------+ ¦Year ended ¦Amount ¦ +------------+------------¦ ¦6/30/43 ¦$981,792.16 ¦ +------------+------------¦ ¦6/30/44 ¦5,222,622.44¦ +------------+------------¦ ¦6/30/45 ¦6,000,000.00¦ +------------+------------¦ ¦6/30/46 ¦4,209,729.20¦ +-------------------------+
No demand was ever made upon the War Department that it purchase any of the loans or any part thereof under these provisions of the Guarantee Agreements. The loan were in fact paid by petitioner and were never purchased by the Government. In his notice of deficiency dated February 1, 1949, respondent disallowed these loans as representing borrowed invested capital for the purpose of determining petitioner's excess profits tax liability.
On or about February 21, 1944, petitioner paid $5,000 to Washington University at St. Louis, Missouri, pursuant to the following resolution of its board of directors adopted July 14, 1943:
RESOLVED, that the officers be and are hereby authorized to appropriate $5,000.00 as a contribution to Washington University Engineering School upon condition that said appropriation comes within the allowable donations of corporations for Federal income tax purposes, and further provided that Washington University is able to obtain firm commitment to cover their budget of $123,000.00 for the Engineering School, and further provided that an aeronautical engineering course is included in the courses of study offered by the school.
Commencement of instruction in aeronautical engineering at the University was discussed orally and in correspondence by the officers of the taxpayer and the University prior to February 21, 1944. Because of wartime conditions and the draft, a limited number of engineering students were attending the school. Washington University Engineering School, beginning with its academic year 1944-1945, offered a number of courses in fields directly relating to and necessary for the training of aeronautical engineers. It has since maintained such courses or similar plans of study. These courses were taken by employees of McDonnell Aircraft Corporation, and over half of the students so enrolled were employees of petitioner.
Additional payments were made by petitioner to Washington University for the benefit of its School of Engineering subsequent to petitioner's fiscal year 1944.
During all the period involved, maintenance of a large force of trained aeronautical engineers was important in petitioner's business. Consequently, it was desirable that courses in aeronautical engineering be available in the St. Louis area, both to undergraduate students and at the graduate level for the benefit of its employees. Petitioner's officers and directors intended, at all times involved, to establish working relations with the School of Engineering, Washington University, and to assist the University in providing training in aeronautical engineering. They further intended to work out a cooperative program for the installation of wind-tunnel facilities which could be used in testing products designed and manufactured by petitioner.
Washington University is and was at all times herein mentioned a corporation organized and operated exclusively for educational and similar purposes within the meaning of section 23(q) of the Internal Revenue Code.
In its income tax return for its fiscal year ended June 30, 1944, petitioner deducted the $5,000 payment to Washington University as a contribution paid. Under petitioner's computation, the total of this and other contributions deducted was within the 5 per centum limitation established by section 23(q) of the Internal Revenue Code. After application of a loss carry-back from petitioner's fiscal year 1946, the total contributions so deducted exceeded such limitation by $3,505.77. This amount was disallowed as a deduction by respondent in his notice of deficiency.
Petitioner's tax returns for the period here involved were filed with the collector of internal revenue for the first district of Missouri.
OPINION.
VAN FOSSAN, Judge:
During the years involved herein petitioner was engaged in the manufacture and experimental development of aircraft and aircraft parts either under prime contracts with the War and Navy Departments or under subcontracts with other prime contractors. It was relatively a new corporation having been in existence only since July 6, 1939. Its capital was limited and in order to carry out its commitments additional funds were needed. Prior to the early part of 1943 the required funds were made available in the form of advance payments from the Government. At the suggestion of the Army Air Forces contracting officer assigned to petitioner's operations, negotiations were started which culminated in a financing arrangement known as a ‘V-Loan.‘ This arrangement was in line with the War Department policies set forth in the Findings of Fact.
This financing arrangement consisted of a ‘Bank Credit Agreement‘ and nine ‘Guarantee Agreements.‘ These agreements were executed concurrently. The ‘Bank Credit Agreement‘ was made between petitioner and a group of nine lending banks. It recited that petitioner and the banks wished to create a $6,000,000 line of credit to enable the petitioner ‘to borrow money from time to time, ‘ and that the money was to be used solely to finance petitioner's performance under certain limited contracts and other contracts to be designated in subsequent supplemental agreements.
The ‘Guarantee Agreements‘ were executed by each of the nine lending banks and the Federal Reserve Bank of St. Louis, acting as the fiscal agent of the War Department. They provided that upon 10 days' written demand the War Department would purchase 90 per cent of petitioner's outstanding indebtedness incurred pursuant to the ‘Bank Credit Agreement.‘ They also provided for voluntary purchase of the unpaid principal by the War Department.
Petitioner contends that the amounts received by it under this arrangement constitute borrowed invested capital within the meaning of section 719 of the Internal Revenue Code.
SEC. 719. BORROWED INVESTED CAPITAL.(a) BORROWED CAPITAL.— The borrowed capital for any day of any taxable year shall be determined as of the beginning of such day and shall be the sum of the following:(1) The amount of the outstanding indebtedness (not including interest) of the taxpayer which is evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed or trust, * * *(b) BORROWED INVESTED CAPITAL.— The borrowed invested capital for any day of any taxable year shall be determined as of the beginning of such day and shall be an amount equal to 50 per centum of the borrowed capital for such day.
Respondent's Regulations 112, section 35.719-1 provide, in part, that:
In order for any indebtedness to be included in borrowed capital it must be bona fide. It must be one incurred for business reasons and not merely to increase the excess profits credit. If indebtedness of the taxpayer is assumed by another person it ceases to be borrowed capital of the taxpayer. For such purpose an assumption of indebtedness includes the receipt of property subject to indebtedness.
It has been held that the borrowed funds must be used for essential purposes of the business and they will not constitute borrowed capital if they are used for activities entirely unrelated to the taxpayer's business. Mahoney Motor Co., 15 T.C. 118. They must be invested in the working capital of the taxpayer. They must be utilized for the earning of profits and must be subject to the risks of the business. Hart-Bartlett-Sturtevant Grain Co., 12 T.C. 760, affd. (CA-8, May 5, 1950), 182 Fed.(2d) 153.
Every formal requirement of section 719 and the regulations thereunder would appear to be met by the so-called ‘V-Loans‘ made by petitioner. These loans were made directly to the petitioner. They were evidenced by its notes and they were made solely for business purposes. The funds so acquired were needed and used for working capital and were subject to the risks of the business.
It is now well established, however, that strict formal compliance is not enough for an indebtedness to qualify as borrowed capital. There must be compliance in substance as well as in form. Player Realty Co., 9. T.C. 215; Brann & Stuart Co., 9 T.C. 614; Hart-Barlett-Sturtevant Grain Co., supra.
It is the respondent's position that these loans were made on the credit of the United States; that they were, in substance, an indirect method employed by the Government for making advance payments; that it was the Government upon which the banks actually placed their reliance and to which they looked as the real obligor, and that, therefore, such amounts do not qualify as borrowed capital under section 719. We are unable to agree.
As a factual matter it is inaccurate to state categorically that the banks never took into consideration the credit of the petitioner. The ‘Bank Credit Agreement‘ executed between petitioner and the nine lending banks contains certain specific covenants by which petitioner bound itself not to purchase or retire its own stock, create loans or other encumbrances, borrow money or dispose of any substantial portion of its assets. Affirmatively, petitioner agreed to maintain current assets, carry insurance, pay its taxes, fulfill its contracts and agreements and furnish the lenders with periodic statements of its financial condition. It was forbidden to pay dividends in excess of specified amounts. These strict covenants required by the lending banks are evidence that the petitioner's credit and assets were more than incidentally involved in the loans.
Furthermore, we can not agree that the arrangement was, in substance, merely an indirect method employed by the Government to make advance payments. The amounts received by petitioner were lent to it by third parties, the banks. The loans were evidenced by the notes of the taxpayer. The obligation to pay the principal and interest thereon rested primarily with petitioner. The fact that payments due petitioner under its war contracts were assigned to the lenders and payment was made directly to them, does not alter the character of the loans or constitute them advanced payments. Brann & Stuart Co., supra. Nor would the Government's assuming the role of guarantor of the loans change their status as borrowed capital. With the Government guarantee available to lending institutions, it was only natural that such institutions should desire it as an additional protection to them. The Government did not assume primary and direct liability for these loans made to petitioner. Until default by petitioner, the Government had no principal liability. Its liability was not only secondary to petitioner's personal liability but also to petitioner's assets pledged to secure the loan. It matters not whether, upon default, the lending institutions would look to the Government first as guarantor or to the petitioner. If the Government had been forced to fulfill its guarantee it would have been entitled to look to petitioner for reimbursement. DuVal's Estate v. Commissioner, 152 Fed.(2d) 103, certiorari denied, 328 U.S. 838. See In re: Jamison's Estate, (Mo., 1947) 202 S.W.(2D) 879.
Accordingly, we hold that the funds borrowed by petitioner and 90 per cent guaranteed by the Government, both in form and substance, constituted borrowed invested capital within the purview of section 719, supra.
The remaining issue involves the $5,000 payment made by petitioner to Washington University. Couched in the terms of pertinent statutes, the issue may be stated to be whether it is barred as a deduction under section 23(a)(1)(A), Internal Revenue Code, by section 23(a)(1)(B).
SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(a) EXPENSES.—(1) TRADE OR BUSINESS EXPENSES.—(A) In General.— All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, * * *(B) Corporate Charitable Contributions.— No deduction shall be allowable under subparagraph (A) to a corporation for any contribution or gift which would be allowable as a deduction under subsection (q) were it not for the 5 per centum limitation therein contained and for the requirement therein that payment must be made within the taxable year.
On or about February 21, 1944, petitioner paid $5,000 to Washington University pursuant to the resolution of its board of directors set out in our Findings of Fact. It is stipulated that Washington University is ‘a corporation organized and operated exclusively for educational and similar purposes within the meaning of section 23(q)‘
and it is conceded in petitioner's brief that its directors expected the payment to be treated as a contribution or gift within the purview of that section. In its return for the year ended June 30, 1944, petitioner included the $5,000 within its total deduction for ‘contributions or gifts paid.‘ As set up by petitioner, the entire amount of the deduction claimed did not exceed the 5 per centum limitation set out in section 23(q) supra. However, as a result of a net operating loss deduction carried back from a subsequent year and other adjustments, the respondent in his notice of deficiency reduced petitioner's net income for the fiscal year 1944 so that the total amount of the claimed deduction for contributions was no longer within the 5 per centum limitation. Accordingly, the respondent disallowed the deduction to the extent of $3,505.77.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(q) CHARITABLE AND OTHER CONTRIBUTIONS BY CORPORATIONS. In the case of a corporation, contributions or gifts payment of which is made within the taxable year to or for the use of:* * * *(2) A corporation, trust, or community chest, fund, or foundation, created or organized in the United States or in any possession thereof or under the law of the United States, or of any State or Territory, or of the District of Columbia, or of any possession of the United States, organized and operated exclusively for religious, charitable, scientific veteran rehabilitation service, literary, or educational purposes or for the prevention of cruelty to children (but in the case of contributions, or gifts to a trust, chest, fund, or foundation, payment of which is made within a taxable year beginning after December 31, 1948 only if such contributions or gifts are to be used within the United States or any of its possessions exclusively for such purposes), no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation. * * * to an amount which does not exceed 5 per centum of the taxpayer's net income as computed without the benefits of this subsection. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner, with the approval of the Secretary.
Petitioner claims that the $5,000 payment is nevertheless deductible under section 23(a)(1)(A), supra. In support of this claim it relies on section 29.23(a)-13 of Regulations 111 which provides, in part, that:
The limitations provided in section 23(a)(1) and this section apply only to payments which are in fact contributions or gifts to organizations described in section 23(q). For example, payments by a street railway corporation to a local hospital (which is a charitable organization within the meaning of section 23(q)) in consideration of a binding obligation on the part of the hospital to provide hospital services and facilities for the corporation's employees are not contributions or gifts within the meaning of section 23(q) and may be deductible under section 23(a) if the requirements of that section are otherwise satisfied. * * *
Respondent contends that in order for the payment to come squarely within the terms of these regulations, petitioner must now show that the $5,000 which was paid to Washington University, was not in fact a contribution or a gift, as claimed in its return, but was paid in consideration of a binding obligation to set up an aeronautical engineering course within the latter's engineering school. He argues that the evidence fails to show that the University was, in fact, bound to do anything to exchange for the money paid to it. We agree with respondent.
Until the argument that the $5,000 payment was deductible as a business expense was advanced here by petitioner, the payment had been considered by all to be a gift or contribution.
Albeit there are some facts giving color to petitioner's present claim, we believe the weight of the evidence preponderates in favor of the respondent. The communications between the parties preceding the payment refer to it as a contribution. The resolution, pursuant to which the $5,000 was paid, required that the University obtain commitments for an engineering school budget and contemplated the establishment of a course of instruction in aeronautical engineering and refers to the payment as a contribution or donation. Petitioner's directors expected the payment to be treated as a contribution for the purposes if Federal taxation and so conditioned the payment. Petitioner deducted the payment as a contribution in its tax return. The correspondence between the officials of petitioner and the University indicates that there was a common goal in the minds of both— the establishment of the above mentioned courses. This fact, however, proves nothing conclusively. The University could proceed with the project equally as well whether the payment was, as to petitioner, a gift or a business expense. Many, if not most, contributions to colleges are limited to support of some particular phase of activity and many are in consideration of the gifts of others. But these facts do not automatically render such contributions deductible as business expenses of the donor.
Looking at all the evidence, we have concluded, and accordingly hold, that petitioner is not entitled to deduct its $5,000 payment to Washington University as a business expense within the purview of section 23(a)(1)(A), supra.
Reviewed by the Court
Decision will be entered under Rule 50.