Case Name: William Heyman and Lydia Heyman, Petitioners, v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1946-04-23
Citations: 6 T.C. 799
Docket Number: Docket No. 6964
Parties: William Heyman and Lydia Heyman, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Judges: ARNOLD and Kern, JJ., agree with this dissent.
Reporter: Reports of the Tax Court of the United States
Volume: 6
Pages: 799–804

Head Matter:
William Heyman and Lydia Heyman, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Docket No. 6964.
Promulgated April 23, 1946.
Harry J. Stein, Esq., for the petitioners.
Harold D. Thomas, Esq., for the respondent.

Opinion:
OPINION.
Mubdock, Judge:
The petitioners contend that the buildings demolished to save taxes had a value of $17,500 at the date they were destroyed. They argue that they are entitled to deduct that amount as a loss. They do not cite any provisions of the statute in support of this contention, but rely heavily upon Union Bed & Spring Co. v. Commissioner, 89 Fed. (2d) 383, reversing 9 B. T. A. 352. The Circuit Court in that case allowed the taxpayer to deduct an amount equivalent to the value in 1920 of the property destroyed, less depreciation and salvage, and said that would be a "proper method of computation, and quite as fair as attempting to allocate the purchase price to the demolished parts, which would be very difficult indeed, if not impossible." The taxpayer in that case purchased the property on September 2,1920, with no intention to demolish any part of it. It discovered, when it went to remodel a building, that changes would have to be made which involved the demolition of a part of the building. The demolition was completed in 1920. The current value less depreciation and salvage at least approximated the adjusted basis for the portions of the property which were demolished, in view of the fact that the purchase and demolition took place in the same year and within a few months. That case is not authority for allowing a deduction, allegedly based upon value of property at the time of its demolition, substantially in excess of the adjusted basis for the property demolished. Furthermore, if it does stand for any such proposition as the petitioner contends, then this Court respectfully declines to follow it because it is not in conformity with the provisions of the code granting a deduction for a loss. A deduction for loss under section 23 (e) (1) or (2) is limited to the adjusted basis for gain or loss provided in section 113 (a) and (b).
The petitioner, encouraged by the Union Bed & Spring Co. case, has assumed that it is impossible to allocate the lump sum cost of the property to the various buildings and thus to find the unexhausted cost basis of the six buildings destroyed. Some such allocation was absolutely necessary for computing annual deductions for depreciation and there is no showing here that such allocation is impossible.
The petitioner paid $24,327.88 for the mortgages and later made an additional cash payment of $2,337.36 on account of back taxes in connection with the foreclosure. Thus, she paid a total of $26,665.24 in acquiring the property. The record does not show that she sustained any loss or realized any gain in connection with the foreclosure and purchase of the property. Neither does it show that she reported any gain or loss from that transaction on her return for 1937. Therefore, we must conclude that her basis for gain or loss on the property was $26,665.24 at July 30, 1937.
There is evidence to indicate that it would be proper to allocate to the buildings demolished about one-third of the cost of the entire property, and there is also evidence to indicate that a proper rate of depreciation on these buildings was about 5 percent. We have concluded, from a consideration of all of the evidence in the case, that the loss sustained by the petitioner in the demolition of the buildings in 1941 was $6,889. Thus, the Commissioner erred in allowing only $3,000, but the petitioner is far from the mark in claiming $17,500.
The remaining issue is whether the petitioners are entitled to a deduction of $625 paid by them in 1941 for services of a firm of accountants. They make this claim under section 23 (a) (2) of the code, which allows the deduction of nontrade or nonbusiness ordinary and necessary expenses paid during the taxable year for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. This issue is decided for the petitioners upon authority of Herbert Marshall,, 5 T. C. 1032, in which we relied upon Bingham Trust v. Commissioner, 325 U. S. 365. See also Howard E. Cammack, 5 T. C. 467.
Reviewed by the Court.
Decision will be entered under Rule SO.