Court Opinion

ID: 4608629
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:43:05.83726+00
Date Added: 2024-06-11T07:53:44.496591
License: Public Domain

FAIRCLOTH & SHORE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Faircloth & Shore v. CommissionerDocket No. 19685.United States Board of Tax Appeals9 B.T.A. 800; 1927 BTA LEXIS 2513; December 22, 1927, Promulgated *2513  Rate of depreciation determined by respondent approved.  Russell Snow, Esq., and H. T. Amason, Esq., for the petitioner.  W. H. Lawder, Esq., for the respondent.  MORRIS*800  This proceeding is for the redetermination of a deficiency of $987.11 in income tax for the period June 1, 1922, to December 31, 1922.  The petition alleged that the respondent failed to allow sufficient depreciation to cover the actual loss sustained from wear and tear of certain equipment and machinery used by the petitioner.  The sole question presented is the depreciation rates applicable to the various items of equipment and machinery.  FINDINGS OF FACT.  The petitioner is a Georgia corporation with its principal office at Quitman, Ga.  It was organized June 1, 1922, to engage in lumber manufacturing, and operated during the remaining seven months of 1922 a planing mill and two portable sawmills with logging equipment.  The planing mill consisted of a dry kiln, a brick coil completely equipped with steam piping, tracks, trucks necessary to operate a dry kiln, a matcher, trim saws, re-saws, an engine, boiler, pulleys, belting, stock sheds and incidental equipment. *2514  The building which housed the planing mill, except for the dry kiln, was constructed from dressed and rough lumber with the view of lasting five years, which was the estimated period of operations.  While the building covered the plant it was not enclosed on the sides so that the machinery and equipment were only partially protected from the weather.  Prior to the expiration of the estimated five-year period of operation parts of the building had rotted and had been replaced.  The building, mill, and equipment were carried on the books of petitioner at a value of $25,000.  During the last seven months of 1922 the petitioner operated two portable sawmills which were carried on the books at $12,000 and $6,000.  One of the sawmills was operated about four or five miles from Quitman and was known as Plant No. 1, while the other was located in Florida, 13 to 15 miles from Quitman, being denominated Plant No. 2.  Each of the sawmill plants had a milling equipment account and a logging equipment account on the books of the petitioner.  The milling equipment for Plant No. 1 was valued at $5,000 and the milling equipment for Plant No. 2 was valued at $3,000.  *801  The logging equipment*2515  for Plants No. 1 and No. 2 was valued at $7,000 and $3,000, respectively.  The milling equipment consisted of a portable sawmill, engine, belts, carriage, etc., necessary for the operation of a portable sawmill.  The logging equipment at Plant No. 1 consisted of two mules, harness, logging cars, and other equipment for logging.  The logging equipment for Plant No. 2 was the same, except it used oxen and mules.  A few days subsequent to incorporation, namely, on June 12, the petitioner purchased a Republic truck for $3,414.50, to be used in the logging operations at Plant No. 2.  Two G.M.C. trucks were purchased at a cost of approximately $4,400 and one of them was set up in the logging equipment of No. 1.  The date of purchase of one of these trucks was June 20, 1922, the date when the other truck was purchased being unknown.  The total purchases for additions to Plant No. 1 during 1922 amounted to $4,923.  The additional purchases during 1922 for mill machinery and equipment for Plant No. 2 amounted to $101.03.  Additional purchases for the planing mill were made during the year in the amount of $1,435.29, consisting of a time clock, a purchasing system, office equipment, a Dodge*2516  car, and certain machinery.  The petitioner's operations during 1922 were conducted under difficulties.  The timber was almost all swamp timber and the mules worked most of the time in mud to their knees and sometimes over, skidding the timber from the swamp by cable out to a place where the logging cars could take them up and move them.  The logging was very expensive and wear and tear during the year was heavy on logging equipment because of the methods which had to be used and because the operations were conducted in swamps.  From the sawmill the rough lumber was hauled sometimes by mules and sometimes by trucks over roads which were very rough and which had to be and were made by the trucks through the woods.  The size of the tracts upon which the petitioner operated prohibited the construction of tram roads.  The sawmills were moved about from point to point as the surrounding timber was exhausted.  The estimated life of the operations was five years.  About 25 per cent of the machinery originally used in the planing mill and in the portable sawmills was still in use on March 1, 1927.  The logging equipment in use in 1922 was worn out within five years except for some of the*2517  mules, which were later used for purposes other than logging.  The life of a truck operating under the conditions existing in petitioner's business was not more than three years.  The respondent allowed a rate of 10 per cent for depreciation purposes on all the assets and determined that petitioner was entitled to a deduction of $2,793.21 for the seven months of operation in 1922.  *802  OPINION.  MORRIS: The only assets upon which we have sufficient information to determine a reasonable allowance for exhaustion, wear and tear are the logging equipment and the trucks.  Such evidence indicates that the depreciation rate used by the respondent is too low.  On the planing mill and milling equipment in Plants No. 1 and No. 2, which comprise the major portion of petitioner's plant, the evidence is too meager to determine a reasonable allowance.  As the respondent applied a rate of 10 per cent to all the assets and the petitioner has proved that that rate is incorrect only as to a small portion thereof, the respondent's determination is approved.  *2518 ; ; . Judgment will be entered for the respondent.Considered by MURDOCK and SIEFKIN.