Flood v. Commissioner , 16 B.T.A. 1366 ( 1929 )

MRS. H. D. FLOOD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Flood v. Commissioner

Docket No. 24558.

United States Board of Tax Appeals

16 B.T.A. 1366; 1929 BTA LEXIS 2397;

July 17, 1929, Promulgated

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1. Evidence fails to overcome the presumption that the Commissioner correctly determined the value at acquisition of a certain note received by the petitioner prior to the taxable year in which it was paid in full.

2. Market value of a certain parcel of real estate at March 1, 1913, determined.

A. Harding Paul, Esq., for the petitioner.

Bruce A. Low, Esq., and L. H. Rusbrook, Esq., for the respondent.

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LANSDON

In this proceeding petitioner seeks the redetermination of a deficiency in income tax for the year 1923, in the amount of $905.17, and alleges the following errors:

(1) That the respondent undervalued as of date of acquisition petitioner's interest in a note received in 1918 as a liquidating dividend from the Carry Manufacturing Co., and paid in 1923;

(2) That respondent erroneously determined a profit to petitioner upon a sale of real estate during the taxable year; and

(3) That the respondent erred in increasing the net income of petitioner for the taxable year by $1,687.50 on account of interest collected during said year.

At the hearing the last mentioned error was withdrawn by the petitioner and the correctness of the respondent's determination in respect to this item conceded.

FINDINGS OF FACT.

The petitioner is a resident of the City of Washington, District of Columbia, and in May, 1918, was a stockholder of the Carry Manufacturing Co., a corporation. On or about May 15, 1918, this corporation sold to Jo. V. Morgan certain real, personal and mixed assets, consisting of manufacturing plants and equipage in the District of Columbia, and received in payment 33 promissory notes of the aggregate face value of $825,000. Each of these notes called for the payment of $25,000, with interest at 6 per cent, payable semiannually after May 15, 1918, and matured serially, the first two, 3 and 15 months, respectively, after date; and the remaining 31 successively 6 months apart thereafter, the last falling due 201 months after date. Payment of these notes was secured by a deed of trust against the property sold. The market value of these 33 notes at the date of their execution and delivery to the trustees for the selling corporation was found by the respondent to be $405,000. Upon liquidation of the Carry Manufacturing Co. the trustees distributed these notes among its stockholders and the petitioner received in part an undivided one-half interest in note No. "9," maturing February 15, 1923, the discount value of which respondent determined to be, on date of its receipt by petitioner, $12,277.03. This note was paid in full at maturity and the respondent determined the resulting profit to petitioner upon her one-half interest to be $6,361.15.

Prior to March 1, 1913, the petitioner acquired an undivided one-ninth interest in certain real estate located at 1104 Vermont Avenue, Washington, D.C., the whole of which property was sold during the taxable year for the net sum of $68,802.76. The respondent determined the March 1, 1913, value of this property to be $38,379, which he depreciated to the sum of $33,954 at date of sale. The resulting profit to petitioner from this sale, by reason of her ownership of a one-ninth interest therein, the respondent determined to be $4,005.11. The fair market value of this property on March 1, 1913, was $60,000.

OPINION.

LANSDON: Petitioner first alleges that the respondent erroneously determined the value of the note in which she acquired a one-half interest to be less than its true discount value at date of acquisition, by reason of which, it being later paid in full, she was held to have received an enhanced profit. The undervaluation thus complained of was the result of respondent's giving equal discount to each of the 33 notes although their respective maturing dates were different and ranged from three to two hundred and one months after date of execution. It may be that respondent's determination of the value of the note was erroneous, but the petitioner produced no evidence upon which we can determine a basic value for these notes, in the absence of which there is nothing to show that her interest in the particular note in question suffered by reason of the method employed by respondent in his determination. The action of the respondent in respect to this alleged error is therefore approved.

In support of the second assignment of error, petitioner claims that the sale of the property located at 1104 Vermont Avenue, Washington, D.C., resulted in a loss rather than a gain and that the respondent erred (1) in his determination of the March 1, 1913, value, as well as in the depreciated value to date of sale, and (2) in respect to the net sale price of the property. To establish the cost price of this property the petitioner introduced a witness well qualified to testify as to real estate values in the District of Columbia and in the immediate vicinity of its location. The witness stated that, in his judgment, this property on March 1, 1913, had a conservative market value of from $55,000 to $60,000. No evidence was introduced by the respondent to challenge this testimony, which is convincing to us as to the correct value to be adopted. We, therefore, find the March 1, 1913, value of this property to be $60,000, and the net sale price, $68,802.76. In the absence of evidence showing error, the rate of depreciation employed by the respondent is approved.

Decision will be entered under Rule 50.