Richardson v. Commissioner ( 1927 )

NORMAN B. RICHARDSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Richardson v. Commissioner

Docket No. 9767.

United States Board of Tax Appeals

9 B.T.A. 875; 1927 BTA LEXIS 2487;

December 27, 1927, Promulgated

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1. Respondent's determination of depreciation on hotel equipment approved.

2. Obsolescence of good will disallowed.

3. Claim for deduction of cost price of alcoholic liquors distributed among petitioner's friends disallowed.

Walter W. McVay, Esq., for the petitioner.

Robert A. Littleton, Esq., for the respondent.

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LANSDON

Proceedings for the redetermination of deficiencies in income taxes for the years 1918, 1919, and 1920, of $4,468.98, $10,967.06, and $507.57, respectively.

FINDINGS OF FACT.

During the years here involved, petitioner was proprietor of the Seventh Avenue Hotel at Pittsburgh, Pa. From June 15, 1909, until some time in 1917, the hotel was owned by the Richardson & Ham Co., Messrs. Richardson and Ham each owning one-half of the $50,000 capital stock. Ham having died, petitioner purchased from his wife his stock, paying therefor, $33,000. The book value of the stock was, at this time, $28,134.72. On March 31, 1917, petitioner dissolved the corporation, and, since that time, has conducted the business under his own name as sole proprietor.

The hotel has 250 rooms, a large lobby, several dining rooms, a pool room, a barber shop, and, until prohibited by law, had a well equipped bar room, which occupied a comparatively small space in the building.

Petitioner, in computing the amount to be deducted under section 234(a)(7), took for his bases for the years 1918, 1919, and 1920, the amounts given as of December 31, under the item "Equipment" in his financial statements for those years. These amounts were, respectively, $72,851.03, $64,548.45, and $49,866.25. He claimed 15 per cent depreciation. Counsel for the parties stipulated at the hearing "that at January 1, 1918, the equipment account amounted to $88,001.69; as of January 1, 1919, $88,563.93; at January 1, 1920, $89,413.93; and at January 1, 1921, $90,001.48." Respondent used the first three of these in computing the deductions on account of depreciation, and adopted 5 per cent as the proper rate. The deductions, etc., were as follows:

Year	Claimed	Allowed	Disallowed
1918	$10,927.58	$4,414.14	$6,513.14
1919	9,682.20	4,449.45	5,232.75
1920	7,479.96	4,485.40	2,994.56

The equipment was the same that had been in use in 1909-1910. In February, 1927, it was practically exhausted from old age, wear, and tear; but remained in use.

The petitioner claimed a deductible loss of $122,325.70 "as a reasonable allowance for the obsolescence of good will" in 1918 and $10,484.96 for such obsolescence in 1919, both on account of the adoption of the Constitutional Amendment. In his brief, presented since the hearing, he has changed these amounts to $51,557.90 for 1918, and $4,528.19 for 1919.

In June, 1919, petitioner distributed among his friends, as gifts, alcoholic liquors from his bar, which had cost him $6,001.37. His reason for doing so was that, because of the prohibition law, he could not sell them. He claims the cost price as a deductible loss in the computation of his taxes either for the year 1919 or 1920.

In his petition on appeal he claimed a deduction of $5,000 for the obsolescence of bar fixtures. At the hearing he admitted that the action of the respondent in disallowing this claim was correct and abandoned the claim.

OPINION.

LANSDON: We have repeatedly held that depreciation is a physical fact that must be proved by evidence. In the instant case, we think the evidence proves a useful life of these assets of at least 20 years and we, therefore, approve the determination of the respondent on this point. The petitioner and respondent have stipulated that the equipment accounts were $88,001.69, $88,563.93, and $89,413.93 on the first day of January, 1918, 1919, and 1920, respectively. These amounts were used by respondent in computing depreciation for these several years, and, as to this action, there is no question.

Petitioner's claim for the loss on account of the obsolescence of good will is disallowed under the decision of the court in , and the decisions of the Board in ; ; and .

We find no authority in the Act for the deduction claimed by petitioner on account of gifts of alcoholic liquors made to his friends. Our decision on this item is, therefore, for the respondent.

Reviewed by the Board.

Judgment will be entered on 15 days' notice, under Rule 50.