World Airways, Inc., and World Air Center, Inc. v. Commissioner of Internal Revenue

564 F.2d 886 78-1 USTC P 9149 WORLD AIRWAYS, INC., and World Air Center, Inc., Petitioner-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 75-2176. United States Court of Appeals, Ninth Circuit. Nov. 15, 1977. La Verne L. Dotson (argued) of Brobeck, Phleger & Harrison, San Francisco, Cal., for plaintiffs-appellants. William A. Whitledge, Atty. (argued) of Dept. of Justice, Washington, D. C., for respondent-appellee. Petition to Review a Decision of the Tax Court of the United States. Before LUMBARD, * WRIGHT and ANDERSON, Circuit Judges. J. BLAINE ANDERSON, Circuit Judge: 1 This is an appeal from a decision of the Tax Court, reported at 62 T.C. 786 (September 18, 1974), and involves two issues. 2 The first issue involves the question of when World Airways can deduct certain engine and airframe overhaul expenses. The Tax Court held that the only proper year to deduct these expenses was in the same year the overhaul and consequent expenses were actually incurred. See 62 T.C. 789 -805. 3 The second issue is whether or not World Airways is entitled to a 7% investment credit for the purchase of an Aero Commander Jet Aircraft which it leased to the…

This is an appeal from a decision of the Tax Court, reported at 62 T.C. 786 (September 18, 1974), and involves two issues.

The first issue involves the question of when World Airways can deduct certain engine and airframe overhaul expenses. The Tax Court held that the only proper year to deduct these expenses was in the same year the overhaul and consequent expenses were actually incurred. See 62 T.C. 789 -805.

The second issue is whether or not World Airways is entitled to a 7% investment credit for the purchase of an Aero Commander Jet Aircraft which it leased to the government (the FAA). The Tax Court held that World Airways was not entitled to the 7% credit. See 62 T.C. 805 -813.

For the reasons stated by the Tax Court in its exhaustive and well-reasoned opinion, *888 we affirm. On the overhaul expense issue, we all agree and no further comment is necessary. On the investment credit issue, however, Judge Lumbard would reverse and he dissents from our affirmance, infra. On this issue we add a few very brief comments. The dissent adequately sets forth the essential facts.

The real problem with this issue is that nowhere in the case law or applicable regulations is there a…

(concurring in part and dissenting in part):

I concur in the affirmance of the Tax Court on the question of when overhaul expenses may be deducted, but I respectfully dissent with respect to the denial of the investment tax credit to petitioner.

Petitioner, a corporation authorized by the Civil Aeronautics Board to furnish charter air transport service to the United States government, submitted a sealed bid for the lease of an Aero Commander Jet Aircraft to the FAA on August 15, 1966. The invitation for bids, whose terms became those of the contract, provided for a term of one year “subject to availability of funds.” On August 31, 1966, petitioner purchased the plane in question in order to fulfill its obligations under the FAA contract. The plane was delivered to the FAA on September 6, 1966, under a purchase order authorizing rental payments until December 31, 1966. On December 20, 1966, the FAA extended the period of authorized rental payments for three months, until March 31, 1967.

After competitive bidding each time, petitioner secured additional one-year government leases (always subject to availability of funds) in September of 1967, 1968 and 1970. Its bid in 1969,…