effect that National would reimburse Monarch for the services performed and expenditures made in prior years by Monarch for the benefit of National.
This unusual condition probably existed during the 46-month period from 1951 to 1955 because of the relationship which the Land brothers, as partners in Monarch, bore towards National and Feather River Pine Mills, Inc. (See agreement attached to Land's deposition.) Up to 1951, National had been losing money and the Land and Cooper families, the owners of Feather River, purchased National's stock in order to save it from bankruptcy. In 1951 and the years following, the tendency was to nurse National along. Notwithstanding this earlier disposition, when National's owners were about to sell their stock to Georgia Pacific Corporation in 1955, it dawned upon the Monarch partners that they were entitled to be reimbursed for these payments made in National's behalf and for its benefit.
In this factual situation we conclude that the payment of $ 28,089.17 in April, 1955, was properly accrued and deducted in the year ended April 30, 1955, as ordinary and necessary business expense, since the payment was reasonable compensation for services which were valuable and actually rendered. The reasonableness of the expense was not contradicted by the defendant. There was no agreement or legal obligation to pay that expense prior to the 1955 negotiations and agreement between the Land brothers. 'The expense could not be attributed to earlier years, for it was neither paid nor incurred in those years. There was no earlier accrual of liability.' Lucas v. Ox Fibre Brush Co., 281 U.S. 115, 120, 50 S. Ct. 273, 274, 74 S. Ct. 733 (1930). Cf. Noxon Chemical Products Co. v. Commissioner, 78 F.2d 871 (3d Cir. 1935); Waring Products Corp., 27 T.C. 921 (1957).
CONCLUSIONS OF LAW
1. Jurisdiction is conferred upon this court pursuant to § 1346(a)(1), Title 28 U.S.C.A.
2. The action brought by Koppers for a refund is timely.
3. The deficiency in the sum of $ 25,089.41 was erroneously and illegally assessed and collected by defendant from Koppers.
4. National was entitled to a net operating loss deduction of $ 47,371.53 for the fiscal year ending April 30, 1955, and, after carrying back $ 7,418.20 of such loss against taxable income for the preceding taxable year, to carry over the remaining portion thereof, $ 39,953.33, against taxable income for the fiscal year ending April 30, 1956.
5. The net operating loss in the amount of $ 47,371.53 reported by National for its taxable year ending April 30, 1955 is a proper and deductible net operating loss in accordance with 172 of the Internal Revenue Code of 1954, § 172, Title 26 U.S.C.A. Such net operating loss is allowable as a net operating loss deduction for National's taxable year ending April 30, 1956, to the extent it has not been utilized as a net operating loss carryback to any prior taxable year.
6. Following the acquisition of 100% Of the stock of National by Koppers on July 25, 1955, National continued to carry on a trade or business substantially the same as that conducted prior to that date within the meaning of the provisions of § 382 of the Internal Revenue Code of 1954, § 382, Title 26 U.S.C.A. Therefore, the net operating loss carryover by National should not be disallowed under that provision of the Internal Revenue Code.
7. The plaintiff, Koppers, is entitled to a refund of $ 25,089.41, together with interest at the rate of 6% From January 8, 1960, and costs.