
    Appeal of L. A. THOMPSON SCENIC RAILWAY.
    Docket No. 3477.
    Submitted June 23, 1925.
    Decided September 28, 1925.
    A reserve set up out of income as self-insurance is not deductible as an ordinary and necessary business expense.
    
      Victor O. Cormier. Esq., for the taxpayer.
    
      Lee /. Park, Esq., for the Commissioner.
    Before Marquette and Morris.
    This appeal is from the determination of a deficiency in income and profits taxes for the year 1919 in the amount of $6,552.49.
    Question is raised whether the taxpayer may deduct from income a reserve for insurance against fire.
    FINDINGS OF FACT.
    The taxpayer is a New Jersey corporation with principal office located in New York City.
    It is engaged in the business of constructing and operating for profit scenic railways and other amusement devices in amusement parks at several points in the United States.
    In 1919 it owned such enterprises at Coney Island, N. Y.; Rock-away Beach, N. Y.; Atlantic City, N. J.; Woodside Park, Philadelphia, Pa.; Revere Beach, Mass.; and Ocean Park, Calif.
    The fire losses at amusement parks from 1918 to 1922, inclusive, totaled $4,000,000.
    
      Owing to the fire hazard and the risk involved, no insurance company would accept insurance liability on such property owned by the taxpayer. During the year 1919, the taxpayer, being unable to obtain insurance, set aside out of its income the amount of approximately $14,000, that amount being the minimum premium which the taxpayer would have been obliged to pay if any insurance company would have taken the risk at the minimum premium. The Commissioner disallowed the deduction and determined a deficiency for 1919 in the amount of $6,522.49. The taxpayer duly appealed.
    DECISION.
    The determination of the Commissioner is approved.
   OPINION.

Marquette:

Our decision is controlled by that in Appeal of Pan-American Hide Co., 1 B. T. A. 1249. The taxpayer endeavors to distinguish this appeal for the reason that the failure of the taxpayer to carry insurance was involuntary, as no company would assume the risk. The distinction is not fundamental.

It may be conservative accounting to set aside a portion of the income to a fund out of which a fire may be provided against in advance, but deductions permitted by the law in determining the taxable net income present a quite different question. The amount of the reserve does not constitute an ordinary and necessary business expense and is therefore not deductible. Appeal of William J. Ostheimer, 1 B. T. A. 18; Appeal of Consolidated Asphalt Co., 1 B. T. A. 79; Appeal of Uvalde Co., 1 B. T. A. 932.

Arundell not participating.  