Interstate Transit Lines v. Commissioner, 319 U.S. 590 (1943)

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Interstate Transit Lines v. Commissioner of Internal Revenue

No. 552

Argued April 19, 1943
Decided June 14, 1943
319 U.S. 590

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

1. A corporation, operating a bus line interstate and intrastate, finding that in a particular State it could not lawfully engage in the local business because it had not been there incorporated, organized, pursuant to the laws of that State, a wholly owned subsidiary which took over the parent company’s traffic from the state line and operated intrastate as well. Pursuant to the contract between them, the parent corporation kept the accounts of the subsidiary, managed its finances, paid its bills, and absorbed all of its profits and deficits.

Held:

(1) That a payment made by the parent company to cover an operating deficit of the subsidiary during a tax year was not deductible by the parent company under § 23(a) of the Revenue Act of 1936 from gross income as an ordinary and necessary business expense of that company. P. 593.

(2) In the absence of proof allocating the deficit as between the intrastate and interstate business of the subsidiary, the entire deficit must be attributed to the intrastate business. P. 594.

(3) The mere fact that the expense was incurred under contractual obligation did not sustain the deduction. P. 594.

2. An income tax deduction is by legislative grace, and the burden of showing his right to the deduction is on the taxpayer. P. 593.

130 F.2d 136 affirmed.

Certiorari, 318 U.S. 751, to review the affirmance of a ruling (44 B.T.A. 957) sustaining a deficiency assessment of income tax.