Denver & Rio Grande Western Railroad Co. v. Commissioner

38 T.C. 557 (1962)

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Denver & Rio Grande Western Railroad Co. v. Commissioner

United States Tax Court
38 T.C. 557 (1962)

Facts

The Utah Fuel Company had outstanding mortgage indentures upon its stock. The terms of the indentures obligated Utah Fuel to reimburse any debtor who foreclosed on its stock for expenses related to the foreclosure. Utah Fuel went into bankruptcy, and its stock was foreclosed upon during the bankruptcy proceedings. Denver & Rio Grande Western Railroad Company (D & R) (plaintiff) emerged as the reorganized company after the bankruptcy and reimbursed Utah Fuel’s debtors for the costs of the foreclosure. D & R then sought to deduct the reimbursements from its taxes as ordinary and necessary business expenses. The Internal Revenue Service (IRS) (defendant) disallowed those deductions, and D & R sued in the United States Tax Court.

Rule of Law

Issue

Holding and Reasoning (Atkins, J.)

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