Swift Dodge v. Commissioner of Internal Revenue

Swift Dodge, a California corporation, claimed an investment tax credit on its 1974 and 1975 federal income tax return for its investment in motor vehicles that were purchased for use under a “Lease Agreement” in the amounts of $25,923 and $22,168, respectively. After an audit of Swift Dodge, the Commissioner determined that the lease agreements were essentially conditional sales contracts. The Commissioner disallowed the claimed credit because he determined that the taxpayer was not the owner of the vehicles for which the credit was claimed.

The Internal Revenue Code permits a tax credit (7% during 1974-75) of a taxpayer’s qualified investment in “Section 38” property. 26 U.S.C. §§ 38 , 46. Section 48(a) defines Section 38 property to include tangible personal property “with respect to which depreciation ... is allowable and having a useful life ... of 3 years or more.” Property owned by a taxpayer and leased to others by him in his business is depreciable property and qualifies for the credit. Property purchased for resale is not depreciable under Section 167 and therefore is not Section 38 property eligible for the credit. Whether the investment tax credit was properly…