Semon Bache & Co. v. Commissioner , 15 B.T.A. 183 ( 1929 )

SEMON BACHE & CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Semon Bache & Co. v. Commissioner

Docket No. 9744.

United States Board of Tax Appeals

15 B.T.A. 183; 1929 BTA LEXIS 2904;

February 1, 1929, Promulgated

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Loss deduction disallowed in absence of evidence establishing basis for determining loss.

Dean Hill Stanley, Esq., and Alfred C. Frodel, Esq., for the petitioner.

Harry Le Roy Jones, Esq., and John D. Kiley, Esq., for the respondent.

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SIEFKIN

This proceeding, involving income taxes for the years 1919 and 1920, by motion duly granted under Rule 62(a), came on for hearing upon an issue not involving sections 327 and 328 of the Revenue Act of 1918. The sole question submitted for our consideration is whether a deduction is allowable for the year 1919 by reason of a loss incurred during the World War by the destruction of a stock of models and other equipment in petitioner's branch office located at Charleroi, Belgium. It is alleged in the amended answer that the loss was compensated for by an award of the Mixed Claims Commission.

FINDINGS OF FACT.

Petitioner is a New York corporation with principal offices in New York City. It was organized in 1905 to take over a business theretofore conducted as a partnership. About the year 1903 the business, formed to import Belgian plate and window glass, etc., started importing glass specialties and products manufactured abroad. The Charleroi branch was established about that time.

To facilitate the transmission of orders and to eliminate delays occasioned by the time required to provide and send samples and templates (exact models) of the specialties desired, the petitioner collected and catalogued duplicate samples of the articles manufactured abroad for which a demand was thought to exist in this country. One of the samples was classified, labeled and retained by the branch office and the other was similarly classified and kept at the New York Office.

As the specialty business developed the collection of samples was enlarged by additions from time to time. It was the policy of petitioner to visit the various manufacturers of Europe and purchase samples of their various products. Samples were acquired showing variations of color, execution made by the European manufacturers of lines discovered to be in demand by petitioner's salesmen in this country or discovered abroad and likely to be imported to the United States.

At the outbreak of the war the collection of samples, etc., constituted a large museum of the specialty products of European manufacture. These were all labeled and catalogued for ready reference to facilitate orders. The cost of the collection (including incidentals to cataloguing) together with a large collection of precision instruments for measuring thickness, etc., patterns and expensive hard steel dies (which petitioner could give or have made by manufacturers for certain articles, like lenses), from 1905 to 1914, inclusive, was $66,000.44. The samples, etc., in the collection proper tended to appreciate in value. The articles added thereto became a permanent part of the collection, aside from the element of breakage.

The employees in such branch office increased from about 4 or 5 in 1903 to about 28 or 30 at the outbreak of the war in Europe in August of 1914. The employees did a large amount of routine work in the transportation and classification of samples. Only about 3 or 4 were regularly engaged in such routine tasks. The remainder of the employees were engaged in traveling - making personal visits to European manufacturers to solicit samples, prices, etc. The work of some 22 to 25 of the employees required them to handle glass, and considerable breakage occurred.

Soon after the outbreak of the World War in August of 1914, the manager of the branch office fled to England. Nothing further was learned of the branch office until a representative visited Charleroi in February of 1919 and found the office occupied by English army officers. All that remained of the collection was a pile of rubbish in one of the cellars. Nothing contained in such office at the outbreak of the war had any salvage value, save some office furniture which was apparently recovered at that time. Diligent inquiry failed to disclose the year or years in which the destruction of the property took place.

Petitioner filed a claim in the amount of $68,353.89 for compensation for the loss of the branch plant, wich the Mixed Claims Commission, United States and Germany, about the year 1922. An award was made in 1925 to the United States on behalf of petitioner in the amount of $12,353.45, with interest from November 11, 1918. Application for payment thereof was made by petitioner to the United States Treasury on April 6, 1928. Payment in the amount of $18,310.05 was made by check dated June 13, 1928.

OPINION.

SIEFKIN: We are without sufficient evidence to establish the basis for computing the loss deduction claimed. The record shows only that $66,000.44 was expended for samples, etc., added to the collection, and for precision measuring instruments and dies, and that the articles in the collection tended to enhance in value. The latter fact of appreciation tends to show the costs of the articles were less than their value on March 1, 1913, were it not for the fact of breakage. The extent of breakage is, at least, in doubt and we can not resolve doubtful facts in favor of the petitioner. Also, expensive instruments and dies were included in property destroyed. The record does not show anything respecting depreciation or useful life of such articles. We can not assume that they suffered no depreciation over such a long period of time or that they were not worn out or lost prior to the basic date - to say nothing of our inability to determine the relation between their original cost and their value on March 1, 1913.

Accordingly, we must approve the denial of the loss deduction claimed for the year 1919.

The case will be restored to the calendar for further proceedings under Rule No. 62.