Court Opinion

ID: 4611069
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:48:13.263476+00
Date Added: 2024-06-11T07:54:10.710270
License: Public Domain

H. HUMPHREYS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Humphreys v. CommissionerDocket No. 9335.United States Board of Tax Appeals9 B.T.A. 246; 1927 BTA LEXIS 2635; November 22, 1927, Promulgated *2635  Petitioner sold in 1920 and 1921 certain real estate which he had acquired by inheritance in 1892.  In computing the gain from the sales thereof, the Commissioner made due allowance for depreciation thereon, notwithstanding the fact that prior to 1918 deduction for depreciation on the property sold had not been claimed by or allowed to the petitioner.  Held, that the Commissioner did not err by reason of such action.  Even Realty Co.,1 B.T.A. 355">1 B.T.A. 355, followed.  James Craig Peacock, Esq., for the petitioner.  W. Frank Gibbs, Esq., for the respondent.  LOVE *246  This proceeding is for the redetermination of deficiencies in income tax for the calendar years 1920 and 1921 in the amounts of $511.70 and $289.31, respectively.  The petitioner alleges that the respondent erred in the following particulars: 1.  In increasing the profit derived from the sale in 1920 of certain real estate by adding thereto the amount of $1,076.30, which amount the Commissioner determined to be the depreciation sustained prior to the sale.  2.  In increasing the profit derived from the sale in 1921 of certain real estate by adding thereto the amount*2636  of $1,321.85, which amount the Commissioner determined to be the depreciation sustained prior to the sale.  3.  In failing to deduct from gross income for 1920, the depreciation sustained in that year on the property sold in 1921, which amount was used in determining the profit derived from the sale of the property in 1921, provided the Commissioner did not err in his action as alleged in (1) and (2), above.  Part of the facts were stipulated and part are taken from the admissions in the pleadings.  FINDINGS OF FACT.  The petitioner is now and has been since 1884 engaged in business as a lumber merchant, and during no part of that period has he been engaged in any other trade or business.  In 1920, the petitioner sold for $9,500 real estate which he acquired by inheritance in 1892, at which time its value was $7,000.  In 1913 it *247  was offered for sale at $7,000, which was its value on March 1, 1913.  In his return for 1920 the petitioner reported a profit of $2,500 from the sale.  In 1921 the petitioner sold for $9,500 other real estate which he also acquired by inheritance in 1892 at which time its value was $7,500.  In 1913 it was offered for sale at $7,000, *2637  which was its value on March 1, 1913.  In his return for 1921, the petitioner reported a profit of $2,000 from the sale.  With respect to the properties sold in 1920 and 1921, no deduction for depreciation thereon had been claimed by or allowed to the petitioner on return for any taxable period prior thereto, except that deductions were claimed and allowed for depreciation thereon for 1918 in the amount of $254, for 1919 in the amount of $254, and for 1920 in the amount of $77.85.  Upon audit of the return for 1920, the Commissioner increased the profit reported from the sale of the real estate by the amount of $1,076.30 which he determined to be the depreciation sustained thereon prior to the sale.  Upon audit of the return for 1921 the Commissioner also increased the profit reported from the sale of the real estate in that year by the amount of $1,321.85, which he determined to be the depreciation sustained thereon prior to the sale thereof.  However, in computing the petitioner's taxable income for 1920, the Commissioner allowed a deduction for depreciation on the property sold in 1921 in the amount of $77.85, but in computing the profit upon the sale of the property in 1921, *2638  he determined the depreciation thereon for 1920 to be $168.75.  OPINION.  LOVE: The first question presented for consideration is whether in computing the profit derived from the sale of the depreciable properties in question, there may be taken into consideration an amount of depreciation in excess of the amount previously claimed by or allowed to the petitioner.  In , we held that under section 202(a) of the Revenue Act of 1918, due allowance must be made, in ascertaining gain or loss upon the sale of capital assets, for exhaustion, wear and tear and obsolescence occurring during the period of ownership, whether or not deductions have been taken therefor in prior tax returns.  The decision of the Board in this respect applies with equal force to the Revenue Act of 1921 in determining gain or loss resulting from the sale of capital assets.  However, the petitioner takes the position that under no circumstances, in determining the profit from the sale of the properties in 1920 and 1921, can any adjustment on account of depreciation *248  exceed in the aggregate $585.85, which, it is urged, must be deemed to be the true depreciation*2639  sustained between March 1, 1913, and the dates of the sales of the properties.  In support of this position, our attention is called to article 1561 of Regulations 45 and of Regulations 62, which it is argued have the force of law and bind the Commissioner, in determining the profit from the sales herein, to consider only the depreciation claimed by and allowed to the petitioner.  Without discussing the regulations cited or passing upon their validity as interpretative of the pertinent sections of the Revenue Acts to which they are applicable, it will be sufficient to point out that the Commissioner by his regulations can neither add to nor detract from the provisions of the taxing statutes.  See . As above stated, the Revenue Acts of 1918 and 1921, require that in determining gain or loss from the sale of property due allowance must be made for depreciation sustained, whether or not deductions therefor have been previously taken.  Consequently, a regulation contrary thereto would be of no force or effect.  The action taken in regard thereto, is, therefore, sustained.  The Commissioner having determined the amount of depreciation*2640  sustained on the property in question, and his determination not having been challenged, it must also be approved.  With respect to the petitioner's third assignment of error, the Commissioner concedes that he erred in that respect.  The deduction for depreciation allowed for 1920 was $77.85.  It should have been $168.75.  Proper adjustment should be made in respect of this amount.  Judgment will be entered on 15 days' notice, under Rule 50.Considered by TRUSSELL, SMITH, and LITTLETON.