Court Opinion

ID: 4487481
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:00:47.306215+00
Date Added: 2024-06-11T15:04:14.345018
License: Public Domain

*850OPINION.
James :
The taxpayer' in its appeal has submitted two contentions— first, that the Commissioner erred in computing the exhaustion of the leasehold from September 1, 1912, the date upon which the lease was acquired by the taxpayer; and, second, that the exhaustion rate should be higher in the last five years of the leasehold term by reason of the fact that the rental provided for that period was at a lesser rate than the rental rate provided for the first five years, whereas, as shown by the evidence submitted by it, the rental value increased steadily throughout the lease.
In addition, the taxpayer has submitted that it is entitled to a computation of exhaustion of the leasehold based upon March 1, 1913, value, and to a computation of gain and loss also based upon that value rather than upon the cost of $11,000 on September 1,1912.
The Commissioner conceded the correctness of the taxpayer’s position with respect to the first point.
We are unable to agree with the taxpayer on the second point and are of the opinion that the exhaustion of the leasehold should be *851spread evenly over tbe term of tbe lease -without regard to tbe rental conditions fixed therein.
The method of computing the deduction for the exhaustion of a leasehold has already been determined by this Board in the Appeal of Even Realty Co., 1 B. T. A. 355. Since the value of the leasehold here in question is found to be $18,817.52 on March 1, 1918, the Commissioner should deduct, in determining invested capital of the taxpayer for the year here in question, the sum of $1,881.75 for each calendar year beginning January 1, 1914.
The computation of the gain or loss on the lease here in question is governed by the decision of the Supreme Court in the case of Goodrich v. Edwards, 255 U. S. 527. The total exhaustion of the leasehold based on March 1, 1913, value from January 30, 1920, is $11,447.32. Deducting this amount from the value on March 1,1913, $18,817.52, the balance, or $7,370.20, is the basis for the computation of the gain or loss. This amount, deducted from the sales price of $11,000, leaves a taxable profit of $3,629.80, in and for the year 1920.
Inasmuch as the invested capital of the taxpayer is reduced by the deductions, above set forth on account of exhaustion of the leasehold, the Commissioner should compute credits for tax overpaid, if any, by the taxpayer from January 1, 1914, to and including the fiscal year ended January 31, 1919, and apply such credits against the deficiency asserted herein.