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61 F.2d 571

Docket No. 5988.

Buckwalter v. Commissioner

Sixth Circuit Court of Appeals

Decided Oct. 31, 1932.

Sixth Circuit Court of Appeals · decided 1932-10-31

Cited by 4 later decisions — most recently December 1946

2 federal appellate ·

2 counsel of record

Key passage — most relied on by later courts

““In 1931 the petitioner sold a property known as the Weston Winery for substantially less than it had cost him. Whether the sale resulted in profit or loss for income tax purposes is the matter in dispute, and this turns on whether the cost of the property should be diminished by deductions for depreciation .for the years 1922 to 1931, during which the petitioner had no tenant for it and did not operate it himself. Specifically, the question is whether the property was ‘used in the trade or business’ of the taxpayer within the meaning of section 23 (k) of the Revenue Act of 1928 ( 45 Stat. 799,800 [ 26 U.S.C.A. § 23 (Z)]) and the similar provision of prior revenue acts * * *. Whether deductions for depreciation during the years in question were ‘allowable’ depends upon the meaning of section 23 (k) of the 1928 Act ( 45 Stat. 799,800 ) and the similar provision in the prior applicable acts. Section 23 (k) allows deduction from gross income of ‘A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.’ * * * To read the phrase ‘used in the trade or business’ as meaning only active employment of property devoted to the business would lead to results which we cannot believe Congress intended. For example, one factory of a large industrial plant may lie idle for a year, and in fact suffer depreciation as great, or greater, than that sustained by the factories in operation. To allow no depr”

quoted by 1 later decision, including 24 F. Supp. 993 - Yellow Cab Co. of Pittsburgh v. Driscoll

Applies 26 U.S.C. § 955

Relies on Refling v. Burnet · Owens v. Battenfield · Ames v. Commissioner

Good law ✅— No negative treatment on recordhow we know

Decided 1932-10-31

View the full empirical analysis of this case →

¶1J. G. Denny, Jr., of Philadelphia, Pa., for petitioner.

¶2J. M. Hudson, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and Byron M. Coon, all of Washington, D. C., on the brief), for respondent.

¶3Before MOORMAN, HICKENLOOPER, and SIMONS, Circuit Judges.

¶4HICKENLOOPER, Circuit Judge.

¶5The petitioner is one of the vice presidents of the Timken Roller Bearing Company and complains that in the assessment of his personal ineome tax for the years 1924 and 1925 he was denied a deduction for the exhaustion of two patents owned by him and susceptible to valuation as of March 1, 1913, but which had not been exploited in any way, as by the granting of licenses or the prosecution of suits against infringers. One of these patents covered a special design of truck for use in creosoting railroad ties, and the other a roller bearing assembly for the axles of such trucks. Neither patented device was used by the Timken Roller Bearing Company. The contention is that the petitioner was compelled to forego the prosecution of actions for infringement because practically all infring-ers (the railroads) were users of Timken bearings and such suits would therefore have antagonized customers and possibly have been detrimental to the business of his employer; that this fact was taken into consideration by his employer in fixing the amount of the annual bonus for each year in question; that the patent situation was thus instrumental in the production of income; and that the patents themselves must therefore be regarded as used in the petitioner’s business as an executive of the Timken Roller Bearing Company.

¶6The Revenue Acts of 1924 and 1926, § 214(a)(8), permit the deduction of an allowance for exhaustion only “of property used in the trade or business” of the taxpayer. 43 Stat. 253, c. 234, 44 Stat. 9, c. 27, 26 USCA § 955(a)(8). While there may he' serious doubt whether the petitioner, as a salaried executive, was engaged in a “trade or business” within the meaning of the act [Cf. Hughes v. Commissioner, 33 F.(2d) 755 (C. *572C. A. 10); Refling v. Commissioner, 47 F.(2d) 859 (C. C. A. 8); Ames v. Commissioner, 49 F.(2d) 853 (C. C. A. 8)], we do not consider it necessary to determine this point. It seems obvious to us that, whether he was or was not so engaged, the patents were not “used in” that business. Only that which is directly employed in carrying on a trade or business falls within the statutory definition. To abstain from use cannot be considered as the equivalent of use. To “use” is an active verb; the position of the petitioner was entirely passive. It is true that his inaction possibly may have redounded to his financial benefit, by placing him in better grace with his employer, or it may have been a condition precedent to the continuance of his employment; but the patents were not a means by which this service to his employer was rendered, and can not be considered, as used in the performance of those duties from which they were entirely distinct.

¶7Affirmed.

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