# Petition for Writ of Certiorari — Westinghouse Broadcasting Co. v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385601_0779%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1963 - **Citation:** 372 U.S. 935 ## Text & '\ > AF Office-Supreme Court, U.S. | FILED-~ No. 7 53 JAN. 1'7 1963 Ai . ~ | JOHN F. DAVIS, CLERK IN THE OctToBer TERM, 1962 WESTINGHOUSE BROADCASTING COMPANY, INC., Petitioner, ; Vv. COMMISSIONER OF INTERNAL REVENUE, % ve 12, PETITION FOR A WRIT OF CERTIORARI TO THE | UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ¥ ALBERT, R. CONNELLY GeorGcE G. TYLER Counsel for Petitioner, 1 Ciise Manhattan Plaza, New York 5, N. Y. "> LEonaArD E. Kust GeorcE S. PARLIN, Jr. Of Counsel. January 16, 1963 INDEX ~ e ° & X & IN THE Supreme Court of the United States OctoBer TERM, 1962 W ESTINGHOUSE BROADCASTING COMPANY, ig te 8," ° : Petitioner, v. ’ \ COMMISSIONER OF INTERNAL REVENE, . ° Respondent. Pd \ PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ‘ Westinghouse Broadcasting Company, Inc., (Broad- - casting) prays that.a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Third Circuit, entefed i in this action October 19, 1962. Opinions. Below . ° The opinion of the Tax Court (R. 104a-123a*). is re- ported at 36 T. C.912. The opinion of the Court-of Appeals affirming the decision Ax. the Tax Court (App. 4a-lla**) is reported at 309 F. 2a 279. rie, references-are to Petitioner's Appendices in the Court of Appeals: . / , **“App.” references are to the Appendix to this Petition. 2 \ Jurisdiction The judgment of the Court of Appeals was entered October 19, 1962 (R. _), The jurisdiction of this Court is invoked under 28 U. S. C. $1254(1). e Question Presented Is a business contract for a fixed term, with a provision | for renewal terms if the parties mutually consent, rendered non-depreciable as a matter of law for Federal income tax Purposes by reason of the fact that there is uncertainty ' whether the parties will consent to renewal? - The Court below answered that question in the affirma- tive and adopted as its rule of law that depreciation was not allowable because there was uncertainty as to the number of renewals. It held that in order to be allowed depreciation Broadcasting should have proved that there ' was-—reasonable* certainty that the contract would not be renewed, either at the end of the current term er at the end of an identified future renewal term, It is Broadcasting’s contention that under the proper rule of law the contract was depreciable over its term in . effect at the end. of the taxable year becausé there was un- certainty as to renewal. It is only where it appears from - the record that a renewal term or terms are reasonably ' certain to occur that such renewal terms are added to the depreciable life of the.contract. ~ - Under the rule-of law contended for by Broadcasting, the uncertainty as to the exercise of the renewal provision renders the contract depreciable over its term in effect at the end of the taxable year; but under the rule of law adopted by the Court below, such uncertainty of renewal renders the contract non-depreciable. » ' ~ 7 4 On June 1, 1953, Broadcasting purchased from Philco Corporation (Philco) all the assets of the Philadelphia _.television’station WPTZ for $8,534)924.94. Among such assets of WPTZ was 13 those appearing in the Revenue Act of 19I8* and all suc- ceeding Revenue Acts. The regulations with respect to the depreciation of intangibles have remained substantially the same since regulations were adopted under the Revenue Act of 1918.** The courts with the concurrence of the Commissioner of Internal Revenue have uniformly held that depreciation of business contracts over the term in effect at the close of the taxable year was required despite uncertainty as to renewal. Certain of those cases have involved contracts with renewal provisions similar to that ‘involved in the present case. Flynn, Harrison & Conroy, Inc.,21 B. T. A. 285 (1930), acg., X-1 Cum. Bull, 22 (1931) : Automatic Heating and Cooling Company, P-H 1942 B.T.A. Mem. Dec. para, 42,561 (1942) ; Hickok Oil Corporation v. Commissioner, 120 F. 2d 133 (6th Cir’? 1941); Kentucky Tobacco Products Co. v. Lucas, 5 F. 2d 723, (D. Ky. - 1925): Powell Coal Co., 12 B. T. A. 492 (1928), acq., VII-2 Cum. Bull. 32 (1928); Bernicedale Coal Co., 16 B. T.. A. 696 (1929), aeqg., X-1 Cum. Bull. 6 (1931): » Syracuse Washing Machine Corp., 17 B. T. A. 4 (1929), acg., IX-1 Cum. Bull. 53; Pennsylvania Salt Manufacturing Co., 18 B. T. A. 1148 (1930), acg., IX-2 Cum. Bull. 47 (1930); Cleveland Railway Company, 36 B.. T. A. 208 (1937), acqg., 1937-2 Cum. Bull. 5; Pasadena City Louies, 23 T. C. 34 (1954), aeqg., 1955-1 Cum. Bull. 6. Cf. Van Landingham Western Sales, Inc., 35 B. T. A. 130 (1936). : As was stated in T. D. 4957, 1939-2 Cum. Bull. 87, with respect to leases: . As a general rule, unless the lease has been PINE or the facts show with reasonable certainty that the lease will be renewed, the cost or other basis of the lease or the cost of iniprovements shall -be spread only over the number of years the lease has *Section 214(a)(8). **Internal Revenue Regulations 45, Article 163. 14. a to run? without taking into a¢count any right of renewal. Rs The Court below has construed the re-enacted depreci- ation provisions and regulations in a manner | inconsistent with that settled judiciaf and administrative interpretation. Conclusien ‘For che foregoing reasons, this petition for certiorari should bg granted. Respectfully submitted, > ALBERT R. CONNELLY ‘ GEoRGE G. TYLER Counsel for Petitioner, roe 1 Chase Manhattan Plaza, — ca New York 5, N. -Y. LEoNnARD E. Kust GrorGE"'S. ParLin, Jr. ee _ Of Counsel. January 16, 1963 1 la APPENDIX ‘ Statutes and Régulations Involved ternal Revenue Code of 1939, 53 Stat., Part 1, as amended, 56 Stat. 819: | Section 23. . Depuctions From Gross INcoME. ‘ ° “In computing net income there shall be allowed as deductions: “(1) Depreciation—A reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence )— ~“(1) ®&f property used in the trade or busi- AR 0 | Internal ‘Revenue Code a 1954, 68A Stat.: ~ Section 167. Depreciation. 5 “(a) General Rule.—There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable al-_ lowance for obsolescence )— , “(1) of property used in the trade or busi- \ nesb... Regulations 118: a an § 39.23 (a)-10. Rentals. . f . “(b) ... In cases in which the lease contains an un- exercised option of renewal,. the matter of spreading such depreciation or amortiZation over the term of the original lease, together with the renewal period or periods, depends upon the facts in the particular case. As a general rule, unless the lease has been renewed or the facts show with reasonable certainty that the lease will be renewed, the cost or other basis of the lease Ca , 2a nt seat Statutes and Regulations oie or the cost of improvements shall b¢ spread only over 3 the:number of years the lease has to run, without taking into account any right of renewal.” § 39.23 (1)-3. Depreciation of intangible property. . “Intangibles, the use of which in the trade or busi- ness or in the production of income is definitely limited in duration, may be the subject of a depreciation allow- ance. Examples are patents and copyrights, licenses, and franchises. Intangibles, the use of which in the business or trade or in the production of income is not so limited, will not usually be a proper subject of such an allowance. If. however, an intangible asset acquired through capital ontlay is known from experience to be of value in the business or in the production of income for only a limited period, the length of which can be estimated from: experience with reasonable certainty, such intangible asset may be the subject of a deprecia- tion allowance, provided the facts are fully shown in the return or prior thereto to the satisfaction of the ‘Commissioner. No deduction for depreciation, includ- ing obsolescence, is allowable in respect of good will.” Income Tax Regulations (Internal Revenue Code of 1954) : § 1.162-11. Rentals. ge Ce ° “(2) If the lessee began improvements on leased property before July 28, 1958, or if the lessee was. on such date and at all gimes thereafter under a binding obligation to make such improvements, the matter of spreading the cost of erecting buildings or making conan improvements over the term of the original lease, together with the renewal period or periods de- pends upon the facts in the particular case, including the presence or absence of an obligation of renewal and the relationship between the parties. As a general rule, unless the lease has been renewed or the facts show with reasonable certainty that, the lease Will be renewed, the wed 3a ss : Statute$ and Regulations 1 nvolved ; cost or other basis of the lease, or the cost of 1 improve- ments shall be spread only over the number of yéars the lease has to run without taking into account a Lal right of renewal. . > 7a Opinion of the Court of A ppcals for the Third Circuit The’ average earnings before taxes of WPTZ for 1951 and 1952 were $1,704,459. The net broadcast income of WPTZ for 1951 and 1952 exceeded the broadcast income of _WFIL-TV, the ABC affiliate in Philade!phia, by $748,000 and $1,250,000 respectively, and such excess was attribhted by taxpayer’s expert, Ho vard E. Stark, to WPTZ’s affilia- tion with NBC. Between January 1, 1953, and April 1,, 1960, a total of 87 NBC affiliation agreements expired in circumstances other than a station going off the air or the acquisition of the affiliate by the network. Taxpayer, on its books, and federal income tax returns for 1953 and 1954, depreciated its cost of the $5,000,000 net- work affiliation contract over a 55-month period ending , January 1, 1958, i.e. the 7-month term in existence on June 1, 1953, plus two renewal terms of two years each (Janu- ary 1, 1954 to January 1, 1956 and January 1, 1956 to January-1, 1958) based on taxpayer’s assumption that net- work affiliation contracts may normally be expected to be renewed for.two terms. Subsequently, in the course of the ‘proceedings below, taxpayer contended that .the network affiliation contract was depreciable over a 31-month period —the 7-month term ending January 1, 1954 and the 24- month period ending January 1, 1956 worn the contract ‘as actually terminated. Taxpayer here contends that the Tax Court erred in its finding that the network affiliation contract did not have a “determinable useful life” as of the close of 1953 and 1954, the tax years under review. It urges that “as a matter of law, a business contract with 4 specific term and provision for renewal is definitely limited in duration to that term ¢ 8a x Opinion of the Court of Appeals for the - Third°Circuit and such renewal terms as are reasonably certain to occur,” _and, that “as a matter of fact, there: was no reasonable certainty of renewal indefinitely with respect to the affilia- tion agreement” and that “the maximum period of renewal - was to January 1, 1958.” The record, taken as a whole, says taxpayer, “estab- lishes that at the time of acquisition of the affiliztion agree- ment on June 1, 1953, two renewals, i.e. renewals to January 1, 1958, might be reafonably certain, but that a renewal beyond January I, 1959, was not reasonably cer- tain,” and that “Thus the contract, under the reasonable certainty rule, had a maximum useful life of 55 months at the end of 1953 and 1954. In support, taxpayer cites the testimony of its expert, Stark: “Ifyou could not assume , _ two renewals, I don’t think I would advise anyone to enter into a contract, but beyond that you can’t foresee anything in this business.’”® The sum of the Commissioner’s position is that Section 23(1) of the Internal Revenue Code of 1939 (applicable here to the year 1953) and Section 167(a) of the Internal Revenue Code of 1954 (applicable here to 1954) provide for a depreciation deduction in circumstances where such de- duction: represents “a reasonable allowa¥ice for the exhaus- tion . . . of property used in the trade or business”; that Treasury Regulations 11 939) Code, Sec. 39.23(1)-3 and Treasury Regulations 6n Income Tax (1954 Code), Section 1.167(a)-3,, provide that if an intangible asset is known from experience to be of use in the business or ir. the production of income for only a limited period, the length o Stark, a broker specializing in the purchase and sale of radio and television stations, played no part in the transaction in which tax- payer ieee station WPTZ from Philco. a 9a Opinion of the Court of Appeals for the Third Circuit wz. Which can be estimated with “reasonable” certainty, such intangible asset may be the subject of a depreciation al- lowance; that beth the 1939 and 1954 Treasury Regulations impose upon the taxpayer the burden of establishing the reasonableness of the deduction for depreciation allow- ancs;’ and finally, that the record discloses that taxpayer had failed to establish’ with “reasonable” certainty that the maximum period of renewal of the network affiliation con- tract was to January 1, 1958. «The Tax Court held that “Insufficient evidence was introduced from which could be calculated either the aver- age useful life of network affiliation contracts or their use- ful life span”, and further stated its conclusion “that petitioner [taxpayer] has not only failed to persuade us that the contract had a 55-month useful life but also that it has failed to persuade us respondent [Commissioner ] erred in his determination that the contract had an indeter- minable useful life”. On review of the record we Coree with the Tax Court’s holding that taxpayer failed to prove that at the close of the taxable years 1953 and 1954 it was “reasonably cer- tain” that the network affiliation contract had a maximum useful life but 55 months from the date of its acquisition by taxpayer on June 1, 1953. : The burden of proof to do so was on taxpayer not only under the applicable revenue statutes and the Treasury Regulations pertaining to thém, earlier cited, but by reason of the well-settled principle that the Ggmmissioner’s deter- mination of a deficiency in tax bears a presumption of cor- ER "Treas. Reg. 118, Sec. 39.23(1)-5 (1939) ; Treas. Reg. on Th- come Tax Sec. 1. 167(b)-O (1954 am? | 10a ) ° * Opinion of the Court of Appeals for the Third Circuit rectness. Hoffman v. ieee 298 F. 2d 784,°788 (3 Cir. #962). Taxpayer did not adduce any testimony to the effect that based on “experience” in the television industry the number of renewals of the network affiliation contract could be “estimated” with “reasonable certainty” or ‘reasonable accuracy” as required by the Treasury Regulations earlier cited. While taxpayer’s expert, Stark, in substantiating the $5,000,000 consideration paid for the network affiliation contract, testified that he had assumed a useful life for the contract which contemplated two renewals after acquisi- tion, or 55 months in this ease,she did not say that his assumed premise of such two renewals was based-on—“ex- _ perience” with such contracts. All that Stark said was that it was the “practice” of experts in evaluating network affiliation contracts ‘‘to anticipate the likelilgood of two sep- arate renewals . . . following the expiration of the unexpired term of the contract,” to which he added that in his post- . evaluation of the contract here involved he had in mind that anticipation and “the hope that it would be continued beyond that date [two separate renewals].” . > It must be stressed that nowhere in his testimony did Stark say that the “practice” of experts in anticipating two renewals of network affiliation contracts was based on -“experience” with respect to contract renewals. Under the circumstances we agree with the Tax Court that the “practice” of the experts in figuring on two renew- als of a network affiliation contract was‘not “a sufficient indication of that contract’s probable useful life.” | Nor can any probative value with respect to the “prob- able useful life” of the network affiliation contract here be \ ; lla Opinion of the Court of Appeals for the Third Circuit sad attributed to the stipiilated fact that “between January 1, 1953 and April 1, 1900, a total of 87 NBC afiiliation agree- ments expired in circumstances other than a station going off the air or the acquisition of the affiliate by the network” ~ since there was no evidence as to the actual life span of those agreements or as to the number of their renewals. This too must be said. Taxpayer based its 55-month useful life estimate of the network affiliation contract on its premise that there was reasonable certainty of only 48 months plus the 7 months of its unexpired term. The premise was in turn sub-based, so to say, on the theory that network affiliation contracts have a life span of 72 months,. their original two-year term and two renewals. Taxpayer disregards the: fact that the network affiliation contract here had actually run for 24 months (January 1, 1950 to January 1, 1952) prior to the renewed term (Jan- uary 1, 1952 to January 1, 1954) during which it was ac- quired by taxpayer on June (1, 1953. , It would serve no useful purpose to discuss the cases cited by taxpayer and the Commissioner since the facts in those cases vary significantly irom. those existing here. For the reasons stated the decision of the Tax Court will be affirmed. -. A True Copy: Teste: - Clerk of the United States Court of Appeals for the Third Circuit. be --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385601_0779%3A2. Public record. Not legal advice.