Donnelly Brick Co. v. Commissioner ( 1927 )

OPINION.

Trammell :

The petitioner contends that it is entitled to a deduction in 1920 with respect to approximately one-half of the expenditures made in that year in building and installing the tunnel kiln, upon the ground that such expenditures were in the nature of experimental expenses.

While it is true that the tunnel brick kiln had never before been used in burning common brick and the petitioner was the first to use it for that purpose, this fact does not establish the right to the deduction claimed. The petitioner acquired a capital asset. During 1920 the kiln was only partly completed and it was not known during that year that any of the parts or material used would ever have to be abandoned prior to the exhaustion of their normal useful life. This fact was not ascertained in 1920, and most of the parts •and material were not scrapped until 1923 or subsequent thereto. The parts when acquired had an expected life of at least more than a year.

We see no reason, under the facts in this case, to depart from the ordinary rule relating to the acquisition of capital assets. When capital assets become useless for the purpose for which acquired and are scrapped or abandoned, deductions may be allowed with respect thereto, or if it can be foreseen in advance that assets will have to be scrapped and abandoned because they can not be used in the business, a reasonable deduction may be allowed. The petitioner, however, in 1920 had no knowledge that the parts or material entering into the kiln would have to be scrapped or abandoned or replaced on account of not being suitable for the purposes for which acquired or installed.

The petitioner contends -that the tunnel kiln was like a machine and not a building, but this to our mind is not material. It was, in any event, a capital asset, the cost of which the taxpayer was entitled to have returned to it over the life thereof. While the evidence shows that the installation of this kiln was in the nature of an experiment by the petitioner and it was not known whether it would work successfully or not, this is not sufficient, in our opinion, to entitle the petitioner to the deduction claimed as ordinary and necessary expense. The expenditure was for the acquisition of capital assets. The fact that the capital asset had never been tried before for the particular purpose for which it was acquired by the petitioner does not change its character to an expense item. The acquisition of such property was not an ordinary, current, annual occurrence. It was acquired for use over a period of years.

Judgment will be entered for the respondent.