Court Opinion

ID: 4612385
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:51:01.927926+00
Date Added: 2024-06-11T07:54:24.680999
License: Public Domain

JORDAN C. SKINNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Skinner v. CommissionerDocket No. 106733.United States Board of Tax Appeals47 B.T.A. 624; 1942 BTA LEXIS 669; August 21, 1942, Promulgated *669  In 1937 petitioner sold his tire retreading and repairing plant to his brother at less than its depreciated net value.  Held, he is entitled to no deduction for the loss arising from the transaction.  (Sec. 24:a):6):A) of the Revenue Act of 1936.) Held, further, petitioner may not, on the record be allowed any loss in useful value under article 33(e) - 3 of Regulations 94.  James B. Malone, Esq., for the petitioner.  Edward M. Woolf, Esq., for the respondent.  VAN FOSSAN *624  The respondent determined a deficiency of $3,578.60 in the petitioner's income tax for the year 1937.  The sole issue is whether or not the allowance of a deduction of $11,645.31 for a loss upon the petitioner's sale of land and buildings to his brother should be granted.  The questions raised are: :1) Is the deduction precluded by the provisions of section 24:a):6):A) of the Revenue Act of 1936? and, (2) Is it allowable as a loss of useful value?  FINDINGS OF FACT.  The petitioner is an individual, residing in Springfield, Ohio.  His business is the retreading and repair of automobile tires.  In 1926 he purchased three lots beyond the city limits of Dayton, *670 Ohio, and built a factory thereon.  As needed, he expanded the plant and secured an option on additional lots.  On June 1, 1930, petitioner's factory site, together with other adjacent territory, was annexed to the city of Dayton.  On September 26, 1930, a zoning ordinance governing the annexed area became effective.  The zoning commission refused to permit the petitioner to enlarge his plant and to rezone the optioned property.  On June 25, 1932, the zoning board of appeals denied the appeal of the owner of the optioned property, presenting the request for the open storage of rubber material.  *625  Thereupon the petitioner obtained warehouse space from the Ohio Rake Co., about three miles from the plant.  The use of such space proved very inconvenient.  Just before Christmas, 1934, he purchased the plant of the Victor Rubber Products Co. near Springfield, Ohio.  The building was in bad condition.  New wiring, sewer system, and roof were installed and windows, floor supports, etc., replaced.  The Dayton plant was kept in operation and the petitioner's offices remained there until the latter part of 1935.  Thereafter until the middle of 1937 it was used as a storage building*671  and for the inspection, sorting, and buffing of tires.  At that time there were from three to ten carloads of material therein.  The machinery in the Dayton plant was moved to the Springfield plant during 1936.  On September 15, 1936, the petitioner sold a large calender machine, the last remaining equipment, to a Cleveland purchaser.  In 1937 and 1938 the petitioner could have used his Dayton plant for storage purposes and it would have had some value to him. In the latter part of 1937 the net values, after depreciation, of the petitioner's remaining assets at the Dayton plant were as follows: Land$2,900.00Factory building8,846.74Warehouse2,439.48Sprinkler system2,539.94Heating equipment and boilers1,319.91Total18,046.07In November 1937 the petitioner sold the entire plant and equipment to his brother, R. T. Skinner, who was also in the tire business in Dayton, for $5,000 and the assumption of taxes amounting to about $1,500, or a total purchase price of $6,500.  R. T. Skinner sold the same property for $5,185 in the fall of 1940.  During his ownership he rented parts of the building and occupied it in his own business for about three years. *672  Prior to the sale to his brother the petitioner tried to sell the Dayton factory.  He advertised it and listed it with real estate firms.  He was offered $5,000, less taxes, or about $3,500.  The Commissioner disallowed the deduction of $11,645.31, claimed by the petitioner as a loss from the sale of the plant and buildings, because the property had been sold to the petitioner's brother :in contravention of the provisions of section 24:a):6):A)), and also held that petitioner's alternative claim to the deduction as a loss of useful value was unsubstantiated.  OPINION.  VAN FOSSAN: The issue is whether or not the petitioner is entitled to deduct a loss arising from the sale to his brother of certain assets whose depreciated net value was found to be $18,046.07, for the sum *626  of approximately $6,500.  The respondent disallowed the deduction as violative of the provisions of section 24:a):6):A) and :D) of the Revenue Act of 1936 1 and ruled also that the petitioner's alternative claim of a loss of useful value had not been substantiated.  *673  The language of the statute is clear and unmistakable.  If a sale or exchange of property is made by the taxpayer to or with members of his family as defined in section 24:a):6):D), no deduction shall be allowed to him for any loss arising therefrom.  The petitioner made such a sale and the statutory prohibition requires us to approve the respondent's action.  . The petitioner argues further that he is entitled to the deduction because the useful life of the property was exhausted in 1937, before the sale, and that the amount he received from his brother thus represents and measures its salvage value.  The facts of record do not support him.  Prior to 1937 he had transferred all of his entire retreading machinery to his Springfield factory, with the exception of a large calender machine which he sold to a Cleveland firm.  He continued to use the Dayton plant as a storage warehouse and as a convenient housing facility for the inspection, sorting, and buffing of tires.  The petitioner himself testified that during both the taxable year and the succeeding year he could have used the property for storage purposes and that it would*674  have had some value to him.  The record gives us no basis for measuring this value.  Furthermore, there are certain other fatal deficiencies of record, such as proof of original cost and amounts of depreciation, which make it impossible to ascertain the actual loss sustained even if it were allowable.  The record does not sustain petitioner's claim.  Decision will be entered for the respondent.Footnotes1. SEC. 24.  ITEMS NOT DEDUCTIBLE.  (a) GENERAL RULE. - In computing net income no deduction shall in any case be allowed in respect of - * * * :6) Loss from sales or exchanges of property, directly or indirectly, :A) between members of a family, or * * *; :D) the family of an individual shall include only his brothers and sisters :whether by the whole or half blood), spouse, ancestors, and lineal descendants. ↩