Yellow Cab Co. v. Commissioner
Yellow Cab Co. v. Commissioner, 35 T.C. 791 (1961), denied a Charlotte taxicab company excess-profits-tax relief under section 722 of the 1939 Code. A different case, Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993 (1938), held that stored cabs stayed depreciable while still devoted to the business. Neither case classifies building components.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- 35 T.C. 791 (1961) denies excess-profits-tax relief to a Charlotte cab company. It is not a depreciation classification case.
- Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993 (1938), is a different caption. Stored cabs stayed depreciable; an abandonment loss was denied.
- Neither case classifies building components or sets a MACRS recovery period.
- Educational information, not tax advice.
Case record
- Court
- U.S. Tax Court
- Citation
- 35 T.C. 791 (1961)
- Decision date
- 1961-02-28
- Facts
- Yellow Cab Company, Incorporated, was organized in North Carolina in 1924 and operated taxicabs in Charlotte. For the fiscal years ended May 31, 1942 through 1946, it claimed relief from excess profits tax. The Commissioner disallowed the claims and determined deficiencies for 1943, 1944, and 1945 of $19,078.89, $16,002.04, and $5,923.69. In 1936 new owners expanded the fleet from seven cabs to about fifty, installed dispatch and stands, and for a time paid a related garage company to operate the vehicles. A separate 1938 district-court case, Yellow Cab Co. of Pittsburgh v. Driscoll, concerned 18 Pittsburgh cabs bought in January 1931, used until July 1, 1931, stored until November 30, 1935, and then abandoned.
- Issue
- Whether the Charlotte company qualified for excess profits tax relief under section 722(b)(2), 722(b)(4), or 722(b)(5) of the 1939 Code because its base-period earnings were an unfair measure of normal earnings. The Pittsburgh case, which this caption does not name, asked whether idle stored cabs were still "used in the trade or business" for depreciation, and whether their later abandonment produced a loss.
- Holding
- The Tax Court held that the Charlotte company did not qualify for relief. Its base-period business was not depressed by temporary economic circumstances unusual in its case under section 722(b)(2). It did change management, operating method, and capacity under section 722(b)(4), but its average base-period net income already reflected the business after those changes. It proved no other factor under section 722(b)(5). In the different Pittsburgh case, the district court allowed depreciation of $9,925.71 on the stored cabs for the idle period, because they remained devoted to the business, and denied an abandonment loss.
- Reasoning
- Section 722 relief depends on a comparison of actual base-period income with a reconstructed normal income. Growth, a new garage arrangement, and a larger fleet can change the character of a business and still leave the base-period average as a fair picture of that changed business. That analysis never reaches the recovery period of a building. The Pittsburgh depreciation holding is also narrow. Property can remain "used in the trade or business" while idle if it is still held for that business. Abandonment is a separate event and was not proved for those cabs. The assets were taxicabs, not structural components, and the statute was the useful-life law of the 1930s, not MACRS.
- Relevance to cost segregation
- Use 35 T.C. 791 only for the excess-profits holding. Use 24 F. Supp. 993 only when the question is whether idle business property was still "used in the trade or business," and name Driscoll, not the Commissioner. Alamo Broadcasting cites the Pittsburgh case for that older phrase. Neither opinion classifies a building component or sets a MACRS class. Hospital Corporation of America, Whiteco, and Scott Paper remain the classification authorities.
Two Yellow Cab tax cases are easy to merge, and they should not be merged. The caption on this URL, Yellow Cab Co. v. Commissioner, matches a 1961 Tax Court opinion about excess profits tax. A 1938 district-court opinion about depreciating stored cabs has a different name: Yellow Cab Co. of Pittsburgh v. Driscoll. This page states both holdings and the line between them.
Yellow Cab Company, Incorporated, of Charlotte, North Carolina, was organized on June 16, 1924. Its business was a local taxicab fleet. For the fiscal years ended May 31, 1942, through May 31, 1946, it asked for relief from the World War II excess profits tax. The Commissioner disallowed the claims. Deficiencies for the years ended May 31, 1943, 1944, and 1945 were $19,078.89, $16,002.04, and $5,923.69. Those amounts were excess profits tax that had been deferred under section 710(a)(5) of the 1939 Code. Judge Pierce decided the case on February 28, 1961, in Docket No. 32373, reported at 35 T.C. 791.
The statute in that case is section 722 of the 1939 Code, not section 167 or section 168. Relief was available only if the excess profits tax was excessive and discriminatory because the company's average base-period net income was an inadequate standard of normal earnings, and only if the company proved a fair reconstructed amount. The company argued three routes. Section 722(b)(2) covers a base period depressed by temporary economic circumstances unusual for that taxpayer. Section 722(b)(4) covers a change in the character of the business during the base period. Section 722(b)(5) covers any other factor that produced an inadequate standard of normal earnings.
The facts the court found are about the cab business, not about a building. Until 1936 the fleet had seven cabs. New owners then added dispatch and stands and grew the fleet to about 50 cabs. For a period a related garage company maintained the cabs under a contract that excluded depreciation from the expenses it assumed. The court held that the change in method did happen, and that base-period income already reflected the business after the change, so reconstructed relief was not allowed. The temporary-depression claim and the catch-all claim failed as well.
That holding does not classify property. The contract's exclusion of depreciation shows only that the garage company was not taking the cab company's depreciation on its own books. It does not decide the useful life of a cab, a garage, a stand, or a radio. It does not apply the structural-component test. Citing 35 T.C. 791 for a 5-year or 15-year building class misstates the case.
The depreciation case people often mean is Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993, decided by the Western District of Pennsylvania on September 30, 1938. The defendant was the Collector of Internal Revenue, not the Commissioner in a Tax Court caption. The company had bought 18 cabs in January 1931 for $11,934.19, used them until July 1, 1931, stored them, and abandoned the plan to use them on November 30, 1935. The court allowed depreciation of $9,925.71 over the remaining four and five-twelfths years while the cabs sat idle, because they were still devoted to the business. It denied an abandonment loss. Alamo Broadcasting later cited that "used in the trade or business" point. The assets were taxicabs. The court did not reclassify a building.
MACRS does not adopt either Yellow Cab opinion as a recovery class. Placed-in-service dates, class lives, and the personal-property tests come from section 168, Rev. Proc. 87-56, Treas. Reg. §1.48-1, and the cases collected on the Hospital Corporation of America, Whiteco, and Scott Paper pages. The Pittsburgh case is historical support for one idea only: property can remain used in the business while it is idle, if it is still held for that business. It is not a rule that an idle building component moves to a shorter class.
CostSeg SI describes extraction, classification, estimation, and review as a proposed Super Intelligence workflow. These cab cases are not an example of that workflow, and this site does not claim those steps are an operating system. Educational information, not tax advice.
Which citation to use
For the Charlotte excess-profits case, cite Yellow Cab Co. v. Commissioner, 35 T.C. 791 (1961). Describe section 722 relief. Do not describe it as a depreciation case.
For idle property still used in the business, cite Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993 (W.D. Pa. 1938). Name the collector. State that the assets were taxicabs and that the abandonment loss was denied. Do not attach that holding to the 1961 Tax Court caption.
What neither case decides
Neither case decides whether a garage component, paving, or a cab is section 1245 property under MACRS. A study that needs those classes uses the structural-component authorities. These two captions are not the same case.
Verification. Opened the Tax Court opinion in Yellow Cab Co. v. Commissioner, 35 T.C. 791 (February 28, 1961, Docket No. 32373, Judge Pierce), including the section 722 holdings. Opened Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993 (W.D. Pa. September 30, 1938), on Justia. The two captions are not the same case.
Sources
- 1Yellow Cab Co. v. Commissioner, 35 T.C. 791 (1961)(opens in a new tab)
Tax Court, Docket No. 32373, Judge Pierce, February 28, 1961. Excess profits tax relief under section 722.
- 2Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993 (W.D. Pa. 1938)(opens in a new tab)
Different caption and court. Idle taxicabs. Decided September 30, 1938.
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