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Fort Pitt Bridge Works v. Commissioner of Internal Revenue

October 2, 1937

FORT PITT BRIDGE WORKS
v.
COMMISSIONER OF INTERNAL REVENUE



Petition to Review the Decisions of the United States Board of Tax Appeals.

Author: Davis

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

These cases are here on petition to review orders of redetermination of the United States Board of Tax Appeals involving income and profits taxes of the petitioner for the years 1917, 1918, and 1919, arising out of a contract for the material for 21 hangars of the dimensions of 110 feet x 160 feet to be invoiced at 5.7 cents per pound. The proceedings for all three years were consolidated.

Three questions are involved in this case:

1. Was the petitioner entitled to a special assessment? The petitioner says that the Commissioner and Board of Tax Appeals erred and abused their discretion in not allowing it to have its taxes for 1917 determined by a special assessment under section 210 of the Revenue Act of 1917 (40 Stat. 307), and for the years 1918 and 1919 under sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093).

Profits taxes for those years were ordinarily computed in accordance with section 201 of the Revenue Act of 1917 (40 Stat. 303), or section 301 of the Revenue Act of 1918 (40 Stat. 1088), on the basis of specified percentages of the invested capital of the corporation as determined under section 207 of the Act of 1917 (40 Stat. 306) or section 326 of the Act of 1918 (40 Stat. 1092).

If, however, the Secretary of the Treasury is unable satisfactorily to determine invested capital, or if the taxpayer, as here, makes application for special assessment for the years 1918 and 1919, and the Commissioner finds that he comes within one of the classes enumerated in section 327 of the Act of 1918, then he may be assessed for those years under section 328 of that act. If the taxpayer is entitled to a special assessment, the tax will be the amount which bears the same ratio to the net income of the taxpayer for the taxable year as the average tax of representative corporations engaged in a like or similar trade or business bears to their average net income for such year.

The petitioner contends that it is entitled to a special assessment because of abnormal conditions affecting its capital and income. The Board summarized the alleged abnormal conditions as follows:

"1. Valuable assets received from a predecessor partnership have not been and can not be considered in computing invested capital.

"2. Old design, drawings and patterns of great value have not been and can not be considered in computing invested capital.

"3. Due to an improper accounting system known as the completed contract method, the reporting of profits has been delayed one year with a consequent reduction of surplus, but it is now impossible to reconstruct a proper surplus on a proper accrual basis.

"4. The bookkeeping system has resulted in certain abnormalities such as (a) the deferring and shifting of income, (b) the inflation of current income caused by an incorrect method in the stock steel account, and (c) inaccuracy in income due to the absence of a proper work in process inventory."

The burden was on the petitioner to produce evidence that would entitle it to a special assessment. After a full and fair hearing and consideration of the evidence, the Board found that the petitioner had failed to establish such abnormal conditions, or irregularities, in capital or income, as would entitle it to a special assessment. There was no hint of any fraud. Under these circumstances the conclusion of the Board is final and cannot be reviewed by this court. Cramer & King Co. v. Commissioner (C.C.A.) 41 F.2d 24, 26; Duquesne Steel Foundry Co. v. Commissioner (C.C.A.) 41 F.2d 995; Blair v. Oesterlein Co., 275 U.S. 220, 48 S. Ct. 87, 72 ...


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