Potts, Davis & Company v. Commissioner of Internal Revenue

431 F.2d 1222 POTTS, DAVIS & COMPANY, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 24026. United States Court of Appeals, Ninth Circuit. September 29, 1970. Peter M. Gunnar (argued), of Gunnar & Johnson, Salem, Or., for appellant. Stephen H. Hutzelman (argued), Lee A. Jackson, Elmer J. Kelsey, Attys., Johnnie M. Walters, Asst. Atty. Gen., Tax Division, Dept. of Justice, Richard M. Hahn, Chief Counsel Acting, Internal Revenue Service, Washington, D. C., for appellee. Before WRIGHT and KILKENNY, Circuit Judges, and TAYLOR, * District Judge. EUGENE A. WRIGHT, Circuit Judge: 1 The Commissioner of Internal Revenue asserted a deficiency in the income tax of Potts, Davis & Co. (Potts-Davis) in the amount of $3,176.09 resulting from disallowance of depreciation of insurance files claimed during the preceding three fiscal years. The Tax Court (Fay, J.) held that Potts-Davis in the proceeding before it had failed to prove that these files had a determinable useful life and was therefore not entitled to the claimed deductions. We Affirm. 2 The essential facts as stipulated by the parties and found by the Tax Court are not in dispute.…

The Commissioner of Internal Revenue asserted a deficiency in the income tax of Potts, Davis & Co. (Potts-Davis) in the amount of $3,176.09 resulting from disallowance of depreciation of insurance files claimed during the preceding three fiscal years. The Tax Court (Fay, J.) held that Potts-Davis in the proceeding before it had failed to prove that these files had a determinable useful life and was therefore not entitled to the claimed deductions. We Affirm.

The essential facts as stipulated by the parties and found by the Tax Court are not in dispute. Potts-Davis is an Oregon corporation engaged in the business of selling varied types of insurance. In 1961, Potts-Davis purchased all of the stock of another, related insurance agency (Grabenhorst-Potts). Graben-horst-Potts was then liquidated and Potts-Davis received all of its assets in a dissolution pursuant to § 334(b) (2) of the Internal Revenue Code of 1954.

Among the assets of Grabenhorst-Potts acquired by Potts-Davis were the files in question. They consisted of 936 active insurance files, each relating to a client. The Tax Court found that they included much information necessary for client service, including:

In…

(dissenting):

The crucial question presented in this case is whether the tax court was clearly erroneous in finding that “petitioner has not proved that the files have a determinable useful life.” The uncontra-dicted evidence in the record is that the files and records were useful in the insurance business of petitioner for a period of three to five years and that they would become worthless and obsolete at the end of six years. This was in effect the testimony of Mr. Davis, a major stockholder of petitioner and an experienced insurance man, which testimony was not challenged on cross-examination and was corroborated by Mr. Den-ton, an expert in the insurance business. Furthermore, there was considerable testimony in regard to the use of the files by petitioner in its business for the period of time before they became obsolete. It was stipulated by the parties that the files and records acquired by petitioner were assets and the value assigned to them by petitioner was not in issue.

The tax court held that the evidence of useful life offered by the taxpayer did not have sufficient probative value to overcome or rebut the presumption of correctness of the Commissioner’s…