Appeal of Dowling

OPINION.

Lansdon :

The facts with respect to the tangible property of the taxpayer used for distilling purposes are well established by the evidence. The parties have stipulated that at March 1, 1913, the aggregate value of buildings and machinery was $200,850; that depreciation sustained and allmved by the Commissioner from March 1,1913, to December 31,1917, was $57,562.08; and that the depreciated value of such assets, at January 1, 1918, was $143,287.92. Prior to January 1, 1918, the taxpayer discontinued the use of her property for distilling whiskey and thereafter none of the assets in question were used except for the purpose of storing and bottling goods theretofore manufactured.

On December 18, 1917, Congress adopted the joint resolution submitting the prohibition amendment to the Constitution to the States for ratification. In January, 1918, unexpected, favorable action on the amendment by several States indicated the certainty of early ratification by the requisite three-fourths of the States.

The effective date of the Eighteenth Amendment was January 16, 1920, and the Federal order requiring concentration of whiskey for storage purposes was promulgated November 1, 1923. These facts establish an obsolescence period extending from January 1, 1918, to November 1, 1923, during which the tangible property of the taxpayer used for distilling, bottling and storage purposes sustained obsolescence on account of Federal prohibition legislation.

The evidence discloses that at the termination of the obsolescence period the property in question had only a small salvage value. In 1925 an offer of $800 was made for Plant No. 59.- We have no information as to the relative value of the two plants and believe that $2,000 is a fair estimate of their combined salvage value at the date of their final abandonment by the taxpayer for the purposes of her business. The period of obsolescence is 5% years from December 31, 1917. We are of the opinion that the taxpayer is entitled to deduct aliquot parts of $143,287.82 for exhaustion, wear and tear, including obsolescence, in each income and profits-tax return made during such period, with due consideration for a salvage value of $2,000. Appeal of Manhattan Brewing Co., 6 B. T. A. 952.

The taxpayer also claims the right to deduction from gross income for each of the taxable years on account of the obsolescence of intangible assets consisting of trade names and good will. We are convinced that such intangibles had a value of at least $250,000 at the beginning of the period of obsolescence and that such value was lost during such period as a result of legislation. As the courts have held that intangibles of the nature here involved are not used in trade or business in a manner that subjects them to exhaustion, wear and tear and that obsolescence is merely an extension, or addition to the meaning of the words exhaustion, wear and tear, the taxpayer’s contention on this point is denied. Red Wing Malting Co. v. Willcuts, 15 Fed. (2d) 626; certiorari denied, 273 U. S. 763.

Judgment will he entered on 10 days’ notice, under Rule 50.

SteRNhagen dissents.