DocketNumber： Docket No. 25958.
Judges： Marquette
Filed Date： 10/25/1929
Status： Precedential
Modified Date： 11/2/2024
*2191 The petitioner
*1081 This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent for the year 1922 in the amount of $4,179.49.
FINDINGS OF FACT.
The petitioner is a resident of Framingham, Mass. For more than twenty years he has been engaged in the manufacture of paper and specialized paper products, and was the owner of all of the capital stock of Angier Mills and Angier Corporation, which corporations were engaged in the paper manufacturing business. He has also been during that time engaged in inventing many devices and machines, and developing secret processes for manufacturing various products from paper, especially from crinkled or crepe paper. The paper business with which he was connected requires the making of numerous and varied experiments and tests to develop new machinery *1082 and to create new uses for paper*2192 products. Many of said experiments are costly and result in failure. In the course of his business the petitioner has developed new processes and invented and perfected many new machines and devices for which he has obtained patents, and the patents covering said new machines and devices, which are more than fifty in number, are now held and owned by the petitioner.
During the year immediately following the close of the World War there was a great demand for raw paper known as kraft paper, which the petitioner used in his business, and being unable to purchase in the open market sufficient quantities for his needs, he decided to acquire a mill and make his own paper. With this object in view he acquired, in May, 1920, the capital stock of a corporation known as the Van de Carr Paper Co., located at Stockport, N.Y., and he was from that time until some time subsequent to the year 1922, the sole stockholder of the Van de Carr Paper Co.
In the summer of 1920 a business reaction came and on account of the cancellation of orders the Van de Carr Paper Co. was compelled to shut down. The plant was closed for six months and has never since that time been used for the purpose for*2193 which it was acquired.
During the year 1922 the petitioner was engaged in a series of experiments for the purpose of trying to invent a machine to wrap automobile tires and other annular objects with crinkled or flexible paper, and he used the plant of the Van de Carr Paper Co. as his laboratory for that purpose. The Van de Carr Paper Co. ceased to operate for its own purposes and had no income during said year. In the year mentioned the petitioner expended for consumable material, labor, etc., used in making said experiments, the amount of $53,170.59. Payments for these items were made by checks of the corporation but the money therefor was supplied by the petitioner, as the corporation had no money or resources other than its plant. At the end of the year 1922 the experiments on which the petitioner had been engaged were ascertained to be a total failure, and the petitioner abandoned them as a loss.
In his income-tax return for the year 1922 the petitioner claimed as a deduction from gross income the amount expended by him in conducting said experiments. The respondent disallowed the deduction.
OPINION.
MARQUETTE: The question here is one of fact, namely, whether*2194 the experiments carried on and the expenditures made, as set forth in the findings of fact, were the personal business and expenditures of the petitioner, or the business and expenditures of the Van de *1083 Carr Paper Co. The petitioner contends that the business of experimenting and inventing was his individual business and not that of the corporation, and that he used the company's plant as a laboratory for his own business and cleared his expense through the company's books and that the cost of the experiments which resulted in a total failure in 1922 constituted a loss to him which he is entitled to deduct in that year. The respondent takes the position that the expenditures were made on behalf of the corporation.
The record shows that the petitioner was in 1922, and had been for many years, actively interested in and closely connected with the business of manufacturing paper and articles therefrom. He was a stockholder and officer in several companies engaged in manufacturing paper and paper products and he had also for many years been engaged in inventing devices and machines and developing secret processes for manufacturing various products from paper. In 1922*2195 he engaged in a series of experiments for the purpose of trying to invent a machine to wrap automobile tires and other annular objects with crinkled or crepe paper. At that time he was the owner of all of the capital stock of the Van de Carr Paper Co., which was inactive. He therefore used the plant of that company as a laboratory in which to carry on his experiments and he cleared his expenses in connection with these experiments through the company's books. The money necessary to carry on the experiments was furnished by him.
The evidence satisfies us that the activities in question were carried on by the petitioner in his individual capacity, and that the loss resulting therefrom was his personal loss. That it was his personal loss and that he is entitled to deduct the amount thereof in computing his net income are not changed or lessened by the fact that for convenience he used the corporation's plant and its offices.