Birch Ranch & Oil Co. v. Commissioner of Internal Revenue

Petitioner will be referred to herein as taxpayer, and respondent as the Commissioner. Taxpayer claimed deductions of $120,000 on its income tax return for each of the years 1937 and 1939. It had accrued this amount on its books to cover interest on $2,000,000 of bonds issued by a California Reclamation District. The Commissioner disallowed the claims with the exception of an item of $600 paid to a Mrs. Minter as interest on certain of the bonds held by her. Taxpayer petitioned the United States Tax Court for a redeter-mination. That court allowed taxpayer a further deduction of $18,600, a sum paid to parties referred to in these proceedings as the Hopkins sisters, on reclamation district bonds held by them. The Tax Court sustained the Commissioner in his refusal to allow the deduction of the remaining $100,800. Taxpayer petitions us to review that decision.

The question presented is whether taxpayer, under paragraph (b) or (c) (4) of Section 23 of the Revenue Acts of 1936 and 1938, 26 U.S.C.A. Int.Rev.Code, § 23 (b), (c) (4), can legally deduct said sum of $100,800 which it accrued as interest on bonds of a reclamation district and which, under an agreement, was to constitute a…