Court Opinion

ID: 4632788
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:12:33.327841+00
Date Added: 2024-06-11T07:57:57.300521
License: Public Domain

SIGMUND SPITZER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Spitzer v. CommissionerDocket Nos. 43719, 50125.United States Board of Tax Appeals23 B.T.A. 776; 1931 BTA LEXIS 1825; June 18, 1931, Promulgated *1825  1.  Expenditures made incident to securing renewal of a mortgage loan are not deductible when paid, but should be spread ratably over the term of the loan.  2.  Expenditures made incident to procuring a long-term lease are not deductible when paid, but should be spread ratably over the term of the lease.  3.  An amount voluntarily paid to discharge a tax deficiency asserted against another, and for which petitioner was not personally liable, is not a proper deduction from petitioner's income.  4.  Expenses voluntarily paid in contesting a tax deficiency asserted against another, for which petitioner was not personally liable, are not proper deductions from petitioner's income.  A. Lewis Spitzer, Esq., for the petitioner.  P. A. Bayer, Esq., for the respondent.  GOODRICH*776  In these two proceedings, which were consolidated for hearing, deficiencies in income taxes for the years 1926 and 1927 in the amounts of $958.51 and $846.75, respectively, were asserted.  The *777  deficiency for the year 1926 results from the respondent's action in disallowing as deductions from petitioner's income for that year: (1) The amount of $673.80, *1826  of a total of $842.25, expended by petitioner in obtaining a renewal of a mortgage loan on his property; (2) The amount of $5,699.99, of a total of $6,249.99, paid by petitioner as a commission for arranging a lease upon his property; (3) The amount of $750 paid by petitioner as a fee to an accountant for services rendered in connection with an appeal against income-tax deficiencies asserted against a dissolved corporation of which petitioner was formerly a stockholder and officer; (4) The amount of $2,283.20, which was assessed as a tax deficiency against the aforesaid dissolved corporation, and was paid by petitioner.  The deficiency for the year 1927 results from respondent's action in disallowing as a deduction from petitioner's income for that year the amount of $10,249.99, paid by petitioner as a commission for arranging a lease upon his property.  FINDINGS OF FACT.  Petitioner is a resident of Perth Amboy, N.J., where he owns real estate on which a building is situated.  In 1926 he incurred and paid the amount of $842.25 as expense incident to obtaining a renewal of a five-year loan secured by a mortgage on said property.  Respondent, in computing petitioner's tax*1827  liability for the year 1926, prorated the expense of procuring said loan over the term thereof and allowed as a deduction from petitioner's income for that year only one-fifth of said expense, or $168.45.  In 1926 petitioner employed a real estate broker to effect a lease upon said property and in that year leased his property for a term of thirty years.  He agreed to pay the broker the amount of $16,500 for services rendered in arranging the lease and in 1926 paid the amount of $6,249.99 of said commission.  In 1927 petitioner paid the broker $10,249.99.  Respondent, in computing petitioner's tax liability for the year 1926, prorated said commission over the life of the lease and allowed as a deduction from petitioner's income for that year only one-thirtieth thereof, or $550.  In 1927 respondent allowed only the same deduction on that account, to wit, $550.  Petitioner was formerly a stockholder and officer of Frank Gold, Inc., a corporation which was dissolved in 1921.  Thereafter, at a date not shown, respondent assessed additional taxes against said corporation in the amount of $2,283.20, which assessment petitioner paid in 1926.  The record does not show whether petitioner*1828  received liquidating dividends from said corporation, whether the corporation was insolvent at the time of its dissolution, whether respondent sought to hold petitioner liable for the deficiency of the corporation as a transferee thereof, nor the basis for computation *778  of the deficiency against the corporation.  Respondent, in computing petitioner's tax liability for the year 1926, disallowed as a deduction from income the sum of $2,283.20 paid by petitioner as aforesaid.  In 1926 petitioner paid to an accountant the amount of $750 for services rendered during that year in contesting the deficiency asserted against Frank Gold, Inc.  In computing petitioner's tax liability for the year 1926 respondent disallowed this amount as a deduction.  Petitioner kept his accounts and filed his returns for the years here involved upon a cash receipts and disbursements basis.  OPINION.  GOODRICH: The first issue raised by petitioner is whether, incomputing his individual tax liability, he may deduct from his gross income as an ordinary and necessary business expense, in the year in which paid, the total fee charged him for renewing a mortgage loan upon his property, or whether*1829  that expense should be deducted ratably over the term of the loan.  The second issue is whether a fee paid to a real estate broker for services rendered in procuring a tenant for and arranging a long-term lease upon petitioner's property may be deducted from gross income as an ordinary and necessary business expense when paid, or should be deducted ratably over the term of the lease.  From a reading of the cases it is apparent that these problems, which may be treated together, have proved very troublesome.  In , the Board, reversing its prior opinion as first pronounced in the case of , held that commissions paid to agents for services rendered in connection with the leasing of property were deductible in the year in which paid, basing its opinion to some extent upon the principles outlined in . Following this decision the case of , was decided and held that expenditures identical with those here in issue, namely expenses incident to obtaining a mortgage loan and commissions*1830  paid for procuring a lease, were proper deductions from income for the year in which paid when the taxpayer was on a cash receipts and disbursements basis (as he is in the case at bar).  But in , the McNeill opinion was limited and the brokerage fee prorated over the life of the lease for the obtainment of which the fee was paid.  Then followed the case of , wherein by divided opinion, the Board further limited the McNeill case, overruled the *779 Olinger case, and held that the expense of procuring a loan for a term of years should be deducted ratably over the term.  This was followed by , of like effect.  Thereafter, in the case of ; ; ; and , it was held that commissions paid for obtaining a lease for a term of years are not deductible as an expense when paid, even though taxpayer may be on a cash*1831  receipts and disbursements basis, but should be spread ratably over the life of the lease.  The last named case directly and expressly disagrees with the decision in These decisions, which have since been consistently followed, represent the present opinion of the Board upon the first two issues involved in the case at bar.  Until reversed by higher authority, we must, therefore, hold that the expenditures made by petitioner for securing a renewal of a mortgage loan upon his property and for obtaining a lease for a term of years thereon are not proper deductions from income for the year in which paid but must be spread ratably, the first over the term of the loan, and the latter over the term of the lease.  As to the issue involving the deductibility of the amount paid by petitioner on account of the deficiency asserted against a dissolved corporation of which he was formerly a stockholder and officer, the record herein is unsatisfactory in that it gives us no information as to what, if anything, petitioner secured through liquidation of the corporation nor as to what extent he might be liable for its debts.  The record does not disclose*1832  whether petitioner was individually liable for the tax of the dissolved corporation or whether his payment thereof was wholly voluntary.  Assuming that petitioner had received payments in liquidation of the corporation (although petitioner states in his brief that he did not), his payment in 1925 of the deficiency asserted against it was not a deductible expense or loss, but was, under the authority of , and other cases heretofore decided on this issue, merely a repayment of corporate assets previously paid to him under a mistake of fact, to which he had no equitable title, and which became impressed with a trust.  The amount thus repaid by him serves only to reduce the amount received upon the liquidation of the corporation.  See also . Assuming further that petitioner, upon the dissolution of the corporation, received its assets and assumed its liabilities as a part payment therefor, still his payment of the deficiency asserted *780  against the corporation is not a deductible expense, but is then a capital item, increasing the cost of the assets acquired.  *1833 ; ; affirmed in . However, in view of the state of the record in this case and the statements made in petitioner's brief, we have no alternative but to treat this payment made by petitioner as a voluntary payment for which we was not personally liable, finding that he has voluntarily and without consideration, assumed and paid the obligation or debt of another.  As a voluntary discharge of the debt of another the payment by petitioner is not deductible from income for, clearly, it is not an ordinary and necessary business expense, personal to him, as contemplated by the statute.  It is, perhaps, unfortunate that one who has voluntarily discharged an obligation for taxes of a concern with which he was once connected, not because he was personally liable therefor, but wholly from motives of honesty and fair dealing, should not be permitted to secure the advantage against his own tax liability of the amount so paid, but it is our understanding of the law that such a deduction is denied to him.  The deductibility of the amount of $750, *1834  paid by petitioner as expense in contesting the deficiency asserted against the dissolved corporation, must be determined upon the same basis.  This expense was incurred by him in a case which he voluntarily entered and in with which he was once connected, not because he was personally which he was not personally liable; therefore, it is not deductible as an ordinary and necessary business expense.  Counsel calls attention to the fact that in the O'Neal case, supra, the expenses incurred in contesting the deficiency asserted against the corporation were held to be deductible.  However, in that case, the petitioner was personally liable for the tax due from the corporation and the expenses were therefore necessary.  That is not so in the case at bar.  Judgment will be entered for respondent.