Eichenberg v. Commissioner , 16 B.T.A. 1368 ( 1929 )

MAX EICHENBERG, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Eichenberg v. Commissioner

Docket No. 25592.

United States Board of Tax Appeals

16 B.T.A. 1368; 1929 BTA LEXIS 2398;

July 17, 1929, Promulgated

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1. Commissioner's computation of profit from the sale of real estate and building sustained on authority of Even Realty Co.,1 B.T.A. 355">1 B.T.A. 355.

2. Deduction for a bad debt, in 1922, disallowed because the evidence shows that such debt was worthless in a prior year.

Robert E. Rooney, Esq., for the petitioner.

L. A. Luce, Esq., for the respondent.

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LANSDON

The respondent asserts a deficiency in income tax for the year 1922 in the amount of $526.10. The petitioner alleges (1) that the respondent erroneously increased the profit realized from the sale of a certain brick building by adding to the sales price received the depreciation of such building from the date of purchase to the date of sale, and (2) that the respondent erroneously disallowed as deductions from gross income in the taxable year the amount of certain debts which petitioner avers became worthless and were charged off in such year.

FINDINGS OF FACT.

The petitioner is an individual who resides in Kansas City, Mo.

In the year 1915 the petitioner purchased a parcel of real estate at 516-18-20 Main Street, Kansas City, Mo., with a two-story brick building thereon, and paid therefor the amount of $30,000. Subsequent to such purchase he expended the amount of $4,142.50 in making capital additions to such property. In 1922 he sold the property so acquired and improved for $40,000. In his income-tax returns for the years 1915 to 1921, inclusive, the petitioner took no deductions from his gross income on account of depreciation of the building in question, but in his return for 1922 he claimed and was allowed a deduction from gross income of $900 on account of depreciation of such building for that year.

Prior to 1914 petitioner endorsed two notes for one Bercu in the respective amounts of $500 and $200, and later paid interest on such notes in the amount of $68. In 1914 Bercu turned all his property over to his creditors, quit business and left Kansas City. Petitioner did not file his claims for the amount of the notes in question and received no payment thereon from the sale or distribution of Bercu's property. In December, 1914, and January, 1915, on demand from the bank which had cashed the notes, he paid both notes with interest to date. Some three years after his failure in business Bercu returned to Kansas City, and on several occasions promised petitioner that he would pay the notes in full. At some time, not disclosed by the records, he did pay petitioner $45. In 1922 Bercu left Kansas City, and since that date has made no payments or promises of payments on the notes.

In his income-tax return for 1922 the petitioner included profit from the sale of real estate in the amount of $5,857.50, and deducted the face value of the Bercu notes from his gross income as debts ascertained to be worthless and charged off in the taxable year. Upon audit of such return the Commissioner disallowed the amounts deducted as bad debts, and by adding sustained and accrued depreciation in the amount of $4,500, computed profit in thf amount of $10,357.50 from the sale of the real estate involved.

OPINION.

LANSDON: The petitioner's contention as to the first issue here is that any physical depreciation of the brick business house was more than compensated by appreciation resulting from increase in the cost of building materials during the term of his ownership. We have heretofore held that for the purpose of computing profit from the sale of depreciable property sustained depreciation may not be offset by appreciation in the market value of the property involved. This issue is controlled by our decisions in , and , which have been fully sustained by the Supreme Court in .

The evidence discloses that the maker of the notes involved in the second issue was bankrupt in 1914 or earlier, that at the time such notes were paid Bercu was without resources of any sort and his whereabouts unknown. We are convinced that the notes in question were worthless before the taxable year.

Decision will be entered for the respondent.