Fontana Power Co. v. Commissioner

Petitioner seeks review of a decision of the Board of Tax Appeals which held that certain payments made by petitioner to Fontana Union Water Company, hereafter called the Water Company, were not deductible from petitioner’s gross income.

The Water Company was incorporated in 1912 as a mutual water company for the irrigation of farm lands in the vicinity of Fontana, California, and as such is held to be exempt from income and capital stock .taxation under § 101 of the Revenue Acts of 1934 and 1936, 26 U.S.C.A.Int.Rev.Acts, pages 688, 848. Fontana Co., hereafter called the Company, was incorporated prior to April 3, 1916, the nature of its business not being disclosed by the record.

Petitioner was incorporated on April 3, 1916, as a public utility corporation. It sought and received necessary authority from the state regulatory body to issue $350,000 of first mortgage bonds, and to acquire the properties of the Water Company and the Company pursuant to a contract. The contract was dated June 15, 1917, and provided that the Water Company and the Company promised to convey to petitioner their properties and that petitioner promised to issue “as part consideration” 50 shares of its…