Court Opinion

ID: 4622764
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:50:08.756108+00
Date Added: 2024-06-11T07:56:14.285290
License: Public Domain

MILWAUKEE WOVEN WIRE WORKS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Milwaukee Woven Wire Works v. CommissionerDocket No. 8163.United States Board of Tax Appeals16 B.T.A. 75; 1929 BTA LEXIS 2653; April 18, 1929, Promulgated *2653  1.  DEPRECIATION. - Respondent computed depreciation upon assets acquired prior to March 1, 1913, upon the basis of cost as established by petitioner's books.  Held that that basis is proper in the absence of proof of any other amount as cost or of the March 1, 1913, value.  2.  AUTOMOBILES USED IN BUSINESS. - Where two officers purchased new cars which were used in petitioner's business and petitioner reimbursed them for the cost thereof on the last of June, 1920, such cost of a capital asset should be included in invested capital for the last six months of 1920, and petitioner is entitled to deduct depreciation on the two cars.  3.  Loss. - Petitioner purchased two lots with dwellings thereon, sold the two dwellings for $400 for removal, and then used the lots for an extension of its factory.  Held, petitioner sustained no deductible loss on account of the disposition of the dwellings.  Maurice Weinstein, Esq., for the petitioner.  J. A. O'Callaghan, Esq., for the respondent.  TRUSSELL *75  The respondent has determined deficiencies in the amounts of $3,596.89 for the year 1919, and $8,362.64 for the year 1920 in respect to petitioner's*2654  income and profits taxes for those years.  The petitioner assigns as errors, the respondent's (a) failure to allow sufficient depreciation upon its depreciable assets; (b) exclusion from invested capital of the cost of certain automobiles and disallowance of any depreciation thereon; and (c) disallowance of an alleged loss upon the sale and removal of certain buildings.  FINDINGS OF FACT.  Petitioner, a Wisconsin corporation with principal office in Milwaukee, was organized in 1901, and is engaged in the manufacture of woven wire, beds and springs.  *76  In auditing petitioner's returns for the years in controversy, respondent's revenue agent examined petitioner's books and records and obtained therefrom a schedule representing the cost of fixed assets as shown by the books from 1901 up to and including the years in question.  That schedule was prepared with the aid of petitioner's secretary who had charge of the books.  The agent used the cost figures, so obtained, as the basis for computing depreciation at rates which are not in controversy.  There is no controversy as to additions made subsequent to January 1, 1910.  The respondent adopted the agent's figures and computations*2655  in computing the tax liability of petitioner for the years in question which resulted in the allowance of a lesser amount of depreciation than claimed by petitioner.  In 1910 petitioner employed the National Appraisal Co. of Detroit to appraise the value of its fixed assets for insurance purposes.  That appraisal, which is dated January 1, 1910, shows the following appraised values of petitioner's fixed assets as of that date; buildings, $26,623.69; machinery, $22,718.07; horses and wagons, $1,324; and office furniture and fixtures, $850.75, or a total of $51,516.51.  Those appraised values were not set up on petitioner's books and the appraisal was stored away with other records until recently.  The appraisal was not shown to the revenue agent when he made his examination.  For several years prior to August, 1919, R. G. Marquardt and O. H. Stuewe, petitioner's president and secretary, respectively, had purchased automobiles which were used in petitioner's business, such use being necessary.  Petitioner purchased and maintained automobiles for its salesmen, but the said officers had furnished the cars which they used in their conduct and management of petitioner's business.  They*2656  also maintained their own personal cars.  In the latter part of 1919 both of the said officers needed new business cars and it was decided that petitioner should furnish them, but at that time petitioner did not have sufficient cash on hand.  In August of 1919 each of the said officers purchased a new car and paid for it with his own personal funds.  It was agreed that petitioner would reimburse them for the cost of the cars and the invoices were given to petitioner.  On June 29, 1920, there was credited to Stuewe's account an amount of $2,680 and on June 30, 1920, there was credited to Marquardt's account the amount of $3,895 as reimbursement for the cost of the cars, and the said credits were available for withdrawals by said officers.  Petitioner's books of account were kept on the accrual basis of accounting.  Petitioner charged the total amount of $6,575 to expense, purchased the licenses and paid all the operating expenses of the said cars which were used in its business.  Respondent *77  disallowed the $6,575 as an expense item, excluded it from invested capital and disallowed any depreciation on the two cars on the basis of its being a gift by petitioner to said officers. *2657  At the beginning of the year 1919, petitioner owned the west half and the southeast quarter of the city block bounded by Pemberton Avenue on the north, railroad tracks on the west, Clark Street on the south, and 30th Street on the east.  At that time its two factory buildings covered approximately the south half of the block.  The northeast quarter of the block was divided into four lots, each with a frontage of 30 feet on 30th Street, and a depth of 120 feet.  For the purpose of this case the lot adjoining petitioner's property will be designated B and the next adjoining lots C, D, and E.  On August 15, 1919, petitioner purchased lot C and the building thereon for $3,200 and on March 17, 1920, it purchased lot B and the dwelling thereon for $4,425.05.  Both of the dwellings were of frame construction and were from 25 to 30 years old when acquired by petitioner.  During 1920 petitioner decided to use the land for the purpose of extending its factory.  After advertising the two houses for sale with the provision that the purchaser should remove them and receiving bids of $200 and $400 for both houses, Marquardt and Stuewe purchased both houses for $400 in 1920, and moved them across*2658  the street on to lots owned by them.  In its return for 1920 petitioner took a deduction of $5,225.05 as a loss sustained upon the sale and removal of the two dwellings and respondent disallowed the same.  OPINION.  TRUSSELL: There is no controversy as to the additions made to fixed assets subsequent to January 1, 1910, nor as to the rates of depreciation used in respondent's computations.  The respondent has used the figures of cost as shown by petitioner's books and records as the basis for computing depreciation, inasmuch as no March 1, 1913, value was established.  Petitioner contends that such book figures do not represent the true value of its fixed assets prior to January 1, 1910, and that the appraisal values should be used as the starting point as of January 1, 1910, for computing depreciation.  Petitioner has submitted his case, as to the issue involving depreciation, upon the basis of the January 1, 1910, appraisal values and has not submitted any evidence of the March 1, 1913, value of its fixed assets acquired prior to the latter date.  The appraisal is offered in evidence without any supporting testimony as to the methods or factors used in arriving at the assigned*2659  values; as to what those values represent, whether actual fair market value as of January 1, *78  1910, or cost of reproduction new, less depreciation.  The appraisal was made for insurance purposes and for all we know it may reflect the sound value of petitioner's fixed assets on hand on January 1, 1910, but it does not pretend to establish the actual value of petitioner's fixed assets on hand on March 1, 1913.  On the absence of proof of any cost other than that established by the books or of the March 1, 1913, value of petitioner's fixed assets acquired prior to that date, depreciation must be computed on the basis of cost as shown by petitioner's books.  Cf. ; ; . As to the second issue, we are of the opinion that when the credits were entered upon the officers' accounts as reimbursement for the cost of the two automobiles in question, and petitioner being on the accrual basis of accounting, there was an outlay by petitioner for a capital asset.  The amount of $6,575 should be included in petitioner's invested*2660  capital for the second half of the year 1920 and depreciation during the same period on the two cars should be allowed at the same rate which respondent has used in respect to petitioner's other cars used in the business.  With reference to the third issue, the facts are that shortly after petitioner purchased two lots adjoining its factory property, together with the dwellings thereon, for $7,625.05, it decided to use the lots for an extension of its factory.  Petitioner received $400 for both houses, which were removed from the property in 1920 without cost to it.  Petitioner's officers testified that the property was purchased for the purpose of renting the dwellings and that the vacant lots had a value of $1,000 each after the removal of the houses.  The difference between $2,400 and $7,625.05, the cost of the property, is claimed by petitioner as a loss sustained in 1920.  Respondent disallowed the claimed deduction pursuant to the provisions of article 142 of Regulations 45.  Petitioner had the dwellings removed for the purpose of extending its factory over the two lots in question and the total cost of the property, namely, $7,625.05, less the $400 recouped, was a part of*2661  the cost incident to the extension of the factory and as such constituted a capital outlay.  We are of the opinion that petitioner did not sustain any deductible loss on account of the removal of the old dwellings.  Cf. ; . Judgment will be entered pursuant to Rule 50.