Weir Long Leaf Lumber Co. v. Commissioner

Black, J., dissenting: I dissent from the majority opinion wherein it disallows petitioner any depreciation on its min properties for the year 1942. Petitioner in its brief states this issue as follows:

Did the respondent err in refusing petitioner the statutory allowance for wear and tear “depreciation” upon its mill properties operated throughout the year up to its sale in December, 1942, because, due to market conditions as a result of the war the price received on its sale exceeded its estimated salvage value, which value had been agreed upon by petitioner and respondent for all years from 1936 through 1941?

I think respondent did so err.

On January 1,1942, petitioner’s sawmill and mill equipment had a remaining depreciated value of $24,768.71, and the estimated lumber remaining to be cut was 21,000,000 feet. Petitioner’s estimate of its remaining lumber feet was low, and petitioner in 1942 actually cut in excess of 28,000,000 feet of timber. Petitioner had been cutting approximately 35,000,000 feet of timber per annum. In its tax return for 1942 petitioner deducted the difference between the salvage value of $15,000 and the depreciated value as of January 1, 1942, of $24,-768.71, being the sum of $9,768.71, as a reasonable allowance for wear and tear of its sawmill and mill equipment. Respondent determined that petitioner was entitled to no deduction in 1942 for depreciation of its sawmill and mill equipment.

Respondent’s action' in disallowing petitioner any depreciation on its mill properties in 1942, notwithstanding petitioner bad cut in that year 28,000,000 feet of timber, seems to be based on the fact that due to the war petitioner’s mill properties had greatly appreciated in value and were sold at the end of the year for á good profit over the salvage value of $15,000 which had been agreed upon in 1936 between petitioner and the Bureau of- Internal Revenue. But the fact that this property had appreciated in value due to war conditions and could be sold at a profit does not, in my opinion, defeat petitioner’s right to take depreciation due to the wear and tear of its mill properties in 1942. See Even Realty Co., 1 B. T. A. 355; Max Eichenberg, 16 B. T. A. 1368. If petitioner was entitled to take o/tvy depreciation for the wear and tear of its mill properties in 1942, then the amount of that depreciation has been stipulated. It has been agreed and stipulated that, if the Court should hold that petitioner is entitled to any depreciation on its sawmill and mill equipment for the taxable year 1942, the amount thereof is the sum of $9,768.71.

Petitioner, of course, had to return the gain which resulted to it from the sale of its mill properties in December 1942 as capital gain and pay tax thereon. It has done this and for reasons I have already stated, I think petitioner has treated these transactions in the proper manner and is entitled to take the depreciation which it claims on its mill properties for 1942.

I do not dissent from the majority opinion on the other two issues, but concur therein.