Koepfli v. Commissioner , 13 B.T.A. 784 ( 1928 )

JOSEPH O. KOEPFLI, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ROLAND P. BISHOP, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

WILLIAM T. BISHOP, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Koepfli v. Commissioner

Docket Nos. 14006-14008.

United States Board of Tax Appeals

13 B.T.A. 784; 1928 BTA LEXIS 3183;

October 4, 1928, Promulgated

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March 1, 1913, value of certain real estate fixed, and determination of respondent overruled.

Ralph W. Smith, Esq., and Sherman Jones, Esq., for the petitioner. Clark T. Brown, Esq., for the respondent.

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MARQUETTE

These proceedings are for the redetermination of deficiencies in income taxes asserted by the respondent for the year 1922. The deficiencies amount to $9,371.87; $8,147.02 and $8,178.47, respectively, in the order above named. They arise from the disallowance by the respondent of the petitioners' claim as to the March 1, 1913, value of certain real estate owned by the petitioners and sold by them in 1922.

FINDINGS OF FACT.

The three petitioner were for many years prior to 1922, and all during that year, partners in the firm of Bishop & Co. Each owned a one-third interest. In 1905 they purchased a tract of 6.24 acres of land lying along 8th Street, between Alameda and Lawrence Streets, in the City of Los Angeles, Calif. The purchase price was $94,610.74. In 1907 they put up a concrete building on the property at a cost of $94,134.19. In 1908 and 1909 other improvements were erected amounting to $5,543.73 and $21.92, respectively. The land and buildings were sold by the petitioners in 1922 for $500,000, the net to petitioners being $476,179.90. Spur lines from two railroads ran to this land and it was the only available tract of any considerable size suitable for manufacturing purposes, and "close in" to the then business center of the city. At the time of its purchase and for some years thereafter, proximity to the business center was very desirable in a manufacturing site. The original purchase price in 1905 was approximately the fair value of the land, and by March 1, 1913, its value without improvements was $382,797.80. There is no evidence regarding the amount of depreciation upon the buildings.

About the year 1915 the real estate market in Los Angeles went into a bad slump, and no recovery took place for five or six years. By 1922, however, the market had recovered at least its status of March 1, 1913, and by 1923 it reached its peak. But by that time large industrial sites "close in" were not in much demand, as factories had gone further out to get cheaper land.

The contention of the petitioners is, that the March 1, 1913, value of the property sold by them in 1922 was $466,132.27 and that the net taxable gain was only $10,047.63. The respondent determined the March 1, 1913, value to be $345,463.54 resulting in a net taxable gain of $152,901.39, or $50,967.13 to each partner. No other questions are presented.

OPINION.

MARQUETTE: The best evidence of market value is the selling price of property, between one willing but not compelled to sell, and one willing but not compelled to buy. Measured by that standard, the petitioners paid, in 1905, the then fair market value of the land. This was $94,610.74. There is no evidence before us as to sales of similar property on or about March 1, 1913. But, as of that date, the Los Angeles Real Estate Board in 1925 appraised the land as having a value of $382,797.80. This valuation is substantiated by other evidence.

The buildings upon the land in 1913 cost $94,134.19 and $5,543.73, respectively. The first was erected during the year 1907 and the second during 1908. Presumably, these buildings were subject to depreciation. It is quite evident that, in fixing a valuation as of March 1, 1913, the respondent did compute some depreciation on these buildings; but how much, we are not advised. There is no evidence to indicate what rate of depreciation was used by the respondent, nor whether that was the correct rate. We only know that the respondent determined the land and buildings had a market value March 1, 1913, of $345,463.54. This was $37,334.26 less than the value of the land alone, as disclosed by the evidence.

While it is probable that the buildings had some value on March 1, 1913, the evidence produced fails to touch upon this matter. The petition does contain an allegation as to the March 1, 1913, value of the buildings; but this is flatly denied in the answer. The burden of proof was upon the taxpayer and he has failed to sustain it. In recomputing the taxes, therefore, the rate of depreciation of the buildings, already used by the respondent, will stand as correct.

The amount of taxable gain resulting from the sale of this property should be recomputed, based upon a value of $382,797.80 for the land, plus the depreciated value of the buildings, all as of March 1, 1913.

Judgment will be entered under Rule 50.