Court Opinion

ID: 4612683
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:51:41.912678+00
Date Added: 2024-06-11T07:54:29.027061
License: Public Domain

OHIO VALLEY FLUORSPAR CO., DISSOLVED, GEORGE W. KILLEBREW, JR., TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Ohio Valley Fluorspar Co. v. CommissionerDocket No. 16832.United States Board of Tax Appeals10 B.T.A. 289; 1928 BTA LEXIS 4135; January 27, 1928, Promulgated *4135  For failure to adduce sufficient evidence in support of the various allegations of error urged by the petitioner, the net income as determined by the respondent is approved.  T. W. Branch, Esq., for the petitioner.  W. H. Lawder, Esq., for the respondent.  MORRIS*290  This is a proceeding for the redetermination of a deficiency in income and profits taxes of $1,036.76 for the year 1919.  The allegations of error urged by the petitioner upon which the respondent joins issue are: (1) Failure of the respondent to find that depreciation and amortization on machinery, equipment, and lease acquired from the Ohio Valley Fluorspar Co. of New York should be computed for the full year 1919; (2) Failure of the respondent to find the depreciation and amortization on machinery, equipment, building, and sublease acquired from the sublessee and others should be computed for the full year 1919; and (3) Failure of the respondent to recognize adjustments as set out in appeal dated February 26, 1926, or else to find that the case which originated from an office audit should be sent to the supervising internal revenue agent at Nashville, Tenn., for a field*4136  examination as per Treasury Decision 3708, effective June 1, 1925.  FINDINGS OF FACT.  The petitioner is a corporation organized and incorporated under the laws of the State of Kentucky, with its principal office at Nashville, Tenn.  It was organized at some time in December 1918 and began operation January 1, 1919.  At some time during the spring of 1918, George W. Killebrew, president of the petitioner, began negotiations with one Persons, a stockholder of the Ohio Valley Fluorspar Co. of New York, also the owner of a certain sublease, looking toward the purchase of the properties of that company, also the said sublease.  Killebrew having succeeded in interesting two other individuals in this matter, he and his associates purchased the stockholdings of Persons in that company for the sum of $50,000, and also the sublease, which Persons owned, for the sum of $5,000.  Subsequently to the beginning of negotiations in this matter, Persons, Killebrew, and his associates went to New York and Purchased the stockholdings of certain of the New York stockholders of that company.  After the purchase of the stock of the Ohio Valley Fluorspar Co. of New York, Killebrew and his associates*4137  made application to dissolve that corporation.  The charter was finally surrendered November 28, 1919.  The petitioner paid a sum of $1,900 as salary and traveling expenses to Killebrew in 1919, who traveled quite extensively in *291  getting the organization started.  This payment was made by credit in the books of account in 1919 to Killebrew's stock subscription account.  In the summer and fall of 1918 there were built a commissary, office building, a boarding house and four or six other houses to accommodate the superintendents or mine foremen and other employees.  These buildings were of mill construction covered with roofing paper.  They were completed in the fall of 1918.  The petitioner deducted in its return for the year 1919 depreciation of $2,150 and depletion of $3,591.66, arriving at a net income subject to tax of $4,816.40.  The respondent in his deficiency notice decreases depreciation and depletion by $2,020.18 and $3,270.02, respectively, resulting in an increase in net income as reported of $5,290.20, making the adjusted net income, out of which the present deficiency arises, $10,106.60.  The respondent accepted the $43,100 value of the petitioner's lease, *4138  but states as his ground for decreasing depreciation and depletion, that the petitioner is not entitled to those deductions prior to actual transfer of the assets from the Ohio Valley Fluorspar Co. of New York to the petitioner, which he determines to have been November 28, 1919.  OPINION.  MORRIS: Since the first and second allegations of error urged by the petitioner grow out of the acquisition of the assets of the Ohio Valley Fluorspar Co. of New York and the sublease of Persons, upon which it contends it is entitled to depletion and depreciation for the entire year 1919, they may be considered and disposed of together.  The Ohio Valley Fluorspar Co. of New York owned a certain lease and other assets upon which the depreciation and depletion deductions herein contended for were computed.  Killebrew, who was president of the petitioner upon its organization, and his associates, purchased the stockholdings of one Persons for the sum of $50,000, also a certain sublease owned by Persons for the sum of $5,000.  After the beginning of negotiations in this matter, Persons and Killebrew and his associates went to New York and purchased the stockholdings of certain of the New York*4139  stockholders of that company.  Thereafter Killebrew and his associates made application to dissolve the Ohio Valley Fluorspar Co. of New York, which dissolution does not seem to have been completed until November 28, 1919, when the charter of that company was surrendered.  The testimony offered does not disclose when, if ever, either the capital stock which Killebrew and his associates purchased, or the assets of the Ohio Valley Fluorspar Co. of New York or the sublease purchased from Persons became the property of the petitioner.  *292  The respondent has allowed depreciation and depletion for one month in 1919.  He contends that the petitioner is not entitled to deductions for depletion and depreciation on the assets in question prior to November 28, 1919, which he has determined was the date when the actual transfer of these assets was made to the petitioner.  Since the petitioner has offered no proof that these assets were transferred at any time prior to that date we must sustain the findings of the respondent.  The adjustments referred to in the third allegation of error herein include the depletion and depreciation hereinbefore considered and disposed of.  There are, *4140  however, three remaining items to be considered, which are: (a) Salary and traveling expenses of G. W. Killebrew paid by credit on capital stock subscription but not deducted on original return$1,900.00(b) Interest paid and charged to purchase of lease and equipment494.96(c) Depreciation on frame tenements costing $7,053.41 constructed September 1 to December 31, 1918 - useful life considered as 20 years from January 1, 1919352.67With respect to the item of $1,900, we do not consider that sufficient evidence has been offered to justify the deduction of that amount in the year 1919.  The books of the corporation, which no doubt contain a detailed explanation of this transaction, were not offered in evidence.  We have only the witness Killebrew's testimony that the sum of $1,900 was credited to his subscription account on the books of the corporation, and, furthermore, that this was paid to him as salary and traveling expenses in connection with "getting the organization going." We do not know whether this amount represents expenses incident to the acquisition of the assets of the Ohio Valley Fluorspar Co. of New York, and, therefore, organization expenses*4141  which should be capitalized, or whether it represents deductible expenses within the meaning of the Act.  For failure to adduce sufficient evidence as to the nature of this transaction we must deny the contention of the petitioner.  We have no evidence whatsoever in support of the item of $494.96, and we deny the petitioner's contentions with respect to that item also.  With respect to the time of depreciation on frame tenements, the testimony discloses that in the summer and fall of 1918, prior to incorporation, several buildings were erected to accommodate employees.  When asked the nature of the construction of these buildings, the witness replied, "We built these houses out of the best materials we could get, but in those days it was hard to get any kind of material to build with." The witness testified that they were of wood construction covered with paper roofing, and when asked *293  how long he considered the houses would last, he replied, "I built them for five years, but they may be there yet.  I don't know.  I am sure they had to be recovered in the meantime." The testimony regarding the nature of construction and the probable life of these structures, is, in our*4142  opinion, so vague and uncertain that no intelligent basis could be laid for the computation of depreciation.  Furthermore, we do not know what depreciation was allowed by the respondent on those buildings.  We find in the deficiency notice that depreciation of 2 per cent has been allowed on a building.  We do not know whether that is one of the buildings here under consideration or not.  We can not, of course, alter or change the determination of the respondent without first knowing what action he has taken.  For failure to adduce sufficient evidence as to this item we must sustain the findings of the respondent.  Judgment will be entered for the respondent.