Court Opinion

ID: 4597724
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:19:47.697765+00
Date Added: 2024-06-11T07:51:50.878324
License: Public Domain

SAMUEL ZIMMERN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Zimmern v. CommissionerDocket No. 9951.United States Board of Tax Appeals9 B.T.A. 1382; 1928 BTA LEXIS 4238; January 17, 1928, Promulgated *4238  1.  CONTRIBUTION. - Where petitioner contributed toward the purchase of land upon which the United States Government constructed and operated a coal storage and coal tipple and where, although petitioner was engaged in the coal business, he has failed to show any benefits derived by the business from said coal storage and coal tipple, held, that the contribution was not an ordinary and necessary business expense.  2.  REPAIRS. - Petitioner owned a coal barge which sank in Mobile Harbor in 1918.  During 1920 he caused the barge to be raised and thereupon employed a shipbuilder and ship repair contractor to make necessary repairs and improvements.  The work done by the contractor cost $25,697.55.  The contractor estimated that $5,000 of this amount was for new construction and the balance for repairs.  Held, that upon the evidence in this case the entire contractor's cost of $25,697.55 should be treated as capital expenditure for betterments and improvements.  George E. H. Goodner, Esq., for the petitioner.  D. D. Shepard, Esq., for the respondent.  TRUSSELL *1382  This proceeding results from the respondent's determination of a deficiency*4239  in the amount of $66,151.78 in petitioner's income tax for the calendar year 1920.  The whole amount of the said deficiency is not in dispute.  Petitioner alleges that the respondent erred in disallowing as deductions from gross income for 1920: (1) An amount of $1,111.60, a contribution made in 1920 to the Chamber of Commerce of Mobile, Ala., for the purchase of land to be used as a site for a Government coal tipple, and *1383  (2) An amount of $20,697.55 alleged to represent the cost of repairs made in 1920 to the coal barge, Leila.FINDINGS OF FACT.  Petitioner is a resident of Mobile, Ala, and was during the year 1920, as well as during the years prior and subsequent thereto, engaged in the business of selling cargo and bunker coal.  The cargo coal was for export and the bunker coal was sold to vessels for fuel.  During the year 1920, petitioner made a net contribution of $1,111.60 to the Chamber of Commerce of Mobile, which was used, together with other contributions, for the purchase of land in Mobile that was given to the United States Government as the site for a coal storage plant and coal tipple.  Petitioner expected to derive a benefit therefrom by*4240  use of the coal tipple, which was to be for United States Government and public use.  The coal storage plant and coal tipple have been constructed and used by the United States Government.  In 1916, petitioner acquired the hull of an old sailing vessel to be used as a coal barge in and about the harbor at Mobile.  The vessel was constructed of Swedish iron, in or about the year 1868, and at the time petitioner acquired it the vessel was in the hands of a salvaging company which had removed the masts, decks, several strips of iron plates from the sides, and had also cut away the ribs as far down as the plates had been removed.  What the petitioner acquired was a stripped hull, the sides of which extended a few feet above the waterline, but it had no leaks and could have been used as it was, with ordinary repairs such as painting, for a coal barge for many years.  In 1918, petitioner expended $10,000 in repairing and reconditioning the barge, the greater portion of said amount being spent for raising the sides to increase her carrying capacity.  The work of raising the sides was not quite completed in that a few feet of the sides at each end were not raised, when the barge, named*4241 Leila, was put into service in 1918.  Late in the year 1918, the barge, laden with coal, sank in the Mobile Harbor during a heavy storm.  The barge remained submerged until July, 1920, when petitioner succeeded in raising her, after which he employed D. G. Hodges to put the barge into serviceable condition and also to complete the work of raising the sides at each end.  The total cost of reconditioning and improving the barge amounted $25,697.55.  The work of raising the sides left uncompleted in 1918 and the construction of a stringer or walk way along the top edge of the sides was estimated by the contractor to have cost $5,000.  The greater portion of the *1384  work done by Hodges, at a cost of $20,697.55 to petitioner, consisted of cleaning out mud which had been deposited in the hull while submerged; of chipping, scraping and painting the entire hull both inside and outside to eliminate rust; of straightening damaged plates and ribs; and the use of many new rivets throughout the hull.  After the barge had been raised it would float and could have been used as a coal barge for a time, but the reconditioning was necessary to put the barge in the condition it was in*4242  at the time it sank.  Such thorough reconditioning would not have been necessary if the barge had not been sunk.  D. G. Hodges has been in the business of repairing, remodeling, and building of ships since 1907.  While working on petitioner's barge, Leila, for approximately three months during 1920, he submitted to petitioner monthly itemized invoices totaling $25,697.55 for the work done and material furnished.  Hodges did not separate the items of reconditioning work from the items of new construction because the work was done on a cost-plus basis, but he did estimate the cost of the new construction work by going over the barge, taking measurements and using the same basis as he would in giving a bid for the same work.  Petitioner claims deductions from gross income for 1920 of the amounts of $1,111.60 and $20,697.55 as business expenses, which deductions respondent has disallowed, resulting in a portion of the deficiency determined for the year 1920.  OPINION.  TRUSSELL: The contribution of $1,111.60 made to the Chamber of Commerce for the purchase of land to be given to the United States Government for the construction of a cold storage and coal tipple for Government*4243  and public use is not a deductible business expense.  The testimony shows that many business men of Mobile contributed through civic pride and because the public would benefit thereby, but there is no evidence that petitioner has ever used the coal storage or coal tipple nor that petitioner's business has derived any benefit therefrom.  Petitioner has cited , as an authority for his claim, but in that case the taxpayer showed the direct benefits actually derived from the camp, the site of which he contributed toward, and that his sales increased thirty-fold.  We believe this contribution falls outside of the range of a reasonable interpretation of "ordinary and necessary expenses." See . The testimony concerning the coal barge is not as full and complete as might be desired.  We know that it was an iron hull *1385  constructed in 1868 and when acquired by petitioner it was in the hands of a salvage concern and that all of its former rigging and equipment had been removed, leaving practically the bare iron hull; that in 1918 when it sank, it was approximately 50 years old and that*4244  after its sinking the petitioner allowed it to lie at the bottom of the harbor for nearly two years.  The work done in reconditioning this barge required a period of three months or more at a cost of $25,697.55.  The things done are described in the record in some detail and the picture which that description conveys to our mind seems to indicate that the thing done by the contractor was much more in the nature of the building of a new barge out of second hand material than it was in the nature of repairs.  And we incline to the view that the petitioner instead of having a deduction for the amount claimed in the year 1920, may more equitably be permitted to recover the amount spect in 1920 in the form of depreciation deductions during the years for which the barge may continue to have a useful life.  The deduction claimed should therefore be denied.  Judgment will be entered for the respondent.