Latchis Theatres of Keene, Inc., et al., Petitioners, v. Commissioner of Internal Revenue, Respondent, 286 F.2d 237 (1st Cir. 1961)

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US Court of Appeals for the First Circuit - 286 F.2d 237 (1st Cir. 1961) January 5, 1961

Charles H. Morin, Boston, Mass., for petitioners.

Joseph Kovner, Attorney, Department of Justice, Washington, D. C., with whom Charles K. Rice, Asst. Atty. Gen., and Lee A. Jackson, Robert N. Anderson and David O. Walter, Attorneys, Department of Justice, Washington, D. C., were on brief, for respondent.

Before HARTIGAN and ALDRICH, Circuit Judges.


Taxpayers in this petition for review of two decisions of the Tax Court contend that as a matter of law the amounts accumulated by the taxpayers cannot be said to be accumulations beyond the reasonable needs of their businesses within the meaning of Int. Rev. Code of 1939, § 102.1  Taxpayers argue that (1) because the total accumulations of earnings and profits were in each taxable year less than 70% of the annual operating expenses for such year, the accumulation was reasonable as a matter of law and (2) because the accumulation by taxpayer Latchis Theatres of Claremont, Inc. was less than $43,000, such accumulation was conclusively reasonable. The petitioners cite no authority to us to support such hard and fast rules in regard to reasonable accumulation under this provision of the 1939 Code.2  The statute sets forth a standard that is flexible enough to meet varied financial circumstances. We shall not judicially add a proviso that focuses on only one factor of a corporation's financial situation.

Judgment will be entered affirming the decisions of the Tax Court.


53 Stat. 35 (1939), as amended, 26 U.S.C. § 102 (1946)


Congress in the 1954 Internal Revenue Code, § 535, 26 U.S.C.A. § 535, provided a credit system which, in effect allowed $60,000 in total accumulations before the corporation would be required to pay taxes on accumulated earnings. 68A Stat. 180 (1954). The amount is presently $100,000. 72 Stat. 1680 (1958)