Appeal of First National Bank of St. Louis

3 B.T.A. 807

• Court: United States Board of Tax Appeals
• Decided: February 17, 1926
• Docket: Docket No. 2927
• Status: Published

Opinion

OPINION.

Arundeld:

Section 234 (a) (1) of the Revenue Act of 1918 provides that in computing net income there shall be allowed as deductions all of the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. It is desired here to deduct, under this provision, the amounts expended in connection with the consolidation of the several banks mentioned in the findings of fact. Generally speaking, items to be deductible under this subdivision of the section must be those ordinary and usual expenditures incurred in the conduct of a going business. The fact that they may be unusual in amount or seldom recur can not deprive them of their inherent character as expense items. On the other hand, amounts expended for assets that are to continue in use in the business over several years are usually to be classified as capital items, and the sum paid therefor is recovered over the life of the asset, if it be of an exhaustible character. The transaction which called forth the expenditures here in question) was presumably one which resulted in increasing and maintaining the earning power of the taxpayer, and thus throughout its corporate life the taxpayer will enjoy the fruits of these expenditures.

Some accounting authorities have urged as a matter of sound and conservative accounting that organization expenses, which are substantially similar to the items here in question, should be written off over a term of from 2 to 10 years, for the reason that such expenses, if capitalized, are represented by no salable assets. Much may be said for such a course as a sound business measure. However, as we have heretofore had occasion to remark, the income-tax laws are not always in accord with accounting practice. Appeal of Consolidated Asphalt Co., 1 B. T. A. 79. We can not escape the -conclusion that the expenses in question are not those ordinary and necessary expenses permitted by the statute to be deducted. Appeal of F. Tinker & Sons Co., 1 B. T. A. 799. It must follow that the determination of the Commissioner is approved.