United Studios, Inc. v. Commissioner , 15 B.T.A. 737 ( 1929 )

UNITED STUDIOS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

United Studios, Inc. v. Commissioner

Docket No. 23900.

United States Board of Tax Appeals

15 B.T.A. 737; 1929 BTA LEXIS 2804;

March 6, 1929, Promulgated

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DEPRECIATION - ASSETS ACQUIRED FOR STOCK. - The value of a depreciable asset, acquired for capital stock, determined for purposes of computing the allowable deduction from income for exhaustion thereof.

Ralph Smith, Esq., for the petitioner.

Maxwell E. McDowell, Esq., for the respondent.

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TRUSSELL

Petitioner appeals from the determination of a deficiency in income tax for the calendar year 1922 in the sum of $916.07. One error, only, is assigned, this being respondent's disallowance of all value, as a basis for computing depreciation, in respect to assets acquired for $35,000 par value of stock by a corporation, all of whose assets were acquired and liabilities assumed by petitioner, as its successor, under a reorganization effected in 1920.

The issue here presented, with respect to the same petitioner, but for the three calendar years prior to the one here involved, was one of the issues raised in , the petitioner in the two proceedings being the same corporation, the name having been changed in 1922 to "United Studios, Inc." The two appeals were by stipulation of the parties combined for purposes of hearing with provision, however, for separate decisions.

FINDINGS OF FACT.

Petitioner is a Delaware corporation with principal place of business at Los Angeles, Calif., and was incorporated in 1920, under the name of Robert Brunton Studios, Inc., it being a reorganization, effected in that year, of an Arizona corporation of the same name, incorporated in 1918. In this reorganization petitioner took over all of the assets and liabilities of the Arizona corporation and the latter's charter was suspended. In the year 1922 petitioner's name was changed to United Studios, Inc. Petitioner is engaged in the business of leasing space, props, scenery and equipment to motion picture producers.

At the time of the incorporation of the Arizona corporation, petitioner's predecessor, one Robert Brunton and certain associates, had acquired and exercised an option to purchase for $125,000 a motion picture studio and other assets of the Paralta Studios, Inc., located at Los Angeles, and had paid $41,062.70 of the agreed purchase price. Petitioner's predecessor acquired all interest and rights of Brunton and associates in respect to this property together with other assets in return for the issue of $149,993 par value of its stock. All of the assets thus acquired were entered upon the books of petitioner by its officers at valuations appraised by them and totaling the sum of the par value of the stock issued. The sum of $35,000 par value of the total $149,700 of stock issued was balanced on the corporate books by an entry designated "Option to Purchase," and represented the value of the property covered by the option over and above the $41,062.70 already paid under the option plus the balance due of $83,937.30, and this $35,000 was included in the total upon which it computed depreciation for the taxable year involved. The disallowance of such value by respondent results in the deficiency here appealed from.

As found by us in Robert Brunton Studios, Inc., referred to, the property covered by the option to purchase had a reasonable value at that time of $160,000 and the $35,000 included by petitioner in its total of depreciable assets was an item of the cost to it of such assets, this cost being $83,937.30 in cash and $76,062.70 in stock.

OPINION.

TRUSSELL: The decision of the issue here presented is controlled by our decision in , wherein we held that the same petitioner, then known by that name, was entitled to include in its asset account, subject to depreciation for years prior to the one here involved, the $35,000 item in question. Such allowance should be made and the deficiency redetermined accordingly.

Judgment will be entered pursuant to Rule 50.