Court Opinion

ID: 4607116
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:39:56.368395+00
Date Added: 2024-06-11T07:59:36.136665
License: Public Domain

SENTINEL REALTY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Sentinel Realty Co. v. CommissionerDocket No. 36291.United States Board of Tax Appeals19 B.T.A. 991; 1930 BTA LEXIS 2281; May 19, 1930, Promulgated *2281  1.  The Commissioner's disallowance of deductions claimed as ordinary and necessary expenses sustained, where it is not shown that the petitioner made the expenditures, and where it is impossible to segregate the total amount expended into capital expenditures and ordinary and necessary expenses.  2.  The Commissioner's determination in regard to deductions for depreciation sustained.  George E. H. Goodner, Esq., and Paul D. Banning, Esq., for the petitioner.  W. Frank Gibbs, Esq., and O. W. Swecker, Esq., for the respondent.  MURDOCK *991  The Commissioner determined deficiencies of $1,029.95 and $1,586.85 in the petitioner's income tax for the calendar years 1924 and 1925, respectively.  The petitioner alleges that the Commissioner erred in disallowing certain deductions as ordinary and necessary expenses, paid or incurred by the petitioner during the taxable year 1924, in carrying on its business; and, as an alternative, it is alleged that if these amounts are not so deductible, then the Commissioner has erroneously understated the depreciation deductions to which the petitioner is entitled for the years 1924 and 1925.  The only*2282  other allegation of error was waived by counsel for the petitioner at the hearing.  FINDINGS OF FACT.  The petitioner is an Indiana corporation having its principal place of business at Indianapolis.  In the year 1924 the petitioner's capital stock, with the exception of certain qualifying shares, was owned by Elnora C. Haag.  Its books were kept and its income-tax returns were rendered on the cash receipts and disbursements basis.  *992  During the taxable years involved here the petitioner owned a store building located at 15 North Pennsylvania Avenue, Indianapolis.  In the year 1924 a man named McCarthy obtained a lease of these premises for the purpose of conducting a haberdashery business.  The building had previously been rented to a tenant engaged in this same business but he had been unsuccessful and had vacated.  At the time McCarthy rented the building, he arranged with Elnora C. Haag to have certain work done on it, and gave her an estimate of $5,000 for the necessary expenditures.  He then contracted for the desired changes.  All of the contractor's negotiations were carried on with McCarthy and all the work was done under the latter's direction.  The work*2283  done consisted of putting on a new store front, laying new floor, remodeling two stairways, replacing a skylight with a metal ceiling, and in connection with these items, a considerable amount of plastering and carpentry.  The front of the store had formerly been taken up by a show window, extending across its whole width.  McCarthy had it changed so that the entrance door was built back 8 or 10 feet from the front of the building, thus forming a display lobby, and increasing the amount of window space.  The ordinary useful life of such a new store front is from 10 to 15 years.  The old flooring was replaced with new over the width of the store for about 10 feet, near the entrance.  There were two stairways in the store, one leading to the basement and one to the second story.  The latter was situated in the front part of the store.  McCarthy had it remodeled in order to improve the appearance of the store, and with the idea of subletting the upstairs of the building.  A landing was built half-way up this stairway.  Its structure in the lower half was changed from wood to steel and the steps were covered with marble.  The exact nature of the work done on the basement stairway*2284  is not disclosed.  In the rear of the store there was a glass skylight which was in bad condition and leaking.  This was removed and replaced by wood joists and a pressed-steel ceiling.  The plastering was principally done in connection with the new show window and the stairway to the basement.  The cost of laying the floor and replacing the skylight, not including the metal work, was approximately $100.  The metal work cost $76 and the plastering $452.  The contractor's total bill was $3,214.72.  This was paid by McCarthy.  In addition to the work done by the contractor, there were further changes made in the building at the direction of McCarthy, but the cost of such work is not disclosed.  Elnora C. Haag, as her share, paid McCarthy $4,000.  *993  In its 1924 income-tax return the petitioner deducted $4,000 as the cost of the new store front, and $800 as the cost of other repairs.  The Commissioner disallowed the deductions on the ground that the amounts expended represented capital expenditures.  OPINION.  MURDOCK: It may be that the first issue in this case is limited to the question of whether or not the cost of certain changes in a building was a capital*2285  expenditure or deductible as an ordinary and necessary expense, but the evidence indicates that entirely aside from this question, there might be another reason why the petitioner would not be entitled to deduct the amounts in controversy.  Apparently McCarthy paid about $5,000 to have certain changes made in the building, and Elnora C. Haag, as distinguished from the petitioner, paid him $4,000 as her share of the total expenditures made.  If that is the true situation, and the evidence indicates that it is, the petitioner would not be entitled to the expense deductions claimed because it was put to no expense, and, furthermore, we could not properly allocate $4,000 to the various items, some of which were certainly of a capital nature.  But confining ourselves to the issue, we must nevertheless affirm the Commissioner, for it appears that a large part of the cost was properly classified as a capital expenditure on Which it has not been shown that the Commissioner failed to allow depreciation, and in any event the evidence is insufficient for us to determine both the cost of such expenditures and the rate of depreciation applicable thereto.  Furthermore, in regard to any items which*2286  were ordinary. and necessary expenses, the evidence is insufficient to enable us to segregate the amount expended therefor.  Judgment will be entered for the respondent.