*2825 OBSOLESCENCE OF BREWERY PLANT, due to national prohibition. Amount of reasonable allowance determined upon the evidence.
*579 This proceeding results from the determination of a deficiency in income and profits taxes for the year 1919 amounting to $13,458.54. The petitioner alleged error in the failure to allow, as a deduction from income, a reasonable allowance for obsolescence.
FINDINGS OF FACT.
Petitioner is a Wisconsin corporation with its principal office at 155 South Water Street, Milwaukee, and for 20 years prior to the year 1919 was engaged in the business of brewing ale and beer. It had also for some years carried on a business of manufacturing ginger ale, nonalcoholic beer or "near beer" and bottling medicinal table waters. This latter business was a relatively small part of its total business and its operation required the use of only part of petitioner's plant and equipment, and this part only to a limited extent.
Upon the advent of national prohibition, petitioner, realizing from its past experience in the manufacturing of*2826 "near beer" and its sale in States which had long had prohibition legislation, that the market for same would be limited and the demand most probably never equal to that formerly existing for alcoholic beverages, decided to shut down permanently, and did at the close of the year 1919 shut down and abandon the use of that portion of its plant and facilities formerly used exclusively in the manufacture of ale and beer, and from that time forward continued only its business of bottling table waters and manufacture of "near beer" and other nonalcoholic beverages.
*580 That portion of the plant, the use of which was thus abandoned, consisted of an ice house, certain machinery and equipment throughout the plant, and portions of buildings housing this machinery and equipment. Petitioner from that time forward made no further use of this machinery and equipment and no use of that portion of the buildings in which it was located. It made no further use of the ice house in question and eventually demolished it as without value. Petitioner did not anticipate a future use of its machinery and equipment, there was no market for it, and had it been torn out and salvaged the return would*2827 have been less than the cost of the salvaging. In some cases the facilities would necessarily have to be destroyed to get them out of the buildings in which they were installed.
At the end of 1919 the plant of the petitioner included machinery, piping and shafting, and vats, listed below, which were no longer of use in the business of the petitioner and the assets, together with the space they occupied in the buildings, were valueless. The buildings were unsuitable for other uses.
In the boiler room were two boilers, one heater and one pump, occupying about 25 per cent of the space. In the engine room were a vertical engine, a gear cutter, a Nordberg engine, a generator, an upright engine, a motor engine, an ice machine and a tempering tank, occupying about 25 per cent of this room. In the brew house, a four-story and tower building, 35 feet by 50 feet, was obsolete and useless machinery occupying about 85 per cent of the space. In the beer cellars, a four-story and tower building, 50 feet 8 inches by 76 feet, there were 56 tanks no longer in use, and a majority of them were in a badly deteriorated condition. Also in the beer cellars were one cask pump, two yeast culture*2828 tanks, ammonia piping and insulators. Eighty-five per cent of the beer-cellars building is no longer in use. In the racking rooms, a building of two floors and a basement, racking machinery, a tank and a carbonator, ammonia piping and insulting used only in putting upon the output in kegs, not used for bottled goods, occupied about 85 per cent of the space. In the wash house, a one-floor and basement building, 50 feet 6 inches by 60 feet, keg-washing devices and miscellaneous machinery for washing and cleaning cooperage, including a pump washer, a keg grinder, a hoop device, motors, and a washing tank known as a rack washer, occupied 85 per cent of the space. In the pitch shed, a separate building wherein the cooperage is repaired and coated on the inside with pitch, apparatus for applying the pitch and for heading the cooperage occupied 85 per cent of the space. In a coal shed at least five compartments out of seven were useless. Included in the classification, "Miscellaneous sheds," were an ice house 24 feet by 50 feet, in bad condition; a wagon shed which has been torn down; a small amount of machinery in the sheds and a settling tank in the yard. *581 In a brick three-story*2829 building with cement floors and constructed for hop storage with ingress of fresh air excluded, and therefore having no windows, save on the west side, only a portion of one floor is of further usefulness.
In determining the deficiency the respondent determined the remaining cost of the assets on December 31, 1917, after deducting prior depreciation to be as follows: plant buildings, $108,218.70; machinery, piping and shafting, and vats, $88,565.69; and he computed and allowed depreciation deductions in 1919 upon these bases subject to rates of 7 1/2 per cent for the buildings and 20 per cent for the machinery, etc. In addition respondent allowed deductions of obsolescence in 1919 amounting as follows, being the amounts originally charged off on the books by the petitioner: for the buildings, $13,138.30; for the machinery, etc., $10,140.33. Respondent determined the remaining cost of the plant buildings on December 31, 1919, after deducting the amounts of the allowances for depreciation and for obsolescence, to be as follows: for the plant buildings, $79,340.28; for the machinery, piping and shafting, and vats, $44,847.17. The following amounts are properly assignable to these*2830 assets at the end of 1919:
| Plant buildings | Machinery, etc. | |
| Total assets subject to obsolescence | $61,029.00 | $14,579.57 |
| Sundry assets not subject to obsolescence | 18,311.28 | 30,267.60 |
| Total determined by respondent | 79,340.28 | 44,847.17 |
Deductions in 1919 by way of allowance for exhaustion, wear and tear, and obsolescence, with relation to the assets are reasonable in the following amounts:
| Plant buildings | Machinery, | |
| piping and | ||
| shafting, | ||
| and vats | ||
| Amount of depreciation allowed by the respondent | ||
| on assets included in this classification, but | ||
| not the subject of a claim for obsolescence | $3,687.79 | $9,992.20 |
| Obsolescence | 30,152.23 | 20,516.47 |
| Total | 33,840.02 | 30,508.67 |
| The amounts of allowances by the respondent were | 20,762.02 | 27,287.77 |
| Reasonable additional allowance | 13,078.00 | 3,220.90 |
OPINION.
TRUSSELL: The sole question for decision in this case is the amount of additional deduction, if any, which is properly allowable in 1919 by way of allowance for obsolescence of the brewery plant assets of *582 the petitioner. The parties are in agreement as to the aggregate remaining cost after deducting*2831 prior depreciation of the assets. The petitioner contends that a further allowance should be deducted from the cost which remains at the end of 1919 after deducting the depreciation and the obsolescence which the respondent has allowed. The assets under consideration are classified as "Plant Buildings" and "Machinery, Piping & Shafting, and Vats." Included in these classifications are assets which are not the subject of claims for obsolescence and with respect to them the petitioner accepts the amount of the deductions for exhaustion, wear and tear allowed by the respondent. The deductions allowed by the respondent attributable to assets which are the subject of a claim for obsolescence are in part computed as depreciation as though the assets had been suddenly abandoned during the year; the deductions allowed are the aggregate of depreciation and of obsolescence. The respondent now admits that this method is in error and contends that, whatever amount of obsolescence is determined upon, it should be deductible ratably over the period from January 31, 1918, to January 16, 1920, for the reason that the obsolescence is attributable to national prohibition, and was progressive over*2832 that period. Cf. . We agree with the respondent in this. There is no basis for the allowance of sudden obsoleteness in the taxable year.
The situation of the petitioner is to be distinguished in that for some years a near beer, ginger ale, and bottled table water business had been conducted in parallel with the business of producing and selling alcoholic beer and ale.
The processes of manufacture were dissimilar and the plant of the petitioner may fairly be described as comprehending, at least in part, two separate plants which, however, jointly used a part of the equipment. The soft drink business, of course, continued in usefulness but the beer and ale brewery became no longer useful under national prohibition, and we are satisfied that it was practically valueless. The prior experience of the petitioner in the soft drink field was particularly valuable, for it enabled what we believe must have been a fairly accurate forecast of reasonable expectations from the soft drink business and the expensive fruitless period of experimentation, through which so many breweries filed their devious way, was avoided. *2833 The petitioner excepts from its claim for obsolescence the assets continued in use in the soft drink business; the remaining cost reasonably assignable to them is substantial. The claim for obsolescence appears reasonable and moderate. We find in the instant case points of similarity with that of , wherein we determined allowances for obsolescence *583 of buildings and equipment and held that the amount was allowable on a pro rata time basis over the period from January 31, 1918, to January 16, 1920. We are of the opinion in the instant case that the allowances for obsolescence properly assignable to 1919 amount to at least $30,152.23 for the buildings and to at least $20,516.47 for the machinery, piping and shafting, and vats. Adding thereto the amounts of deductions allowed by the respondent for exhaustion, wear and tear of the assets not the subject of obsolescence, and in which the petitioner concurs, and deducting the amounts of the total allowances made by the respondent in determining the deficiency, we conclude that the petitioner is entitled to additional allowances in 1919 for obsolescence amounting for the buildings*2834 to $13,078 and for the machinery, etc., to $3,220.90.
Judgment will be entered pursuant to Rule 50.