Court Opinion

ID: 4600632
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:00.640637+00
Date Added: 2024-06-11T07:52:20.703634
License: Public Domain

CHICAGO RAILWAY EQUIPMENT CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Chicago R. Equipment Co. v. CommissionerDocket No. 18438.United States Board of Tax Appeals13 B.T.A. 487; 1928 BTA LEXIS 3235; September 24, 1928, Promulgated *3235  In 1920 the petitioner entered into a land contract for the sale of real estate in Detroit, Mich., under which it received $50,000 cash and was to receive in 1923 a final payment of $100,000 additional.  The cost of the real estate to the petitioner was $141,306.01.  The fair market value of the obligation of the purchaser to pay $100,000 in 1923 was not in 1920 in excess of $91,306.01.  The petitioner realized no taxable profit from the transaction in 1920.  William S. Oppenheim, Esq., and Henry W. Price, Esq., for the petitioner.  L. C. Mitchell, Esq., for the respondent.  SMITH *487  This is a proceeding for the redetermination of deficiencies in income and profits tax for the years 1920 and 1921 in the respective *488  amounts of $22,601.99 and $2,707.74.  The assignments of error are stated in the petition as follows: 1.  The respondent has erroneously added to the taxable net income of the petitioner for the year 1920 the sum of $62,813.99 on account of alleged excessive depreciation taken by the petitioner in its return for the year 1920.  2.  The respondent has erroneously added the sum of $8,693.99 to the taxable net income*3236  of the petitioner for the year 1920 on account of alleged profit realized from the sale of its Detroit plant.  3.  The respondent has erroneously reduced the invested capital of the petitioner for the year 1920 from $6,159,635.36 to the sum of $5,932,262.54.  4.  The respondent erred in deducting the sum of $111,034.20 from the invested capital of the petitioner on account of alleged additional income taxes owing by the petitioner for the years 1916, 1917, and 1918 and the sum of $68,160.13 instead of $60,518.22 for income taxes prorated for the year 1919.  5.  The respondent erroneously added the sum of $28,104.09 to the taxable net income of the petitioner for the year 1921 on account of alleged excessive depreciation taken by the petitioner in its return for the year 1921.  The petitioner is an Illinois corporation with its principal office in Chicago.  The facts upon which the petitioner alleges error with respect to the disallowance of a part of its claim for depreciation for the years 1920 and 1921 are the same as those which obtained in *3237 , relating to similar claims for the years 1917, 1918, and 1919.  The facts found in that proceeding, so far as material, are incorporated herein. In 1920 the petitioner made a contract for the sale of its Detroit plant for $150,000, of which $50,000 was paid down, the balance of $100,000 to be paid in three years.  If the purchase price had been fully paid in 1920, the petitioner would have realized a profit upon the sale of $8,693.99.  This profit was not reported in 1920 because of the doubtful solvency of the purchaser, who went into bankruptcy prior to 1923.  The purchase was completed in 1923 by the trustee in bankruptcy of the purchaser carrying out the contract.  The profit realized upon the transaction was reported by the petitioner in its return for 1923.  The market value in 1920 of the obligation of the purchaser to pay $100,000 in 1923 was not in excess of $91,306.01.  The respondent added to the net income reported by the petitioner for 1920, $8,693.99 as profit realized by the petitioner in 1920 from the sale of its Detroit plant.  The invested capital of the petitioner for 1919 was fixed*3238  by the respondent at $5,796,994.30.  The net income for 1919 determined by the respondent was $880,577.38.  During 1919 dividends were paid by the petitioner amounting to $239,335.98.  The dividends paid and taxes paid by the petitioner for 1919 aggregated $401,082.75.  The respondent has determined the invested capital of the petitioner for 1920 to be $5,932,262.54.  *489  Petitioner determined deficiencies in income and profits taxes for the years 1917, 1918, and 1919 in the aggregate amount of $123,763.35.  In the determination of invested capital for 1920 and 1921, the respondent reduced the claimed invested capital by the amount of the deficiencies determined in prior years.  The fair market value of the petitioner's depreciable assets at March 1, 1913, was as follows: Buildings$608,498.24Machinery, plant, and loose equipment461,354.72Montreal property200.00Automobiles3,345.00Patterns43,665.09Office furniture12,821.35Total1,129,884.40OPINION.  SMITH: 1.  The assignments of error numbered (1) and (5) are based upon alleged underestimates of the fair market value of depreciable properties on March 1, 1913, and of erroneous*3239  classifications of depreciable assets and of erroneous rates applicable to each.  These questions have all been settled in the decision of the Board in . Adjustments of depreciation for the years 1920 and 1921 should be made in accordance with the basic values, classifications and rates approved for the determination of deficiencies for the years 1917, 1918, and 1919, as above decided.  2.  The second assignment of error is that the respondent has erroneously added the sum of $8,693.99 to the taxable net income of the petitioner for the year 1920 on account of alleged profit realized from the sale of its Detroit plant.  The petitioner's contentions upon this point are sustained.  3.  The third and fourth assignments of error relate to the determination of invested capital for the years 1920 and 1921.  Respondent admits error in computing the 1919 income and profits taxes prorated from the petitioner's invested capital for the year 1920.  Other allegations of error with respect to the computation of invested capital are mere accounting matters which will be disposed of in the settlement of correct deficiencies, *3240  if any, for 1920 and 1921, in the settlement under Rule 50.  The adjustment of taxes should be made in accordance with section 1207 of the Revenue Act of 1926.  Reviewed by the Board.  Judgment will be entered under Rule 50.