1. Under § 214(a)(8) of the Revenue Act of 1918 and § 214(a)(8)
of the Revenue Act of 1921, which provide that, in computing net
income, there shall be allowed as deductions to individuals "a
reasonable allowance for the exhaustion, wear and tear of property
used in the trade or business, including a reasonable allowance for
obsolescence," the owner of a distillery and wholesale liquor
business is not entitled to a deduction for the "exhaustion" or
"obsolescence" of goodwill -- treated as embracing trademarks,
trade brands and tradenames -- during the years 1918, 1919, 1920,
and 1922, because of federal legislation which proscribed the
business. Following
Clarke v. Haberle Crystal Springs Brewing
Co., ante p.
280 U. S. 384. P.
280 U. S.
389.
2. Whether, under § 214(a)(4) of the Revenue Act of 1918, which
provides that, in computing net income, there shall be allowed as
deductions "losses sustained during the taxable year and not
compensated for by insurance or otherwise, if incurred in trade
or
Page 280 U. S. 388
business," the owner of a distillery and wholesale liquor
business terminated by federal prohibition legislation is entitled
to a deduction on account of the loss of goodwill -- not decided,
in absence of evidence sufficient to support the claim. P.
280 U. S.
389.
3. Where the owner of a distilling company, at the close of each
distilling season, charged to a special account which he regarded
as a personal investment, all whiskey manufactured and not sold,
selling it to the trade after two years, when it had matured, the
whiskey is properly regarded a a part of the stock in trade of the
business, and the owner is not entitled to the more favorable rate
allowed by the Revenue Act of 1921, § 206(a)(6), for taxes on
capital gain. P.
280 U. S.
389.
31 F.2d 675 affirmed.
Certiorari,
post, p. 539, to review a judgment of the
circuit court of appeals affirming, on appeal, an order of the
Board of Tax Appeals.
MR. JUSTICE HOLMES delivered the opinion of the Court.
This case raises the same questions as the preceding one,
Clarke v. Haberle Crystal Springs Brewing Co., ante, p.
280 U. S. 384, but
was decided the other way.
Renziehausen v. Commissioner,
31 F.2d 675. A writ of certiorari was granted by this Court on
October 14, 1929.
The goodwill here concerned (treated as embracing trademarks,
trade brands and tradenames) was that of a business of distilling
and selling whisky, warehousing, and a wholesale liquor business.
The Board of Tax Appeals adjudged a deficiency in the petitioner's
income tax returns for 1918, 1919, 1920, and 1922. A deduction
is
Page 280 U. S. 389
claimed by him, as in the other case, for exhaustion or
obsolescence of the goodwill, under the Revenue Act of 1918 (Act of
February 24, 1919) c. 18, § 214(a)(8), 40 Stat. 1057, 1067, using
the same words for individuals that are used in § 234 for
corporations, and under the Revenue Act of 1921 (Act of November
23, 1921) c. 136, § 214(a)(8), 42 Stat. 227, 240, using the same
words again. What has been said in the
Haberle Crystal Springs
Brewing Co.'s case is sufficient to dispose of this one, and
here there is the additional fact that, in 1919, the petitioner
became aware that he could manufacture whisky for medicinal
purposes, and did so until the Willis-Campbell Act of November 23,
1921, c. 134, 42 Stat. 222, was passed and the petitioner failed to
obtain a permit under it. The evidence does not seem to warrant an
alternative claim under the Revenue Act of 1918, § 214(a)(4), for
losses incurred in business in 1919, even if otherwise it could be
sustained.
The only other question that seems to need mention is raised by
an account headed "Old Whiskey" on the books of the Large
Distilling Company, under which name the petitioner did the
distilling business. At the close of each distilling season, the
whisky manufactured and not sold was charged to this account,
matured, and sold to the trade. The petitioner regarded this whisky
as a personal investment, but the whole business was his, and we
agree with the circuit court of appeals that the whisky was clearly
a part of the stock in trade, and therefore that he was not
entitled to the more favorable rate allowed by the Act of November
23, 1921, c. 136, § 206(a)(6), 42 Stat. 233, for taxes on capital
gain, excluding stock in trade. The petitioner has no reason to
complain of the allowance for obsolescence of the warehouses.
Decree affirmed.
MR. JUSTICE McREYNOLDS and MR. JUSTICE STONE concur in the
result.
