L. Heller & Son, Inc. v. Commissioner

U.S. Tax Court

L. Heller & Son, Inc. v. Commissioner

12 T.C. 1109, 1949 U.S. Tax Ct. LEXIS 152

CourtUnited States Tax Court

DecidedJune 22, 1949

DocketDocket No. 18987

StatusPublished

Cited by60 cases

This text of 12 T.C. 1109 (L. Heller & Son, Inc. v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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L. Heller & Son, Inc. v. Commissioner, 12 T.C. 1109, 1949 U.S. Tax Ct. LEXIS 152 (tax 1949).

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Opinions

OPINION.

Opper, Judge:

There is evidence from which it may be concluded that petitioner’s promise to some of the creditors of its subsidiary to make good their losses on the subsidiary’s 77B reorganization was contemporaneous with the latter proceeding, and that the consent of the creditors to the reorganization was a consideration for petitioner’s undertaking. If so, the payment by petitioner was pursuant to a contractual obligation, notwithstanding the principal debtor’s discharge, see Abraham Greenspon, 8 T. C. 431; Welch v. Helvering, 290 U. S. 111, footnote 1; and deduction' as a loss of the amounts paid accordingly would be proper in the instant year. Charles G. Berwind, 8 T. C. 1112; Abraham Greenspon, supra.

But even if there were no binding commitments, petitioner’s standing in the business community, its relationship to the jewelry trade generally, and its credit rating in particular, characterized the payments as calculated to protect and promote petitioner’s business and as a natural and reasonable cost of its operation. Harris & Co. v. Lucas (C. C. A., 5th Cir.), 48 Fed. (2d) 187. As such, they are deductible in any event as ordinary and necessary business expense. Scruggs, Vandervoort-Barney, Inc., 7 T. C. 779; Catholic News Publishing Co., 10 T. C. 73.

The theory that these were capital expenditures is disposed of in the following language in Harris & Co. v. Lucas, supra:

It is argued, however, on behalf of respondent, that the expenditures were in the nature of the purchase of good will, * * * a capital asset. * * * Good will consists largely of a reputation for competence, honesty, and fair dealing, but its value is in attracting customers and not in securing credit. The establishment of credit to purchase does not at all guarantee that it will continue over a period of years. * * *

*******

It is perfectly plain that the payments did not constitute capital investment.

We find it unnecessary to determine whether the payment is to be more accurately and technically described as a loss or a business expense. Claim is made on both grounds. Cf. Merton E. Farr, 11 T. C. 552, 565-566. On one or another, the deduction should be permitted.

For the inclusion of computations on other issues now apparently conceded,

Decision will be entered under Rule 50.

Keviewed by the Court.

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OPINION.

Opper, Judge:

There is evidence from which it may be concluded that petitioner’s promise to some of the creditors of its subsidiary to make good their losses on the subsidiary’s 77B reorganization was contemporaneous with the latter proceeding, and that the consent of the creditors to the reorganization was a consideration for petitioner’s undertaking. If so, the payment by petitioner was pursuant to a contractual obligation, notwithstanding the principal debtor’s discharge, see Abraham Greenspon, 8 T. C. 431; Welch v. Helvering, 290 U. S. 111, footnote 1; and deduction' as a loss of the amounts paid accordingly would be proper in the instant year. Charles G. Berwind, 8 T. C. 1112; Abraham Greenspon, supra.

But even if there were no binding commitments, petitioner’s standing in the business community, its relationship to the jewelry trade generally, and its credit rating in particular, characterized the payments as calculated to protect and promote petitioner’s business and as a natural and reasonable cost of its operation. Harris & Co. v. Lucas (C. C. A., 5th Cir.), 48 Fed. (2d) 187. As such, they are deductible in any event as ordinary and necessary business expense. Scruggs, Vandervoort-Barney, Inc., 7 T. C. 779; Catholic News Publishing Co., 10 T. C. 73.

The theory that these were capital expenditures is disposed of in the following language in Harris & Co. v. Lucas, supra:

It is argued, however, on behalf of respondent, that the expenditures were in the nature of the purchase of good will, * * * a capital asset. * * * Good will consists largely of a reputation for competence, honesty, and fair dealing, but its value is in attracting customers and not in securing credit. The establishment of credit to purchase does not at all guarantee that it will continue over a period of years. * * *

*******

It is perfectly plain that the payments did not constitute capital investment.

We find it unnecessary to determine whether the payment is to be more accurately and technically described as a loss or a business expense. Claim is made on both grounds. Cf. Merton E. Farr, 11 T. C. 552, 565-566. On one or another, the deduction should be permitted.

For the inclusion of computations on other issues now apparently conceded,

Decision will be entered under Rule 50.

Keviewed by the Court.

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12 T.C. 1109, 1949 U.S. Tax Ct. LEXIS 152, Counsel Stack Legal Research, https://law.counselstack.com/opinion/l-heller-son-inc-v-commissioner-tax-1949.

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