Western Elaterite Roofing Co. v. Commissioner

*467 This proceeding is for the redetermination of deficiencies in income taxes for the years 1923, 1924, and 1925 in the amounts of $84.59, $110.62, and $212.94, respectively. The only error assigned is that *468 the respondent erroneously refused to allow the petitioner to deduct from its gross income certain donations which it made to various organizations during the years in question.

FINDINGS OF FACT.

The petitioner is a corporation duly organized and existing under and by virtue of the laws of the State of Colorado, ith its principal office and place of business in the city of Denver. It is engaged in the manufacture and sale of roofing material.

During the years 1923 to 1925, inclusive, the petitioner contributed certain amounts*2401 to certain organizations as follows:

The respondent disallowed as a deduction from gross income all of the donations listed above, with the one exception of the $45 donated in 1924 to the Knot Hole Club.

By reason of the petitioner's donation of $15 to the Craig Colony in 1923, it received a contract from the donee during that year for roofing material in the amount of $592.50.

On May 8, 1923, the petitioner received an order from the treasurer of the Ascension Memorial Church for roofing material and labor in the amount of $10. A similar order in the amount of $35.70 was received on June 5, 1923.

The Iliff School of Theology is an auxiliary part of the University of Denver. On August 15, 1925, the petitioner sold to the University of Denver one*2402 barrel of liquid fibre roof coating at a net price of $63.11.

At the time the petitioner made its contribution of $50 to the Presbyterian Hospital in 1923, it was intimated by the committee for the hospital that the petitioner would receive favorable consideration on a contract for material about to be let by the hospital. On June 6, 1923, the petitioner received an order from this source for material in the amount of $854.

On October 16, 1923, the petitioner received an order from the Y.M.C.A. for roofing material in the amount of $1,057.

During 1924 and 1925 the Denver Press Club was soliciting funds for building purposes. The petitioner made the above mentioned contributions of $250 in 1924 and $100 in 1925, with the understanding *469 that it would secure the contract for the necessary roofing material. The size of the contract was not discussed at the time the donations were made. On July 1, 1925, the petitioner received an order for material to cover the roof of the new Press Club building amounting to $136.50.

By reason of the petitioner's donation of $45 to the colored Y.M.C.A. in 1924, it received during June, 1924, three orders from the donee for material*2403 in the total amount of $1,144.60.

The Knot Hole Club is an organization for the purpose of entertaining visiting lumbermen from all parts of the State. The organization is composed of building material dealers and lumbermen.

The Merchants Festival Association is an organization existing for the purpose of bringing people to Denver in order to make them friendly to the business interests of that city. The petitioner derived no direct benefit from the contribution made to this association.

There was during the years in question only one other concern in Denver engaged in the same business as that of the petitioner. The gross business done by the petitioner during the years 1923 to 1925, inclusive, was as follows:

OPINION.

LOVE: The only issue in this proceeding is whether the respondent erred in refusing to allow as deduction from gross income the donations (excepting the Knot Hole Club) made by the petitioner during the years 1923 to 1925, inclusive, which we have set out in our findings. At the hearing petitioner withdrew its contention relative to the three donations to the Denver Community Chest*2404 totaling $600.

As a general proposition corporations are not entitled to deduct donations as such. ; 6 Am.Fed. Tax Rep. 7423 (certiorari denied October 15, 1928); ; ; , and . For a brief review of the legislative history relating to this subject, see . It is only when the so-called donation is in fact an "ordinary and necessary expense" *470 of doing business that authority is found for allowing it as deduction from gross income. See section 234(a)(1) of the Revenue Acts of 1921 and 1924. To come within the term "ordinary and necessary expense" the so-called donation must represent "a consideration for a benefit flowing directly to the corporation as an incident to its business." *2405 . To the same effect see ; ; ; and . In , we said:

To be deductible as a business expense a contribution, charitable or otherwise, must have in a direct sense some reasonable relation to the taxpayer's business.

Where the benefit sought to be derived by the contribution in question is indirect or remote the amount expended is not deductible as an ordinary and necessary business expense. ; In the latter case we also said, "The deductibility of contributions depends largely on the facts of each particular case."

Applying what we have said above to the facts in the instant case, the evidence shows that the amounts paid to the Craig Colony, Presbyterian Hospital, Denver Press Club and the Colored Y.M.C.A. had "in a direct sense some reasonable relation to the taxpayer's business" and should, therefore, be allowed*2406 as deductions from gross income as ordinary and necessary business expenses.

The evidence with respect to the amounts paid the Ascension Memorial Church, Iliff School of Theology, Y.M.C.A., Merchants Festival Association and the University of Denver does not show such a relation or that the benefit sought to be derived was anything more than indirect or remote. The respondent's determination, as to these items, is sustained.

The respondent in his answer denies that he disallowed the amount of $45 paid to the Knot Hole Club in 1924. The evidence does not show that he committed any error as to this item.

The petitioner offered no evidence relative to the circumstances surrounding the payments in 1923 $25of and $50, respectively, to the National Guardsman and State Hospital Fund. The respondent's determination, as to these items, is sustained.

The deficiency for each of the years 1923, 1924, and 1925 should be recomputed on the basis of a further allowance for ordinary and necessary expenses in each year as follows:

*471

*2407 Judgment will be entered under Rule 50.