Appeal of Lihue Plantation Co.

2 B.T.A. 740

• Court: United States Board of Tax Appeals
• Decided: September 30, 1925
• Docket: Docket No. 38
• Status: Published

Opinion

OPINION.

James:

Taking up first the second claim of the taxpayer, namely, as to the deduction for the expense of Y. M. C. A. service on the plantation, we are of the opinion that the question is fully covered by the decision of the Board in Appeal of Poinsett Mills, 1 B. T. A. 6, the principle of which was reaffirmed in Appeal of Holt-Granite Mills Co., 1 B. T. A. 1246.

The issue in the first point raised by the taxpayer is more difficult. The facts show that the taxpayer paid a bonus during 1918 pursuant to a resolution adopted in that year, and apparently, also, pursuant to a regularly established custom, which bonus was related to the profits for the year 1917 and its distribution based upon the employees’ compensation for that year. It is likewise clear that there was at least no legal obligation upon the taxpayer to pay the bonus out of the profits of the year 1917. The position of the Commissioner apparently is, at least as respects the year here in question, that a bonus paid to employees who rendered services in a prior year, based upon profits and salaries of that year, is not “ an ordinary and necessary expense ” of a later year. The Commissioner in the deficiency letter states that his position is “fully covered in the advisory tax board memorandum No. 86, page 106 of Cumulative Bulletin No. 1.” An examination of this memorandum of the advisory tax board indicates that the case there presented was one in which the taxpayer was claiming the deduction for the year in which the services were rendered, or, applied to the instant case, the question was whether the compensation might be deducted, not in the year 1918 but in the year 1917. The advisory tax board held that this could not be done, upon the ground that the amounts were neither paid nor incurred during the earlier taxable year. At the conclusion of the memorandum, the advisory tax board also suggests that the amounts then in question might not be deductible in any year. This Board has held in Appeal of C. H. Simonds Co., 1 B. T. A. 105, that so long as additional compensation paid within a year does not exceed a reasonable amount it may be deductible even though it is measured by services rendered and compensation received in prior years. That appeal appears to be on all fours with that of the instant taxpayer and fully sustains the deduction here in question for the year 1918. To the same effect are the Appeal of Union Dry Goods Co., 1 B. T. A. 833; and Appeal of Flint River Brick Co., 2 B. T. A. 31.

Arundell not participating.