Wyatt Metal & Boiler Co. v. Commissioner , 6 B.T.A. 673 ( 1927 )

OPINION.

Maequette:

We are of the opinion that the respondent properly refused to allow the petitioner to deduct in 1920 and 1921, as debts ascertained to be worthless and charged off within the taxable years, the Houston County warrants in question. They were in fact charged off, but the record does not establish that they were worthless. They were, in 1920 and 1921, and are still, the subject of litigation in the Texas courts, and whether or not they have any value will not be determined before the final decision therein by the Supreme Court of Texas. That the petitioner did not consider them worthless when they were charged off is evidenced by the fact that it approved of the litigation concerning them and agreed to bear part of the expenses of the litigation. While the pending suit is in the name of Austin Brothers and the petitioner is not a party of record, yet, since it has paid to Austin Brothers the full amount for which it originally assigned the warrants, it is in fact the real party in interest. We think the warrants were not ascertained to be worthless within the taxable years involved herein, and upon this point we approve the action of the respondent.

With reference to the question of whether or not the petitioner is entitled to deductions from gross income as allowances for the exhausfion, wear and tear of the spur track, we are of the opinion that the spur track is depreciable property and that the cost thereof to the petitioner should be capitalized and recovered through allowances for exhaustion, wear and tear spread ratably over its useful life. We are not considering the petitioner’s tax liability for the year 1924, and it is not necessary for us to decide here whether the petitioner erred in charging to expense the amount paid by it in that year to the railroad for the maintenance, repair, and replacement of the spur track. If the property in question is depreciable, the petitioner should be allowed to recover in each year of its useful life an aliquot part of its cost, and this right can not be defeated by the fact that in a subsequent year it may have charged to expense amounts spent for maintenance, repair and replacement.

Although we are of the opinion that the petitioner is entitled to an allowance in each of the years 1920 and 1921, for the exhaustion, wear and tear of its spur track, there is nothing in the record herein from which we can determine what that allowance should be. The petitioner claimed an allowance computed at the rate of 10 per cent, which has been disallowed by the respondent. We are not informed as to the useful life of the spur track, and therefore we can not say what part of the cost thereof should be recovered by the petitioner in each year. In the absence of any evidence as to the life of the property, we must affirm the action of the respondent.

No errors were alleged by the petitioner as to the respondent’s determination of its tax liability for the year 1919.

Judgment will be entered for the respondent.