Court Opinion

ID: 4632585
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:12:06.872449+00
Date Added: 2024-06-11T07:57:55.393789
License: Public Domain

MOSES M. LESSER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lesser v. CommissionerDocket No. 20498.United States Board of Tax Appeals12 B.T.A. 741; 1928 BTA LEXIS 3471; June 21, 1928, Promulgated *3471  1.  Computation of the excess-profits tax of the Crescent Theatres, Inc., for the year 1920 under section 302 of the Revenue Act of 1918, approved.  2.  Deductions for exhaustion, wear and tear of property used in the trade or business allowed.  Herbert Choynski, Esq., for the petitioner.  Granville S. Borden, Esq., for the respondent.  MARQUETTE *741  This proceeding is for the redetermination of a deficiency in income and profits taxes for the year 1920 in the amount of $2,102 which the respondent, under section 280 of the Revenue Act of 1926, has asserted against the petitioner and others as transferees of the Crescent Theatres, Inc., of which they were stockholders.  The petitioner alleges that the respondent erred in disallowing a deduction of $2,750 taken as an allowance for the exhaustion, wear and tear of property owned by the Crescent Theatres, Inc., and in computing the excess-profits tax under section 302 of the Revenue Act of 1918 instead of under section 301 of that act.  The petitioner and the respondent have stipulated that the facts and the issues of this proceeding are the same as the facts and issues in the case of Daniel S. Markowitz,8 B.T.A. 1100">8 B.T.A. 1100.*3472  FINDINGS OF FACT.  The petitioner is and was during the year 1920 a stockholder of the Crescent Theatres, Inc., a corporation which was organized in the year 1919 for the purpose of leasing and operating moving picture theatres.  The record does not disclose the authorized capital of the corporation, the amount of stock actually issued or the amount of money or other property paid in by the stockholders.  In August, 1919, the Crescent Theatres, Inc., obtained a 10-year lease on the Lodi Theatre at Lodi, Calif., and at the same time purchased the furniture, carpets, chairs, motion picture machines and other equipment of the theatre from the former proprietor thereof for $17,500, which was paid in 10 monthly installments of $1,750 each.  In the same year it acquired a 10-year lease on the Bijou Theatre at Fresno, Calif., paying in addition to the annual, or monthly rental, a bonus of $2,500.  It also purchased the furniture and other equipment of the theatre for $10,000.  In the year 1919 the Crescent Theatres, Inc., also purchased a lease on the Crescent Theatre at San Francisco, and the furniture and equipment in the theatre for $10,000.  The lease at the time it was so acquired*3473  had *742  about nine years to run.  In September or October, 1919, the Crescent Theatres, Inc., acquired a lease on the Verdi Theatre in San Francisco for a term of 10 years, and also purchased the furniture and other equipment of the theatre for $65,000, of which $25,000 was paid in cash and $40,000 by notes of $750 each, one of which was payable each month thereafter.  In addition to the expenditure mentioned, the Crescent Theatres, Inc., installed a new organ in the Verdi Theatre at a cost of $9,000.  When the several theatres and the equipment thereof were acquired by the Crescent Theatres, Inc., the purchase price was furnished by the stockholders of the corporation.  The record does not disclose whether the organ subsequently installed in the Verdi Theatre was paid for with money furnished by the stockholders, or out of earnings.  The lease on the Lodi Theatre and the equipment therein were sold by the Crescent Theatres, Inc., in the year 1920 for $30,000.  The other assets of the corporation were either sold or transferred to the stockholders subsequent to 1920.  The Crescent Theatres, Inc., in its income and profits-tax return for the year 1920 reported a profit of*3474  $9,500 on the sale of the Lodi Theatre, and deducted $2,750 for the exhaustion, wear and tear of the assets of the corporation.  It computed its invested capital as $92,500 and its tax liability as $957.97.  The respondent disallowed the deduction taken for exhaustion, wear and tear, and did not use any invested capital in determining the excess-profits tax, but computed it under section 302 of the Revenue Act of 1918 and determined a deficiency of $2,102.  OPINION.  MARQUETTE: The facts in this case and the issues raised by the pleadings are identical with those in the case of Daniel S. Markowitz v. Commissioner,8 B.T.A. 1100">8 B.T.A. 1100, decided by this Board on October 31, 1927.  Upon the authority of the decision in that case we hold that the Crescent Theatres, Inc., in computing its net income for 1920, is entitled to deduct the amount of $2,750 as an allowance for the exhaustion, wear and tear, of the assets used in its business.  We also hold that the Crescent Theatres, Inc., purchased the Lodi Theatre lease and equipment in 1919 for $17,500 and sold them in 1920 for $30,000.  The profit realized from the sale was, therefore, the difference between the depreciated*3475  cost and the sale price, instead of $9,500, the amount reported by the corporation.  The respondent's action in computing the excess-profits tax of the Crescent Theatres, Inc., under section 302 of the Revenue Act of 1918, is approved.  Judgment will be entered under Rule 50.