Docket No. 13236.

10 T.C. 1139 (1948)


United States Tax Court.

Promulgated June 22, 1948.

Attorney(s) appearing for the Case

Harry L. Brown, Esq., and Armand Drexler, Esq., for the petitioner.

Hobby H. McCall, Esq., for the respondent.

This proceeding was brought for a redetermination of a deficiency of $6,891.23 in petitioner's income tax for its fiscal year ended July 31, 1943.

An issue raising the statute of limitations having been conceded by petitioner, the remaining issues are (1) whether respondent erred in denying petitioner a deduction of the cost of an electric baking oven and equipment claimed to be an ordinary and necessary business expense or an abandonment loss; and (2) whether respondent erred in denying the deduction of a payment made to Manischewitz Yeshiva (Seminary) of Palestine, also claimed to be an ordinary and necessary business expense.

The case was presented upon a stipulation of facts and evidence adduced at the hearing. Those facts hereinafter appearing which are not from the stipulation are otherwise found from the record.


The stipulated facts are hereby found accordingly.

Petitioner, an Ohio corporation organized in 1914, with its office address in Cincinnati, Ohio, filed its Federal income tax return for the taxable period with the collector for the fifth district of New Jersey. Its stock was traded in on the Cincinnati Stock Exchange and on the New York Curb Exchange.

Petitioner's business, which is the manufacture and sale of matzos, an unleavened bread similar to a cracker, was founded at least forty years ago by Rabbi Dov Baer Manischewitz, the father of present officers of petitioner. About 17 per cent of the stock is held by the public. Six of petitioner's officers, bearing the name of Manischewitz, now own about 6 per cent of petitioner's common stock, and during the taxable year received an aggregate of $72,700 as compensation.

In about 1914 Rabbi Dov Baer Manischewitz founded the B. Manischewitz Yeshiva (Seminary) of Palestine, a small theological school, hereinafter referred to as the Yeshiva, to provide rabbinical training for advanced scholars of the Orthodox Jewish faith. Since 1920 petitioner has made annual payments to the Yeshiva as follows:

Year ended 5-31-20 ------   $1,400
           5-31-21 ------    1,500
           5-31-22 ------    1,500
           5-31-23 ------    1,500
           5-31-24 ------    1,375
June and July 1924 ------      125
Year ended 7-31-25 ------    2,222
           7-31-26 ------    2,738
           7-31-27 ------    2,748
           7-31-28 ------    3,316
           7-31-29 ------    2,598
           7-31-30 ------    2,836
           7-31-31 ------    3,066
           7-31-32 ------    1,250
           7-31-33 ------    1,500
           7-31-34 ------    1,500
           7-31-35 ------    1,500
           7-31-36 ------    1,500
           7-31-37 ------    1,600
           7-31-38 ------    2,275
           7-31-39 ------    2,100
           7-31-40 ------    2,100
           7-31-41 ------    2,175
           7-31-42 ------    2,525
           7-31-43 ------    2,350
           7-31-44 ------    2,400
           7-31-45 ------    2,500
           7-31-46 ------    2,400
1947 --------------------    2,600

About 70 per cent of petitioner's income is derived from the sale of matzos for consumption during the eight days of the Jewish festival of Passover. Observance of Orthodox Jewish faith requires that food partaken of at any time be kosher, that is, prepared in accordance with the dietary laws of the faith. A basic dietary law of the Orthodox faith is that only matzos prepared under the supervision of an Orthodox Jewish rabbi may be consumed, and an Orthodox Jew will not buy matzos for use during the Passover unless he is assured that they meet the requirements of his faith. To give this assurance, the package of petitioner's matzos has printed upon it in Yiddish and English a "hechsher," or rabbinical certification that it meets all Orthodox requirements. Petitioner is the only matzos manufacturer which receives an annual "hechsher" from the Union of Orthodox Jewish Rabbis of the United States and Canada. This is the only organization of its kind and consists of between 400 and 500 members. The "hechsher" from the union aids petitioner in making sales of its Passover matzos.

Petitioner's association with the Yeshiva in Palestine was of some aid in obtaining the annual "hechsher" from the union.

At the Yeshiva the students are taught to perpetuate the dietary requirements of the Orthodox Jewish faith, including the consumption of matzos at Passover, prepared in strict conformity to religious law. Pursuant to request, petitioner annually furnishes the students of the Yeshiva with matzos for their use during the Passover holidays. There are about twelve students at the Yeshiva at a time.

Yeshiva graduates teach as rabbis in Palestine, Europe, and South America. They have the name Manischewitz associated with them and are helping to overcome the impression of Orthodox European Jews that American machine-made matzos are not kosher. Petitioner's export to Europe of Passover matzos was as follows:


1936 -----------------     176,422
1937 -----------------     199,749
1938 -----------------     218,922
1939 -----------------     230,690
1940 -----------------     156,249
1941 -----------------      83,051
1942 -----------------     209,001
1943 -----------------      60,662
1944 -----------------      83,702
1945 -----------------     167,834
1946 -----------------   1,815,951

No matzos were exported for sale in Palestine.

Petitioner uses its association with the Yeshiva for advertising purposes. It has the exclusive right to place its advertising on synagogue calendars published by the Hebrew Publishing Co. These calendars also include religious laws, ethics, and customs.

After referring to the spirit of the Jewish people in one of the calendars, it is stated:

In this very spirit, are conducted the affairs of the Manischewitz Matzo Company, one of the most prominent firms in America. They hold high and dear the "Manischewitz Yeshivah" in Jerusalem, the Holy City, which their father, Rabbi Dov Baer Manischewitz (of sainted memory), founded. The labor of spreading Torah goes on stronger than ever before.

On another calendar appears the following:

In Cheshvan, a new term begins. Small Jewish children, Hebrew schools, Yeshiva men and the Yeshivahs, the great in Torah—they all begin in the month of Cheshvan, a new term, new plans and new chapters of Torah.

When the Autumn beclouds the world, the voice of these students and children reverberates with the voice of Torah, happily and cheerfully. But even happier than elsewhere, is the voice of Torah that resounds from the famous "Manischewitz Yeshivah" in the Holy City of Jerusalem. The famous founder of the Manischewitz Matzo Company, Rabbi Dov Baer Manischewitz (of sainted memory) has thus fulfilled his duty to Torah by founding a Yeshivah in Jerusalem.

And thus, the Yeshivah remains a living monument to the memory of Rabbi Dov Baer Manischewitz, whose name is heard far and wide, and whose students occupy prominent positions in the Jewish world.

The sons of Rabbi Dov Baer Manischewitz, the present owners of the Manischewitz Matzo Company, follow in the footsteps of their father and maintain the "Manischewitz Yeshivah" in Jerusalem. They also maintain the faculty and student body in dignity and comfort.

The name MANISCHEWITZ is famous in the Holy Land because of their active participation in the many secular institutions.

Every Day and with Every Meal, You Will Enjoy the Tasty Manischewitz Matzos—Freshly Baked for Daily Use.

The following appeared in 1931 in daily Jewish newspapers in New York, Chicago, Cleveland, Philadelphia, Montreal, and Toronto:


* * * * * * *

And * * * that spirit of love and devotion to the Holy Land, and to everything which had to do with our People, with our past, present and future, Rabbi Dov Baer Manischewitz also implanted in the hearts of his sons—currently the owners of the great and world-famous matzo factory. At first, he sent his two sons, Max Manischewitz and Zvi Hirsch Manischewitz, both of whom studied in local yeshivath and with famous Rabbis for more than 17 years.

It is also interesting that the two sons married daughters of well-known families in Jerusalem, and the entire Manischewitz family is thus inter-related with the nicest families in the Holy City. Rabbi Zvi Hirsch Manischewitz, with his wife and children, visited Palestine last year. He did the same thing as did his father, the founder of the firm, and sent his son to study in Jerusalem. We bring out these facts to show how close is the connection between the family of Manischewitz and the land of our hopes. Everything that goes on in Palestine —all the activities of the old and new settlements, yeshivath and charitable institutions in Jerusalem, Haifa, Zfas and other places—they all are of great interest to the Manischewitz brothers, and they aid them liberally.


The brothers, Manischewitz, have sought to create an institution which would immortalize the memory of their father, and which would also express its ideals and principles, which were dear and holy to their father, Dov Baer Manischewitz, of Sainted Memory. They could not possibly have chosen a more fitting and adequate institution than the "Yeshivath Rabbi Dov Baer Manischewitz."

And this yeshivath, bearing the name of the founder of the Manischewitz Matzo Bakery, has earned a great name in the Holy City, so rich in Yeshivath. The yeshivath was founded in the year 5674. That is about 16 years ago, and in the 16 years, the Manischewitz Torah center has produced great scholars who play a leading role as spiritual leaders and as the gread [sic] of the generation. The term of study in the yeshivath, is three years. Each of the three classes is limited to ten students. Only students of unusual ability are accepted, and the large number of applications is carefully perused and studied. The students are naturally maintained in all comfort, and they have the opportunity to devote their time to the study of Torah.

Petitioner's association with the Yeshiva in Palestine was beneficial in publicizing petitioner's product.

The payments for support of the Yeshiva have been made from combined religious, charitable, personal, and business motives.

On December 11, 1942, petitioner purchased from Bienstock-Katz Corporation, a small matzo bakery in the Bronx which had ceased operations in April of 1942, the following used bakery equipment:


 1 Electric baking oven complete with motor, pyrometer and draft    Cost
     system ----------------------------------------------------   $4,710
 1 mixer with motor and starter --------------------------------      175
(1 small mixer -------------------------------------------------      195)
(1 breaking machine with motor and starter----------------------      340)
 1 grinder with motor and starter ------------------------------      115
 1 cutting machine with motor and starter ----------------------    1,185
 1 salt machine ------------------------------------------------       78
 8 scales ------------------------------------------------------       20
 1 matzo meal scale --------------------------------------------       20
(1 conveyor ----------------------------------------------------       95)
 3 wood platforms ----------------------------------------------       20
 3 wood trucks -------------------------------------------------       10
 1 water scale -------------------------------------------------        7
(4 mixing cans -------------------------------------------------       30)
     Total cost ------------------------------------------------    7,000

At that time petitioner produced its matzos by the gas oven method, which it still uses. Petitioner had never been able to devise a satisfactory way of testing its product by laboratory methods on a small scale. Petitioner acquired the machinery for experimentation and used it in that manner for about two months in the original factory, which it leased on a month-to-month basis. In about February of 1943 petitioner ceased its experiments, dismantled the machinery, and shipped it to its factory in Jersey City. The electric oven and the cutting machine were of welded construction and were damaged in dismantling. On dismantling, it was also discovered that the units were generally deteriorated. Except for the items listed in parentheses, totaling $660, which were retained and used by petitioner, the machinery was not used or susceptible of being used after February 1943, when for that reason it was put in the plant "graveyard" for useless machines. In the taxable year the salvage value of this machinery was not in excess of $180. No effort was made prior to 1945 to sell this equipment, because of general inertia and the press of other business. In that year it was sold for $180.

From its experimentation petitioner found that electric and gas ovens have their respective advantages and the economies of each are dependent upon the local applicable rates.

With respect to this item, respondent's notice of deficiency stated:

It has been determined that the cost of an electric baking oven, charged to Laboratory Expense on your books and treated as such on your return, may not be allowed under the provisions of section 24 (a) (2) of the Internal Revenue Code.

For its taxable year ended July 31, 1943, petitioner intended to and did abandon the machinery in question and is entitled to a deduction of $6,160 as an abandonment loss.


OPPER, Judge:

Because the Hebrew Theological Seminary in Palestine, which was the recipient of petitioner's payment, does not qualify under Internal Revenue Code, section 23 (q)—defining organizations to which contributions by corporations are deductible—petitioner must seek to establish its right to a deduction as an ordinary and necessary business expense under the more general provisions of section 23 (a).

Such was the posture of all religious and charitable contributions before the Revenue Act of 1935, which, by section 23 (q), first allowed deductions of that nature to be taken by corporations. The law developed up to that time was in accord with respondent's regulations, which are not substantially dissimilar to those here involved,1 and which require that the donations "bear a direct relationship to the corporation's business" and be "made with a reasonable expectation of a financial return commensurate with the amount of the donation."

Although there can be little doubt that the contributions to the seminary were prompted by a complex of motives, the desire to make a religious contribution and to preserve an institution founded by the father of petitioner's present officers will not disqualify the deduction as a business expense, provided there are also reasonably evident business ends to be served, and the intention to serve them appears adequately from the record. Luther Ely Smith, 3 T.C. 696.

The maintenance of the seminary in the family name and its apparent advantages, both from an advertising standpoint and as a means of demonstrating the close relationship between petitioner and Orthodox Jewry, seem to us adequately brought forth by the record. Julia Dahl et al., Executors, 24 B. T. A. 1167. The deduction as an ordinary and necessary business expense should have been allowed. Singer Sewing Machine Co., 5 T.C. 851; affd. (C. C. A., 2d Cir.), 158 Fed. (2d) 982; certiorari denied, 331 U.S. 837.

The disposition of the remaining issue in favor of petitioner follows from our findings of fact. We have found that in the taxable year most of the machinery which petitioner acquired during that year was dismantled and brought to petitioner's Jersey City plant; that the machinery was damaged in the process; and that it was discovered that deterioration was present. Petitioner thereupon decided not to put this machinery to any further use and placed it in a factory "graveyard" for such equipment.

Respondent seeks to negative this conclusion by emphasizing the fact that petitioner did not leave the machinery in question in the Bronx factory where it had been used, but terminated the lease there and brought the machinery to Jersey City. However, petitioner has sufficiently demonstrated that, after it had this machinery in its Jersey City plant, it decided to and did abandon it. United States Industrial Alcohol Co., 42 B. T. A. 1323; modified (other issues) (C. C. A., 2d Cir.), 137 Fed. (2d) 511. This is corroborated by the fact that this machinery was never used again, and was disposed of as junk on July 31, 1945.

Reviewed by the Court.

Decision will be entered under Rule 50.


1. Regulations 111, sec. 29.23 (a)-13.


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