Court Opinion

ID: 4602838
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:30:38.639582+00
Date Added: 2024-06-11T07:52:44.740484
License: Public Domain

H. M. N. MUHLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Muhle v. CommissionerDocket No. 45553.United States Board of Tax Appeals19 B.T.A. 1247; 1930 BTA LEXIS 2224; May 29, 1930, Promulgated *2224  1.  Decision in Mrs. E. A. Giffin,19 B.T.A. 1243">19 B.T.A. 1243, followed, and selling costs incident to sale of real estate held not deductible from profit reported on the installment method.  2.  Petitioner held not entitled to deduct as a loss the cost of land purchased in 1925 and to which he held title at the close of the year.  William S. Hammers, Esq., and P. R. G. Sjostrom, Esq., for the petitioner.  Arthur H. Murray, Esq., for the respondent.  ARUNDELL*1247  The respondent determined a deficiency in petitioner's income tax for 1925 in the amount of $499.76.  Petitioner contends that respondent erred in refusing to allow as a deduction in 1925 selling costs incident to a sale of real estate, the profit being reported on the installment method, and also claims that by failing to take a loss sustained in 1925 he overpaid income tax for that year in the amount of $3,984.28.  FINDINGS OF FACT.  Petitioner, residing at Miami, Fla., was engaged in 1925 in building and in investing in real estate.  He was not regularly engaged in buying and selling real estate.  *1248  In the taxable year he sold for $105,000 a parcel*2225  of real estate which had cost him $45,000.  He received $21,000 of the sale price in cash and took a mortgage for the balance.  In connection with the sale he paid, in the taxable year, commissions amounting to $10,000.  His income-tax return for the year was prepared on the installment basis and this transaction was reported as follows: Sale price$105,000Cost45,000Gross profit60,000Percentage of profit 0.57143Cash received21,0000.57143 of $21,00012,000Commissions$10,000Other expenses32410,324Net profit1,676The respondent computed the profit on the sale to be $9,935.10 by the following computation: Sale price$105,000Cost$45,000Commissions, etc10,32455,324Profit to be realized49,676Cash received21,000Gross profit$49,676equals 0.4731Sale price$105,0000.4732 of $21,000 gives taxable profit of$9,935.10In the early part of 1925 petitioner and several of his friends formed a syndicate and purchased land in or near the development known as Boca Raton which was then operated and extensively advertised by the Mizner Development Corporation. *2226  That corporation represented through its newspaper advertisements as early as April 15, 1925, that it would begin work at once on the development and that the project would include a six million dollar hotel, two eighteen-hole golf courses, a polo field, a casino, and other attractions.  It also represented that a number of socially prominent and reputedly wealthy people had subscribed for stock.  The syndicate in which petitioner was interested, and of which he was trustee, purchased one tract of 268 acres at $1,200 per acre and another tract of 90 acres at $1,250 per acre.  The syndicate made partial payments for the land and gave mortgages to cover the balance.  Title was *1249  taken by petitioner as trustee for the syndicate.  Petitioner's individual share of the initial cash payments made in 1925 amounted to $25,412.50.  About November, 1925, after the syndicate made its purchases, newspaper articles appeared stating that a Mr. DuPont and a Mr. Jesse L. Livermore, both of whom were reputed to be wealthy, had resigned from the board of directors of the Mizner Development Corporation.  Upon receiving this information petitioner came to the conclusion "that there was something*2227  wrong with the company" and he and his associates decided to dispose of their real estate holdings.  They offered the land for sale but received no bids.  Following the publication of the news of DuPont and Livermore having resigned, the Mizner Development Corporation laid off a part of the large force that had been working on the Boca Raton development, but it continued some activity through at least part of the year 1926.  In March, 1926, petitioner paid the interest due on the unpaid balance of the purchase price of the land.  The payment was made upon the representations of some one connected with the Mizner Development Corporation to the effect that the corporation intended to complete the project as advertised.  No payments of principal or interest have been made by petitioner or his associates since March, 1926.  The Boca Raton development has not been completed.  Petitioner, as trustee for the syndicate, still has title to the land purchased in 1925.  OPINION.  ARUNDELL: The first issue, involving the proper treatment of selling costs incident to the sale of real estate where the taxpayer is not a dealer and reports the profit on the installment method, is governed*2228  by our decision in the case of , and must be decided against the petitioner.  The second issue is whether petitioner is entitled to deduct as a loss in 1925 his share of the cost of land purchased in that year by a syndicate of which he was a member.  This question must also be decided adversely to petitioner's claim on authority of , where we held that "a taxpayer may not deduct as a loss the cost of real estate and improvements, the title to which it retains." See also . Petitioner testified that 100 acres of the land were reacquired by the former owner, Butler or Butler Brothers, by foreclosure or otherwise upon the failure of the Mizner Development Corporation to complete payment.  There is no evidence as to when this occurred or any of the surrounding circumstances.  Because of the lack of evidence we have made no findings concerning the reacquisition *1250  and we are unable to say that it resulted in any loss to petitioner in the taxable year.  Decision will be entered for the respondent.