United States v. Chicago, B. & Q. R. Co., 412 U.S. 401 (1973)

CERTIORARI TO THE UNITED STATES COURT OF CLAIMS

Syllabus

In this refund suit, respondent railroad seeks to recover an alleged income tax overpayment resulting from its failure to take deductions for depreciation with respect to the cost of facilities constructed at highway-railroad intersections and elsewhere that were paid for not by respondent, but out of Government funds appropriated to further public safety and improve highway systems. Respondent claimed that the subsidies qualified as contributions to its capital by a nonshareholder under § 113(a)(8) of the Internal Revenue Code of 1939, thereby permitting respondent to depreciate the Government’s cost in the assets. The Court of Claims ruled that respondent was entitled to the claimed depreciation deduction.

Held: The governmental subsidies did not constitute contributions to respondent’s capital within the meaning of § 113(a)(8); the assets in question have a zero basis, and respondent cannot claim a depreciation allowance with respect to those assets. As can be gleaned from Detroit Edison Co. v. Commissioner, 319 U.S. 98, and Brown Shoe Co. v. Commissioner, 339 U.S. 583, to qualify as a nonshareholder contribution to capital, the asset must become a permanent part of the transferee’s working capital structure; may not be compensation for the transferee’s services; must be bargained for; must benefit the transferee commensurately with its value; and ordinarily will be used to produce additional income. Here, almost none of these criteria was met, since the facilities were not bargained for, and, but for the governmental subsidies, would not have been constructed. No substantial incremental benefit in terms of income production was considered at the time the facilities were transferred, and such minor benefit as may have accrued to respondent from the facilities was merely peripheral to the railroad’s business. Nor would respondent’s asserted obligation to replace the facilities warrant the claimed depreciation. Pp. 405-416.

197 Ct.Cl. 264, 455 F.2d 993, reversed and remanded.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed a dissenting opinion, post, p. 416. STEWART, J., filed a dissenting opinion, in which DOUGLAS, J., joined, post, p. 417. POWELL, J., took no part in the consideration or decision of the case.