Brumley-Donaldson Company v. Commissioner of Internal Revenue

Taxpayer, Brumley-Donaldson Co., seeks review of the decision of the Tax Court ( T.C. Memo. 1969-183 ) upholding the Commissioner’s assessment of $4,-172.36 tax deficiency for the taxpayer’s taxable year ended June 30, 1960. Jurisdiction of this Court is based on Sections 7482 and 7483 of the Internal Revenue Code of 1954.

• Both parties agree that the basic facts of this case are essentially as found by the Tax Court. Summarized briefly, they are as follows. Taxpayer was organized in September, 1964, to engage in the business, in and about Los Angeles, California, of manufacturing, importing and distributing industrial materials, including the selling of firebricks of various grades. Taxpayer’s business was located adjacent to the St. Louis Firebrick & Insulation Company (hereinafter St. Louis) which manufactured second-quality firebricks. Until the date that taxpayer acquired the stock of St. Louis, taxpayer had not manufactured firebricks of any grade but had always purchased its supply of first-quality bricks from North American Refractories of Missouri, and second-quality bricks from St. Louis.

The demand for second-quality bricks steadily declined beginning in the late…

(dissenting):

I disagree. The sole issue before the Tax Court was whether the taxpayer (Brumley-Donaldson) was prevented from carrying over previously incurred net operating losses of the acquired corporation (St. Louis) because the “principal purpose” of the acquisition was the avoidance of Federal income taxes. Int. Rev.Code of 1954, § 269(a). Taxpayer entered the proceeding in the Tax Court faced with the presumption that the Commissioner’s administrative determination, that tax avoidance was the principal purpose, was correct. However, upon the introduction of evidence by the taxpayers, provided that the evidence thus introduced was sufficient to support a contrary finding, the presumption of correctness, disappeared. Potts, Davis & Company v. C. I. R., 431 F.2d 1222, 1225 (9th Cir. 1970); American Pipe & Steel Corp. v. C. I. R., 243 F.2d 125, 126-127 (9th Cir. 1957), cert. denied, 355 U.S. 906 , 78 S.Ct. 333 , 2 L.Ed.2d 261 (1957). The majority agrees that the presumption did, in fact, disappear. Nevertheless, taxpayer still had the burden of proving to the Tax Court by a preponderance of the evidence that the Commissioner’s determination was erroneous, i. e. that tax…

443 F.2d 501 BRUMLEY-DONALDSON COMPANY, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. No. 25143. United States Court of Appeals, Ninth Circuit. May 12, 1971. Earl C. Crouter (argued), Los Angeles, Cal., for appellant. Leonard J. Henzke, Jr. (argued), Meyer Rothwacks, Lee A. Jackson, Attys., Johnnie M. Walters. Asst. Atty. Gen., Tax Div., K. Martin Worthy, Chief Counsel, IRS, Washington, D.C., for appellee. Before BARNES, DUNIWAY and TRASK, Circuit Judges. BARNES, Circuit Judge: 1 Taxpayer, Brumley-Donaldson Co., seeks review of the decision of the Tax Court ( T.C. Memo. 1969-183 ) upholding the Commissioner's assessment of $4,172.36 tax deficiency for the taxpayer's taxable year ended June 30, 1960. Jurisdiction of this Court is based on Sections 7482 and 7483 of the Internal Revenue Code of 1954. 2 Both parties agree that the basic facts of this case are essentially as found by the Tax Court. Summarized briefly, they are as follows. Taxpayer was organized in September, 1964, to engage in the business, in and about Los Angeles, California, of manufacturing, importing and distributing industrial materials, including the selling of firebricks of various grades.…