1981 U.S. Tax Ct. LEXIS 120">*120
1.
2. Petitioner was a truck driver. In 1975, petitioner purchased a tractor-truck which qualified as "new
76 T.C. 867">*867 OPINION
Respondent determined a deficiency of $ 2,731 in petitioners' Federal income tax for 1975. After concessions, the issues presented are1981 U.S. Tax Ct. LEXIS 120">*123 (1) whether petitioners may deduct under
All of the facts were stipulated and are found accordingly.
Petitioners Kenneth M. Ridder and Maria L. Ridder, husband and wife, resided in Anchorage, Alaska, when they filed their petition in this case.
During 1975, Kenneth M. Ridder (hereinafter petitioner) was employed as a truck driver by Sea-Land Service, Inc. (Sea-Land), in Anchorage, Alaska. As a condition of his employment, he was required to be a member of Local 959 of the International Brotherhood of 1981 U.S. Tax Ct. LEXIS 120">*124 Teamsters, Chauffeurs, Warehousemen, and Helpers of America (Local 959 or the union). To maintain good standing with Local 959, members were required to pay fixed monthly dues as well as additional dues for each hour they worked. The monthly dues were paid personally by the members, while the hourly dues were deducted from the members' paychecks by their employers and transmitted directly to the union.
On December 17, 1963, Local 959 adopted a plan whereby 3 cents of the hourly dues of each member was specially allocated to a union building fund. It was agreed that for each $ 50 collected from a member for the building fund, the member would receive a "Building Fund Owners Certificate" which certified "that Fifty Dollars ($ 50.00) of the Union dues paid by the holder hereof has been deposited to * * * Local 959 Building Fund." By their terms, the certificates were redeemable with interest 2 at the completion of the building program. They were also redeemable without interest when the holder died or, if he was eligible for an honorable withdrawal card from the union, when he retired or left the jurisdiction of Local 959. The certificates stated that they were not transferable 1981 U.S. Tax Ct. LEXIS 120">*125 and that they did not constitute an interest in the assets of Local 959.
With its building fund, Local 959 constructed or purchased buildings in Anchorage, Kenai, Juneau, and Valdez, Alaska, which were used principally for union offices. At the time the 76 T.C. 867">*869 stipulated record in this case was submitted, the union was seeking to organize other industries in Alaska, and, if successful, it will need more office space. Also, the building in Juneau will probably have to be replaced in the near future. The union has not yet declared its building program completed.
In July 1974, Local 959 began seeking an increase of 15 cents in the hourly dues deducted by employers when it renegotiated collective bargaining contracts. The union planned to spend the increase to construct recreation centers in Anchorage and Fairbanks1981 U.S. Tax Ct. LEXIS 120">*126 for its members. In 1974, planning for the centers was begun, and in that year the employees of Sea-Land approved a new collective bargaining contract in which the increase in hourly dues was included. Local 959 collected $ 2,939,474.60 in 1975 from the increase in dues.
The recreation centers in Anchorage and Fairbanks were built during 1976 and 1977. On May 22, 1977, the centers opened. Each had tennis courts, handball courts, locker rooms, exercise rooms, saunas, steamrooms, a jogging track, swimming pool, child care center, pro shop, gymnasium, and other facilities. When the record herein was submitted, the cost of the recreation centers totaled $ 15,153,217, of which $ 5,203,218 had been paid by the union and the balance had been borrowed.
A union member received and maintained eligibility to use the recreation centers by accumulating "recreation hours," that is, hours of work for which the 15-cent recreation dues were subtracted from pay. A member received his first month of eligibility by accumulating 300 recreation hours, and he received 1 additional month for every additional 80 hours accumulated. After the first month, a member could also pay $ 30 to obtain 1 month1981 U.S. Tax Ct. LEXIS 120">*127 of eligibility if he did not have sufficient recreation hours. Such eligibility rules were formulated by the union in 1977; prior to that time petitioner had no vested rights in the recreation centers.
In 1975, petitioner paid $ 1,380.44 as dues to Local 959. Of this amount, $ 144 was monthly dues, and $ 1,236.44 was payroll deductions. The payroll deductions were allocated on the accounting records of Local 959 as follows:
| Strike fund | $ 463.66 |
| Recreation centers | 463.66 |
| Credit union | 216.35 |
| Building fund | 92.77 |
76 T.C. 867">*870 On his income tax return for 1975, petitioner deducted union dues of $ 1,237.29.
On May 28, 1975, petitioner acquired a new White tractor-truck (the truck or the White truck). Petitioner's basis in the truck was $ 33,033.51; the truck's useful life was 6 years. Under a lease dated June 3, 1975, petitioner leased the truck to his employer, Sea-Land, for whom he drove the truck. Petitioner was required to maintain the truck "in good working condition." Otherwise, however, Sea-Land had full responsibility for and control over the truck's operation, and furnished fuel. As consideration, Sea-Land paid petitioner a royalty of 30 cents per mile.
The lease's1981 U.S. Tax Ct. LEXIS 120">*128 duration was indefinite. The lease provided only that it would end "Upon thirty (30) days written notice by either party, or upon mutual consent of both parties on or after July 3, 1975." In 1976, the lease was suspended for a time while maintenance was performed on the truck. During that period, petitioner rented another truck which he subleased to Sea-Land on terms similar to the White truck's lease. Later in 1976, the White truck was demolished in an accident. 3
In his notice of deficiency, respondent determined that those portions of petitioner's hourly dues allocated to the recreation centers, the credit union, and the building fund were not deductible. Respondent also disallowed the investment credit claimed by petitioner for 1975 based upon his purchase of the White truck.
Petitioner has conceded that the portion of his dues allocated to the credit union was not deductible. Thus, the issues1981 U.S. Tax Ct. LEXIS 120">*129 to be decided are whether petitioner's dues allocated to the building fund and to the recreation centers were deductible under
As the parties have recognized on brief, the facts and issues presented with respect to union dues are virtually identical to 76 T.C. 867">*871 those in
The remaining question concerns the investment credit petitioner claimed for the new White tractor-truck which he leased to and drove for Sea-Land.
(3) Noncorporate lessors. -- A credit shall be allowed by (A) the property subject to the lease has been manufactured or produced by the lessor, or (B) the term of the lease (taking into account options to renew) is less than 50 percent of the useful life of the property, and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of
The White truck's useful life was 6 years. Petitioner first argues that the term of the lease was less than 3 years because the truck was demolished in 1981 U.S. Tax Ct. LEXIS 120">*133 an accident in its second year of service. We disagree.
In
1981 U.S. Tax Ct. LEXIS 120">*134 Petitioner urges us to consider
1981 U.S. Tax Ct. LEXIS 120">*135 More importantly, however, we think the cases are reconcilable. In
While the regulations speak in terms of short-term or casual leases, in the instant case the controlling question is the duration of the actual use rather than the term of any single lease,
This sentence is best understood as applying the rule that in interpreting the language chosen by the parties to a contract, courts should give great weight to the practical construction placed upon the contract's terms by the parties themselves in the course of their performance.
We feel that if World Airways had in fact used the [equipment for its own purposes], then possibly we would be persuaded to join Judge Lumbard [dissenting] in defining the lease as "casual or short term" and to allow World Airways the investment credit. [
For the above reasons, we will look to the lease entered into by the parties, rather than unforeseeable subsequent events, to determine whether or not petitioner's White truck was leased for less than 50 percent of its useful life.
On this score, petitioner argues the lease should be viewed as a short-term lease because either party could terminate the lease without cause upon 30 days' written notice. Petitioner1981 U.S. Tax Ct. LEXIS 120">*137 contends the lease was, in effect, merely a month-to-month lease under which neither party was unconditionally obligated to perform beyond the 30-day notice period. Respondent, on the other hand, argues the lease cannot be viewed as a short-term lease because it was an open-ended agreement with no set termination date. Although we recognize the issue is a close one, we hold for respondent.
Both parties cite and discuss a number of cases involving a mining lessee's entitlement to percentage depletion which tend to show a difference of legal opinion on the "length" of a lease which can be canceled without cause by one or both parties. 7 While those cases shed some light on the issue herein, they are for the most part inapposite because the term of the lease is but one of many factors which determine whether percentage depletion is available to a lessee. See
1981 U.S. Tax Ct. LEXIS 120">*138 76 T.C. 867">*875 Under
Petitioner, however, argues he is entitled to an investment credit because he comes within the intent of the statute. Petitioner contends he really was in business for himself and did not buy his truck as a tax shelter. On brief, respondent concedes, "petitioners retained the financial risk and economic burden of 76 T.C. 867">*876 their investment." Nonetheless, respondent maintains petitioner failed to satisfy the statute's technical terms. We agree with respondent.
In drafting
Accordingly, because the term of the lease was indefinite,
To reflect concessions and the foregoing,
1. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as amended and in effect during the year in issue.↩
2. No rate of interest was specified on the certificate, but the plan adopted by Local 959 authorizing the building fund provided for interest on the certificates of no more than 4 3/4 percent per year.↩
3. Accordingly, in 1976 petitioners recaptured the investment credit they had taken for the truck's purchase in 1975.↩
4. See
5.
6. As both parties point out on brief, the holding in
7. Compare, e.g.,
8. We note two points in passing: First, we recognize that a
Second,
9. Moreover, the performance of the parties under the lease contract reveals that the words which define the duration of the lease mean just what they seem to say. The lease was intended to run for the truck's useful life, which was unexpectedly terminated in this case by calamity.↩
