Nehi Beverage Co. v. Commissioner
United States Tax Court
During the taxable year 1946 petitioner transferred $ 17,271.42 from its deposit liability account to its miscellaneous income account. This sum represented deposits received from customers on containers used in petitioner's business, which containers had been fully depreciated. Held, section 112 (f), Internal Revenue Code, relating to recognition of gain or loss on involuntary conversions, does not apply and the gain resulting from the transfer must be recognized.
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During the taxable year 1946 petitioner transferred $ 17,271.42 from its deposit liability account to its miscellaneous income account. This sum represented deposits received from customers on containers used in petitioner's business, which containers had been fully depreciated. Held, section 112 (f), Internal Revenue Code, relating to recognition of gain or loss on involuntary conversions, does not apply and the gain resulting from the transfer must be recognized. Held further, the gain realized is ordinary income and not capital gain under section 117 (j), Internal Revenue Code.
1Opinion of the Court
OPINION.
Rice, Judge:
Petitioner seeks to apply section 112 (f) of the Internal Revenue Code1 to the foregoing facts. Briefly, its theory is that there was an involuntary conversion of a portion of its beverage containers during the taxable year 1946, that its board of director’s recognized this fact at its meeting on December 31,1945, and authorized the transfer of $17,271.42 from its deposit liability account to its miscellaneous income account for containers that would never be returned, that this sum of $17,271.42 was used immediately to purchase replacement containers which were used in…
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