Rose v. Commissioner , 12 B.T.A. 745 ( 1928 )

LOUIS S. ROSE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ESTATE OF JOSEPH M. ROSE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MOE ROSE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Rose v. Commissioner

Docket Nos. 8177, 8178, 8933.

United States Board of Tax Appeals

12 B.T.A. 745; 1928 BTA LEXIS 3473;

June 21, 1928, Promulgated

---

">*3473 Under the evidence, held, that the partnership of Rose Brothers, of which the petitioners were members, did not sustain any loss on the sale of the real estate involved herein.

R. L. Nutt, Esq., for the petitioners.

Brice Toole, Esq., and J. A. Gerardi, Esq., for the respondent.

---

MARQUETTE

">*745 These proceedings, which were consolidated for hearing and decision, are for the redetermination of deficiencies in income tax asserted by the respondent for the fiscal years ended October 31, 1920, and October 31, 1921, as follows:

	1920	1921
Louis S. Rose	$5,586.12	$58.05
Joseph M. Rose	5,583.45	58.06
Moe Rose	3,994.95	35.54

The petitioners allege five errors on the part of the respondent, two of which were waived at the hearing. The parties hereto stipulated at the hearing that a certain adjustment should be made in the income of the partnership of Rose Brothers for the year involved, which adjustment is hereinafter fully set forth in the findings of ">*746 fact, leaving for decision only the question as to whether the respondent erred in disallowing the deduction claimed and taken by the partnership of">*3474 Rose Brothers on account of an alleged loss on the sale of certain real estate, and for traveling and entertainment expenses.

FINDINGS OF FACT.

The petitioners Louis S. Rose and Moe Rose, and Joseph M. Rose, now deceased, were during the years 1919, 1920, and 1921, and had been for a number of years prior thereto, partners in the business of manufacturing clothing in New York City under the firm name and style of Rose Brothers.

In March, 1909, Rose Brothers purchased an undivided one-half interest in Lots 57 and 59, Block 2550, in the County of Bronx, New York, paying therefor $4,500 in cash and assuming a mortgage thereon for $9,500. The other one-half interest in the lots was purchased at the same time by Samuel Sivin and Isaac Sivin. At the time of the purchase real estate in the Bronx was selling at high prices because of the prospective extension of the subway there. Rose Brothers held their one-half interest in the lots mentioned and paid the taxes thereon and interest on the mortgage until 1920. In that year, being unable to sell their interest for more than the amount of the mortgage, and wishing to be relieved of the obligation to pay the taxes, mortgage and interest, ">*3475 they conveyed their interest to Samuel Sivin and Isaac Sivin, owners of the other one-half interest, on October 26, 1920, for an actual consideration of $1. The fair market value of the lots mentioned on March 1, 1913, was not more than $16,000, and the fair market value of Rose Brothers' one-half interest was not more than $8,000. The mortgages mentioned were satisfied and released on November 6, 1924.

During the fiscal year ended October 31, 1920, the petitioner traveled as salesmen for the partnership of Rose Brothers. They were advanced certain amounts by the partnership for traveling expenses and upon their return from their trips were given amounts equal to the difference between the advancements theretofore made and the amounts they claimed to have spent for railroad fare, hotel bills and entertaining customers.

On February 1, 1920, Rose Brothers acquired a lease of a certain building for a term of three years. The partnership made certain improvements on the leased building at a cost of $3,026.

In the partnership return for the year ended October 31, 1920, there were deducted from gross income: (1) The amount of $12,895.10 as a loss sustained on the sale of the">*3476 real estate mentioned; (2) $7,817 as additional amounts paid to the petitioners for traveling and entertainment expenses; and (3) $3,949.65 as the cost of improvements made on the leased building mentioned. The respondent disallowed ">*747 these deductions and increased the petitioners' respective shares of the partnership income accordingly.

OPINION.

MARQUETTE: The petitioners originally claimed that in 1920 the partnership of Rose Brothers sustained a loss of $12,895.10 on the sale of an undivided interest in certain lots. They now say that the loss was $8,000. We, however, are unable to agree that the partnership sustained any deductible loss.

The evidence shows that the partnership purchased an undivided one-half interest in the lots in question in the year 1909, paying therefor $4,500 in cash and assuming a mortgage for $9,500. On March 1, 1913, the fair market value of the lots was not to exceed $16,000 and the partnership's undivided interest was worth not to exceed $8,000. This interest was, however, still subject to a mortgage. One of the petitioners testified that the mortgage was curtailed between 1909 and October 26, 1920, when the partnership sold its">*3477 interest in the lots, but the record fails to disclose the amounts of the curtailments, if any, and we must assume that the mortgage was still $9,500 on March 1, 1913. The partnership equity in the lots was, therefore, apparently worth less than nothing on that date.

Subsequently, in 1920, the partnership considering the lots a losing venture and being desirous of escaping responsibility of paying the mortgage interest and taxes, conveyed its equity to the owners of the other one-half interest for $1. So far as the record shows we therefore have the situation that the partnership sold for $1 in 1920, an interest in certain lots that cost $4,500 in 1909 and was worth nothing on March 1, 1913. Under the Revenue Act of 1918, the loss, if any, from the sale of these lots must be computed on the basis of cost or value at March 1, 1913, whichever is lower. ; , and it is clear that on this basis the partnership sustained no loss from the sale.

The petitioners claim that the partnership, in computing its net income for the fiscal year ended October 31, 1920, is entitled">*3478 to deduct the amount of $7,817 as additional amounts paid for traveling and entertainment expenses. They failed, however, at the hearing to produce any competent evidence to sustain this contention.

At the hearing the petitioners and the respondent stipulated that on February 1, 1920, Rose Brothers acquired the lease of a certain building for a term of three years and made improvements thereon at a cost of $3,026, and that the amount so expended should be amortized over the period of the lease and proportionate parts thereof deducted in computing the partnership income for each of the fiscal years ended October 31, 1920, and October 31, 1921.

Judgment will be entered under Rule 50.