
    LIBERTY BAKING CO. v. HEINER, Internal Revenue Collector.
    Circuit Court of Appeals, Third Circuit.
    January 23, 1930.
    No. 4217.
    James Walton, of Pittsburgh, Pa., for appellant.
    John D. Meyer, U. S. Atty., and J. A. McCann, Sp. Asst. U. S. Atty., both of Pittsburgh, Pa. (C. M. Charest, Gen. Counsel, and F. F. Toomey, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.
    Before BUFFINGTON, Circuit Judge, and THOMSON and AYIS, District Judges.
   THOMSON, District Judge.

The Liberty Baking Company brings this suit against D. B. Heiner, collector, to recover back $16,418.24 income and profits taxes for the year 1918. The collector having held the company liable, an appeal was taken to the Board of Tax Appeals, which was heard in 1926, the Board sustaining the ruling of the collector. The appeal to the Board being filed before the Act of 1926, the plaintiff, instead of appealing directly to this court, elected to pay the taxes and sue in the United States District Court, under section 283(b) of the Revenue Act of 1926 (26 USCA § 1064(b). The case was tried without a jury, and the court, after making special findings, entered judgment thereon for the defendant. The case is before us on appeal from that decision.

The first question involves the statute of limitations. If that statute does not apply, the next question is:

Was the plaintiff entitled,' in computing its taxable income for the year 1918, to deduct—

(a) Loss of $11,000 alleged to have resulted from the demolition of certain buildings which were razed in order to make way for plant extensions?
(b) Loss of $10,000 alleged to have resulted from the worthlessness of a flour-milling process.
(c) An alleged loss of $5,895.45, being a part of the cost of certain bread wrappers which were too small for the bread loaves manufactured by the plaintiff after the war.

The statute of limitations would have been a bar in this case, except for two waivers, executed by tbe plaintiff — one dated February 4, 1924, extending the time for tbe assessment and collection of tbe 1918 taxes for one year after tbe expiration of tbe statutory period of limitations, and a second waiver dated November 29, 1924, wbieb covered not only tbe year 1918, but also tbe year 1919.

While these waivers have been attacked by tbe defendant as invalid, we agree with tbe court that there does not appear any substantial objection to their validity. Tbe extension of time seems to have been of marked advantage td tbe plaintiff, and was followed by very substantial reductions in tbe amounts claimed against it.

The first waiver was signed by the president and secretary of the plaintiff company with tbe corporate seal annexed. In it, tbe plaintiff consented to tbe "determination, assessment and collection” of any taxes for tbe year 1918, for "one year after the expiration of tbe statutoiy period of limitations. ’ ’

By tbe second waiver, tbe plaintiff consented to tbe extension of tbe period for "determination, assessment and collection” of taxes for tbe years 1918 and 1919, for one year "after tbe expiration of tbe statutory period of limitations within wbieb assessments of taxes may be made for tbe year or years mentioned.”

Tbe court below held as untenable tbe objection that tbe waivers were not properly executed by tbe plaintiff or by tbe Commissioner of Internal Revenue; that the signing of such a waiver, by one or more executive officers, with tbe corporate seal affixed, given as it was to secure further consideration of corporate tax liability, comes within tbe ordinary powers of corporate officers; that, as to tbe acceptance by tbe Commissioner, waivers being filed in bis office bearing what purports to be bis signature and acted upon by that officer, giving repeated consideration to tbe plaintiff’s claims for further reductions, wbieb resulted in withholding collections while tbe plaintiff’s books were being examined, these facts preclude tbe plaintiff from now controverting tbe validity of tbe waivers. Tbe objection that tbe waivers were without consideration eannot be sustained. Tbe statute requires nothing but ‘ ‘ consent, ’ ’ and it would be unconscionable to allow tbe taxpayer to afterwards repudiate a consent upon wbieb tbe Commissioner has acted and relied. It appears that, in tbe circumstances, tbe execution of the waivers was a necessary incident to tbe securing of further consideration of tbe plaintiff’s tax liability.

We conclude that there was no error in sustaining tbe validity of tbe waivers.

As to tbe three items upon which plaintiff claims a loss:

In November, 1916, plaintiff bought additional ground adjoining its place of business for tbe future extension of its plant. There were three buildings on this land valued at $11,000, which plaintiff tore down • in 1918 and 1919, in order to make room for tbe contemplated extensions to its plant. Plaintiff claimed this item as a deductible loss in 1918.

Tbe court in its findings and conclusions held that this' item was not a deductible loss. Tbe court found that tbe property, as it stood, was bought for tbe purpose of enlarging tbe plant. That there was no loss sustained because tbe demolition which was in contemplation at tbe time tbe property was bought. Tbe court concluded that this situation was directly covered by article 142 of Regulation 45, to tbe effect that, when a taxpayer buys real estate upon wbieb is located a building wbieb be proceeds to raze in view of erecting another, it will be considered that tbe taxpayer has sustained no deductible loss by reason of tbe demolition of tbe old building, and no deductible expenses on account of tbe cost of removal; that tbe value of tbe real estate, exclusive of old improvements, is presumably equal to tbe purchase price of tbe land and building, plus the cost of removal of the old. While tbe razing of tbe buildings in this ease was somewhat deferred, we think 'the conclusion of tbe court was correct.

On October 24, 1917, plaintiff made an agreement with a milling company for an exclusive license to use tbe Herendeen process for treating flour. Tbe consideration agreed upon was $10,000, of wbieb $2,500 was paid in 1917. Tbe agreement contained a provision that tbe plaintiff might process flour at its own plant or send it to tbe mills of tbe Herendeen Company at Danville, 111. In 1918, tbe plaintiff bad its flour processed at Danville, but found tbe process unsatisfactory, and in,December, 1918, charged ás a loss the entire $10,000. Later, in 1919, this charge was re-entered on tbe boobs of tbe company, and equipment was installed at its plant at Pittsburgh for tbe process, which was used there during tbe year 1919. This process was not

satisfactory; the maehiner tied in 1920. The Commi this item as a loss in 1919,

The court, in finding wi sioner, said: “There had the process by the plaintiff for the first time it install* machinery to make a test The accountants of the p this item back on the books after it had been claimed There was no error in so d

The court was perhaps ing that there had been process until 1919. It seen ess was tried and found u Danville in 1918, and in D year plaintiff charged the e $10,000 as a loss. Had tl there, the plaintiff would tied to the loss as claimed, end there. Evidently no the result of their 1918 * charge was re-entered on new equipment installed Pittsburgh, which was used year 1919. They were e determine whether, in fact, good or bad, and in 1939, f mentation, they concluded worthless and abandoned seem that this was the tim ter was definitely determine definitely established. We allowing credit for the loss

In the year 1918, the plaintiff; pur-’ chased a quantity of paper bread loaf wrappers for use on loaves of the size prescribed by the United States Food Administrator during the war. After the Armistice in November, 1918, the food regulations were canceled. The plaintiff then enlarged the size of its loaf, with the result that the wrappers bought in 1918 were too small. As a result, the plaintiff used two wrappers on each loaf for the balance of the year 1918 and extending into the year 1919, when it procured other wrappers and abandoned those bought in 1918. The plaintiff charged off 50 per cent, of the cost of the wrappers on hand December 31, 1918, as a loss, which the Commissioner disallowed for the tax year 1918. Such loss from the abandonment of unused wrappers was allowed as a deduction in 1919. The court was of opinion that there was no deductible loss under the statute allowable for either the year 1918 or 1919, and held there was no shrinkage in inventory. The

irt held, however, that, if there was a decible loss, it was in the year 1919, as Commissioner had allowed. With this .elusion we cannot agree. The wrappers re purchased of the size prescribed by government. Later the food regulations 'e canceled, which was a matter far held the control of the plaintiff. It was ural that the normal size of the loaf reafter should govern, and a clear loss lilted to the plaintiff by reason of the nge of conditions. It would seem to us reet for the plaintiff to charge off 50 cent, of the cost of the wrappers on id December 31, 1918, as a loss which it l sustained in that year.

To the additional loss involved in this n, the plaintiff should be entitled to cred- and to that extent the conclusion of the rt should be modified. If the govemlt will file a remittitur as to the amount this item of loss, the judgment will in respects be affirmed.  