The opinion
Murdock, /., dissenting: I disagree with the holding that the taxable period of this taxable entity began on April 25, 1941, when the application for the charter was filed with the Secretary of State of Texas. The charter wasn’t actually issued until May 8, yet the opinion points out that the corporation could be a taxable entity, for Federal income tax purposes, before it became a complete legal entity under the laws of the state. The laws of Texas are not controlling in deciding this question. I think it became a taxable entity for Federal income tax purposes even before it filed its application for the charter.
This case is distinguishable from others in which one corporation succeeded to the business of another or in which the incorporators carried on a business for their own benefit prior to turning it over to a corporation. Here the incorporators actually started the business on behalf of the corporation then being organized, income was received from that business prior to the application for the charter, and the receipts were retained for the benefit of the corporation and not by or for the benefit of the promoters. There would have been a taxable entity for Federal income tax purposes and its period would have begun before April 25 if no application for a charter had been made during 1941.
Leases were entered into in the name of the corporation and on its behalf, and it received the rents from those leases for a period prior to April 25. If this taxable entity is not taxable with that income, then who is? Furthermore, the petitioner should not be taxed with the income for the long period, while at the same time it is held that the short period is the taxable period. To do so would result in distortion when we come to the problem of annualizing the income for the purpose of the excess profits tax. I think we should take the full income for the full period.
The petitioner is not entitled to any depreciation on the improvements on the land for an additional reason not stated in the majority opinion, and that is because the improvements were never used and were never intended to be used in the business of the petitioner. It acquired the land for the purpose of leasing it to the United States Government for a camp site. The Government had no interest in the improvements and the petitioner knew that. Therefore, the cost of any improvements under such circumstances should go into the cost of the land and should not be recovered through a deduction either for depreciation or loss from destruction. Cf. Regulations 111, § 29.23 (e)-2; Robert B. Griffin, 17 B. T. A. 255; Lansburgh & Brother, Inc., 23 B. T. A. 66; Liberty Baking Co. v. Heiner, 37 Fed. (2d) 703.
Mellott and Opper, JJ., agree with this dissent.