*249 Decision will be entered for the respondent.
1. Petitioner, the owner and operator of a radio station at Waco, Texas, in 1954, applied to the Federal Communications Commission for a permit to construct and operate a television station in Waco. Another corporation of Waco filed a similar application. A hearing on these two applications was held by an examiner of the F.C.C. and after such examination the examiner recommended that petitioner's application be granted. The other applicant appealed to the F.C.C. from this recommendation. Pending such appeal petitioner and the other applicant agreed that the latter would withdraw its appeal if petitioner would pay it $ 45,000 to reimburse it for expenses which it had incurred in pressing its application. This was agreed to by both parties and carried out and petitioner received its permit in 1954. On its return for 1954 petitioner deducted this $ 45,000 as an ordinary and necessary business expense. The Commissioner disallowed the deduction. Held, the payment was not an ordinary and necessary business expense and the Commissioner is sustained in his disallowance of the deduction.
2. Petitioner incurred expenditures for attorney*250 fees, traveling expenses, etc., of $ 12,366.33 in pressing its application for a construction permit and license. It concedes that such expenditures were capital in nature and not deductible as ordinary and necessary business expenses. Petitioner contends, however, that it is entitled to amortize these expenditures over a period of 56 months (20 months being the term of the construction permit and 36 months the term of the television license which was granted petitioner). Petitioner contends that it should be granted amortization in 1954 of 1/56th of this amount since 1 month of the period expired in 1954. Petitioner also contends in the alternative that if we should disallow the $ 45,000 expenditure which it made in 1954 described in headnote 1 above, it should also be amortized over a period of 56 months. Held, the facts in the record do not justify the deduction for amortization which petitioner claims and it is accordingly denied.
*953 The Commissioner has determined a deficiency in petitioner's income tax for the year 1954 of $ 26,527.20. The deficiency is due to two adjustments which the Commissioner made to*252 the net income reported on petitioner's return for 1954. These adjustments were:
| Unallowable deduction: | |
| (a) Cost of securing license | $ 57,366.33 |
| Additional deduction: | |
| (b) Contributions | 438.34 |
Adjustment (a) is explained in the deficiency notice as follows:
(a) On your 1954 income tax return, you deducted the sum of $ 57,366.33, which represented the amount paid by you in securing a license from the Federal Communications Commission to construct and operate a television station in Waco, Texas. It has been determined that this amount was a capital expenditure and not recoverable through depreciation or amortization. Your taxable income for 1954 has accordingly been increased by the sum of $ 57,366.33.
The deficiency notice shows that the additional deduction granted to petitioner for contributions of $ 438.34 is due to the increase in petitioner's net income which results from adjustment (a).
Petitioner assigned error as to adjustment (a), alleging that it was entitled to the deduction claimed under sections 162, 212, and/or 165(a) of the Internal Revenue Code of 1954. 1
*253 *954 In an amendment to its petition filed at the hearing, petitioner pleaded, as an alternative to the relief requested in its original petition, that it be allowed a deduction of 1/56th of the $ 12,366.33 covering the legal fees and traveling expenses incident to the prosecution of an application to the Federal Communications Commission, hereinafter referred to as the F.C.C., for a television permit and 1/56th of the $ 45,000 payment to Waco Television Corporation.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found as stipulated.
Petitioner, KWTX Broadcasting Company, Inc., a corporation created and existing under the laws of the State of Texas, has been engaged in the public radio broadcasting business in Waco, Texas, since April 1, 1946.
Petitioner filed its Federal income tax return for the year 1954 with the district director of internal revenue in Austin, Texas.
Petitioner is a calendar year taxpayer which kept its accounts and filed its return for the taxable year 1954 on an accrual basis.
The F.C.C. allotted a very high frequency, hereinafter referred to as VHF, television channel, Channel 10, to the Waco, Texas, area. Pursuant to the regulations*254 of the F.C.C., petitioner filed an application with the F.C.C. to construct a television station in Waco and to operate such on the VHF channel which had been allotted to this area.
The information required in such an application may be broken down generally into four parts, to wit, legal showing, financial showing, engineering showing, and programing showing. In brief, this required information includes a summary of the background of the persons who will be operating the station; a financial report of the applicant for the purpose of determining whether or not the applicant is financially able to operate such a station; information concerning the manner in which the applicant has operated its radio station in the past, if it has been in that business; and a projected plan of operation of the television station as to its policy and programing.
Another party, the Waco Television Corporation, also filed an application for a license to use said television Channel 10. More than one application was filed for Channel 10; therefore, the applications were referred to an examiner for a hearing in order to determine which applicant should receive the grant.
Petitioner employed legal counsel*255 to represent it before this examiner, and during the taxable year ending December 31, 1954, legal fees for such counsel in the amount of $ 8,382.86 were paid by petitioner. Travel expenses for representatives and witnesses at this *955 hearing in the amount of $ 3,983.47 were also paid by petitioner during this taxable year. By an order dated September 30, 1954, the examiner for the F.C.C. granted the application of petitioner and denied the application of Waco Television Corporation. An appeal from this order of the examiner was taken to the F.C.C. by the Waco Television Corporation. By an agreement dated November 20, 1954, Waco Television Corporation agreed to make a motion to dismiss its application and appeal in exchange for the sum of not more than $ 45,000 in reimbursement for its expenses in regard to its application for such television permit. The sum of $ 45,000 was paid to Waco Television Corporation by petitioner during the taxable year ending December 31, 1954, under the terms of the agreement.
By order dated December 2, 1954, the F.C.C. granted the motion to dismiss the appeal and granted the application of petitioner for a television broadcasting station construction*256 permit.
A construction permit dated December 1, 1954, was issued by the F.C.C. to petitioner to construct and operate a television broadcasting station pending the issuance of a 3-year license as set out below. Petitioner constructed and operated a television station under this construction permit from December 1, 1954, through July 31, 1956, or a total of 20 months.
In its income tax return for 1954, petitioner claimed as one of its deductions from gross income the sum of $ 57,366.33. This sum represented the aggregate of the $ 3,983.47 petitioner paid for the expenses of representatives and witnesses at the hearing before the examiner, the $ 8,382.86 in legal fees paid by petitioner for counsel to represent it before the examiner, and the $ 45,000 paid by petitioner to Waco Television Corporation in exchange for its agreement to dismiss its application for Channel 10 and its appeal from the examiner's order granting the application of petitioner.
After completing the construction of its television station in compliance with the terms set out in the construction permit, petitioner then filed on July 18, 1955, with the F.C.C. its application for a television broadcasting license, *257 showing in this application that it had constructed its television station in accordance with the requirements set out in the construction permit.
On August 1, 1956, the F.C.C. issued the petitioner a television broadcasting license for a term of 3 years or 36 months, beginning August 1, 1956, and ending August 1, 1959. This television broadcasting license states, in part, as follows:
This license shall not vest in the licensee any right to operate the station nor any right in the use of the frequency designated in the license beyond the term hereof, nor in any other manner than authorized herein. Neither the license nor the right granted hereunder shall be assigned or otherwise transferred in violation of the Communications Act of 1934. * * *
*956 Under current laws and regulations petitioner may file a written application for renewal of its television broadcasting license 90 days prior to the license's expiration on August 1, 1959. FCC Form 303 is required to be used in making this renewal application. This application for renewal will require substantially the same information that the original application required. In the past a large number of these applications for*258 renewal of television broadcasting licenses has been granted and none has been denied.
When an application for renewal of a television broadcasting license is received by the F.C.C., it is reviewed by the staff of the F.C.C. If no questions or obstacles arise, the staff recommends to the F.C.C. that the application for renewal of the television license be granted. If questions or obstacles arise, then a hearing is required. If a hearing is required when petitioner applies for a renewal of its license, petitioner would be required to appear at this hearing or have its representatives present.
The number of radio and television licenses issued by the F.C.C. and in effect as of the first of each year from January 1, 1948, to January 1, 1958, inclusive, was as follows:
| Radio stations | ||||
| As of January 1 | Television | Total | ||
| AM | FM | |||
| 1948 | 1,522 | 84 | 7 | 1,613 |
| 1949 | 1,865 | 222 | 7 | 2,094 |
| 1950 | 2,048 | 478 | 31 | 2,557 |
| 1951 | 2,199 | 519 | 56 | 2,774 |
| 1952 | 2,300 | 564 | 93 | 2,957 |
| 1953 | 2,371 | 576 | 98 | 3,045 |
| 1954 | 2,500 | 533 | 101 | 3,134 |
| 1955 | 2,649 | 533 | 126 | 3,308 |
| 1956 | 2,804 | 521 | 147 | 3,472 |
| 1957 | 2,971 | 516 | 265 | 3,752 |
| 1958 | 3,130 | 537 | 402 | 4,069 |
From October 11, 1941, to December*259 14, 1953, radio licenses were issued for a period of 2 years and television licenses were issued for a period of 1 year. From and after December 14, 1953, radio and television broadcasting licenses have been issued for a period of 3 years.
During the period July 1, 1955, to March 31, 1958, the F.C.C. received 3,787 applications for renewal of radio broadcasting licenses and received 229 applications for renewal of television broadcasting licenses.
During the period July 1, 1955, to March 31, 1958, there were designated for hearing seven applications for renewal of radio broadcasting licenses and one application for renewal of a television broadcasting license.
An application for the renewal of either a radio or television broadcasting license cannot be denied by the F.C.C. without a hearing.
*957 During the period July 1, 1955, to March 31, 1958, the F.C.C. granted 3,585 applications for renewal of radio broadcasting licenses and 203 applications for renewal of television broadcasting licenses.
The F.C.C. has never denied an application for the renewal of a television broadcasting license.
During the 10 years preceding March 31, 1958, the F.C.C. denied 2 applications for renewal*260 of radio broadcasting licenses and only 19 applications for renewal of radio licenses have been denied since August 23, 1928.
OPINION.
Petitioner in its brief states its respective contentions as Point One and Point Two. We shall examine and consider these points in their order.
Point One.
Petitioner states this point as follows:
During the taxable year of 1954, Petitioner entered an agreement with Waco Television Corporation whereby it agreed to reimburse Waco Television Corporation for its expenses, not to exceed $ 45,000.00, incurred in submitting an application to construct and operate a television station on Channel 10 in exchange for Waco Television Corporation's agreement to make a motion to dismiss its appeal from an order of a Federal Communications Commission Examiner denying said application. Petitioner paid Waco Television Corporation the sum of $ 45,000.00 under this agreement during the taxable year in question. Under these facts, Petitioner is entitled to deduct the entire $ 45,000.00 from gross income in computing its Federal Income Tax for the taxable year of 1954.
*261 Petitioner, in arguing Point One in its brief, states:
We are relying on the following provisions of the 1954 Internal Revenue Code to establish our right to deduct the entire $ 45,000.00 from gross income during the taxable year of 1954:
Section 162 -- "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, --"
Section 212 -- "In the case of an individual, there shall be allowed as a deduction all of the ordinary and necessary expenses paid or incurred during the taxable year --
(2) for the management, conservation or maintenance of property held for the production of income;"
Section 165(a) -- "There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise."
In the first place, it seems clear that section 212 is not applicable here because it applies only to individuals. Petitioner is a corporation. It is also manifest that section 165(a) has no application under the facts of this case. Losses can only be taken in the year when they are incurred. We do not see where petitioner suffered any loss in 1954 when it paid $ 45,000 to Waco Television Corporation to reimburse the latter for expenses which*262 it had incurred in connection with *958 its application for a television construction permit and license. There is no doubt but that petitioner made the payment; that has been stipulated. But, in making such a payment to its competitor to induce it to withdraw its appeal to the F.C.C., it certainly cannot be said that petitioner suffered any loss within the meaning of section 165(a). We deny petitioner's contention that it is entitled to deduct a loss under section 165(a).
This leaves us to determine whether petitioner is entitled to deduct the $ 45,000 in question under section 162 as an ordinary and necessary business expense. In support of its contention that it is entitled to such deduction, petitioner strongly relies on All States Freight v. United States, 72 F. Supp. 673">72 F. Supp. 673. We think that case is not in point; we think it is distinguishable on its facts. In the All States Freight case, the taxpayer had been engaged in the trucking business prior to the enactment of new legislation. The taxpayer would have received, on application, a license to continue its operations as a matter of course had it not been that certain rail carriers*263 filed opposition papers against granting the license which the taxpayer sought. The court, in its opinion holding in favor of the taxpayer, stated that its decision turned in the last analysis upon whether it considered the expenditures as made in support of an application for a license or whether it considered them as made in defense of a right to continue in business. It found the latter to be true and further stated that had the taxpayer not been in business and had the expenditures been made to process an original application for a license such expenditures would be capital in nature and not deductible as a business expense.
In the instant case it seems clear to us that the $ 45,000, which petitioner paid to the Waco Television Corporation to reimburse it for expenses and to induce its withdrawal of its application to operate on the same channel as petitioner, was paid not to continue in business as was in the case of All States Freight, but was paid to induce its competitor to withdraw its application. This was not an ordinary and necessary business expense but was in the nature of a capital expenditure in connection with the television operating permit and license which*264 petitioner was seeking. Being a capital expenditure, it must be capitalized and is not deductible as an ordinary and necessary business expense. We so hold.
In Radio Station WBIR, Inc., 31 T.C. 803">31 T.C. 803, we had a similar issue before us and we decided it in favor of the Commissioner and, in doing so, we distinguished All States Freight v. United States, supra, on very much the same grounds as we have distinguished it above. It is true that in the Radio Station WBIR, Inc., case, the taxpayer was claiming deductions for attorney fees, engineering fees, and related expenses incurred in connection with its application for a television license, whereas the deduction here sought by *959 petitioner is the $ 45,000 which it paid to a competitor to reimburse such competitor for expenses which it had incurred in seeking an operating permit and license, such reimbursement being conditioned on the competitor's agreement to withdraw its application. But in our opinion this difference in the nature of the expenditure involved in the Radio Station WBIR case from the $ 45,000 here involved is not of such kind as to justify*265 a distinction. If the expenses for attorney fees, engineering fees, and related expenses involved in the Radio Station WBIR case were not deductible but must be capitalized, as we held in that case, then we think the $ 45,000 involved in petitioner's Point One must likewise be capitalized and cannot be deducted as an ordinary and necessary business expense.
Point Two.
Petitioner's Point Two is stated in its brief as follows:
(a) Petitioner paid, during the taxable year in question, $ 8,382.86 in legal fees for counsel to represent it at a hearing before a Federal Communications Commission Examiner and $ 3,983.47 in traveling expenses of the representatives and witnesses who attended said hearing. Petitioner is entitled to amortize or depreciate these two expenditures over the combined lives of the construction permit, which had a life of twenty (20) months, and the television broadcasting license, which had a life of thirty-six (36) months because said expenditures were attributable to the acquisition of said permit and license. Since one month of this fifty-six (56) month period passed during the taxable year in question, Petitioner is entitled to a deduction from gross*266 income of 1/56 of each of these expenditures.
(b) Petitioner paid, during the taxable year in question,$ 45,000.00 to Waco Television Corporation to reimburse said corporation for its expense in regard to an application for a construction permit and a television broadcasting license, and received in exchange the promise of said corporation to make a motion to dismiss said application and its appeal from a Federal [Communications] Commission Examiner's order. As an alternative to Point One (1), Petitioner is entitled to amortize this expenditure over the combined lives of the construction permit and the television broadcasting license and Petitioner should be granted a deduction of 1/56 of the $ 45,000.00 in computing its income tax for the year 1954.
In support of its Point Two, petitioner relies on section 167 which states, in part, as follows:
SEC. 167. DEPRECIATION.
(a) General Rule. -- There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) --
(1) of property used in the trade or business, or
(2) of property held for the production of income.
Petitioner argues that*267 the facts in the instant case bring petitioner directly under Regulations 118, section 39.23(l)-3, which deal with the income tax and read as follows:
*960 Sec. 39.23(l)-3. Depreciation of intangible property. Intangibles, the use of which in the trade or business or in the production of income is definitely limited in duration, may be the subject of a depreciation allowance. 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 outlay 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 depreciation allowance, provided the facts are fully shown in the return or prior thereto to the satisfaction of the Commissioner. No deduction for depreciation, including obsolescence, is allowable in respect of good will.
The aggregate cost of procuring petitioner's construction*268 permit and television license, including the amount which it paid its competitor for dismissing its appeal, was $ 57,366.33. We do not think it can be sustained in its contention that it should be allowed to amortize this cost over a period of 56 months, as it contends under Point Two.
In Radio Station WBIR, Inc., supra, to which we have already referred under Point One, the taxpayer, as an alternative in case we should deny its contention that the $ 37,016.68 expended by it in connection with the preparation and conduct of hearings before the F.C.C. was deductible as an ordinary and necessary business expense, contended that it should be allowed to amortize such expenses over the 3-year life of a television license. We held against the taxpayer's alternative contention in that case on the ground that its claim for amortization was premature; that its application for license was still in litigation, and that no license had as yet been granted the taxpayer.
We have no such situation here. Petitioner was in fact granted the license for which it applied August 1, 1956, this license will expire August 1, 1959, and prior to such expiration it will have*269 to apply for a renewal of its license if it wishes to continue the operation of its television station. Thus, it will be seen that our denial of the taxpayer's claim for amortization in the Radio Station WBIR, Inc., case, supra, because it was premature would not be supporting authority for the denial of petitioner's claim for amortization in the instant case.
However, premises considered, we do not think petitioner's claim for amortization deduction under its Point Two can be sustained.
In Radio Station WBIR, Inc., supra, in discussing the amortization issue which the taxpayer there raised as an alternative, we referred in a footnote to Rev. Rul. 56-520, in which it was ruled that --
if the expenditures result in obtaining permission to use the television facility, (1) the amounts thereof would not be deductible from gross income, but would constitute a part of the cost basis of an asset of a permanent nature, within the meaning of section 263 of the Internal Revenue Code of 1954; (2) since the useful life of the asset is of an indeterminate duration, a deduction for depreciation thereon is not allowable; and (3) *270 the cost basis of such asset would be recoverable upon its sale or other disposition. * * *
*961 While, of course, it goes without saying that the revenue ruling above referred to is not binding upon us in the decision of petitioner's claim for an amortization deduction, nevertheless we think that when applied to the facts of the instant case, the ruling is correct. Petitioner contends that the only length of time on which it can safely count for the endurance of its capital investment is the 20 months of its construction permit and the 36 months of its television license. While it is doubtless true that it will be within the power of the F.C.C. to refuse to grant a renewal of petitioner's television license when it comes up for renewal in August 1959, nevertheless we think, judging by the facts which were brought out at the trial of this proceeding and which are embodied in our Findings of Fact, that it is altogether unlikely that the F.C.C. will deny petitioner's application for a renewal of its license. In our Findings of Fact based on evidence which the Commissioner introduced at the hearing we made a finding that: "In the past a large number of these applications for*271 renewal of television broadcasting licenses has been granted and none has been denied."
After a careful consideration of all the facts in the record, including the fact that it is altogether likely that petitioner will apply to the F.C.C. for a renewal of its license prior to its expiration in August 1959, and that such renewal will be granted, we conclude that petitioner is not entitled to amortize the $ 57,366.33 total expenditure over a period of 56 months. The amortization deduction asked by petitioner in its Point Two is denied.
Decision will be entered for the respondent.
Footnotes
1. All section references are to the Internal Revenue Code of 1954 unless otherwise stated.↩