Blackstone v. Commissioner

D. L. BLACKSTONE, ADMINISTRATOR, ESTATE OF JAMES L. SPRINKLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Blackstone v. Commissioner

Docket No. 10401.

United States Board of Tax Appeals

12 B.T.A. 456; 1928 BTA LEXIS 3534;

June 7, 1928, Promulgated

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1. The Board has no jurisdiction to redetermine the tax for a year for which no deficiency has been found. Revenue Act of 1926, section 274(g); Appeal of Cornelius Cotton Mills,4 B.T.A. 255">4 B.T.A. 255. Where the notice of deficiency annexed to the petition fails to show that a deficiency has been determined for a given year, allegation in the petition that the tax for such year is in controversy, although admitted by the answer, is insufficient to show the requisite jurisdictional facts. Also, a stipulation of counsel of certain facts pertaining to the petitioner's tax liability for that year, can not confer jurisdiction to redetermine the tax, where the jurisdictional facts prescribed by the Revenue Act do not appear.

2. Value of sheep, lambs, cattle and hay in inventory at the opening and close of the year 1919, determined.

T. B. Weir, Esq., and F. S. Jacobsen, C.P.A., for the petitioner.

J. E. Marshall, Esq., for the respondent.

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LOVE

The petitioner brings this proceeding to redetermine alleged deficiencies in income taxes against the estate of the above-named decedent of $15,137.26 for 1918, and $252.84 for 1919. The notice of deficiency mailed by the Commissioner states only a deficiency for 1919 of $252.34, and the statement annexed thereto shows an overassessment for 1918 of $7,584.60.

The errors assigned are in substance as follows: (1) Failure of the Commissioner to apply market prices to live stock inventory at the close of 1918, thereby not giving effect to the decline in value from the beginning of the year. (2) In valuing breeding sheep at $11 at the close of 1918, and at $10 at the close of 1919; and lambs at $7 at the close of 1918, and $6 at the close of 1919; whereas such values at the close of 1919 were not more than $9 for breeding sheep and $5 for lambs. (3) In valuing mixed cattle at $45 per head at the close of 1919, thereby not giving effect to decline in value during 1919, of $5 per head. (4) In finding an increase in the value of hay, held for feeding live stock, of $15 per ton during 1919.

It is further alleged that a net loss was sustained in 1919 which should be deducted from net income in 1918.

FINDINGS OF FACT.

James L. Sprinkle was a citizen of the United States and resided at Chinook, Mont. He died June 11, 1923. On June 17, 1923, F. M. Burke was duly appointed and qualified as administrator of his estate and was so acting when this proceeding was brought. Since then, said Burke has been succeeded as such administrator by D. L. Blackstone, who has been substituted as the petitioner herein.

Sprinkle in his lifetime was engaged in raising sheep and wool. His ranches were located from 15 to 25 miles south of Chinook, Mont., which is the nearest railroad station.

Counsel signed and filed the following stipulation of facts:

(1) The opening inventory for the calendar year 1918 is $459,657.50.

(2) The parties are in dispute as to the value of 11,646 ewes, 3,917 lambs and 660 tons of hay at the end of the calendar year 1918, the parties being in agreement that the value of the remaining items entering into the closing inventory for December 31, 1918, is $115,290.00. The parties respectively contend that the value of the items in dispute in the closing inventory for 1918 is as follows:

	Taxpayer	Commissioner
Ewes	$10 per head	$ 11 per head.
Lambs	$6per head	$7 per head.
Hay	$10 per ton	$8 per ton.

(3) The parties are in dispute as to the value of 11,100 ewes, 4,000 lambs, 3,025 mixed cattle and 1,200 tons of hay, at the end of the calendar year 1919, the parties being in agreement that the value of the remaining items entering into the closing inventory for December 31, 1919, is $55,055.00. The parties respectively contend that the value of the items in dispute in the closing inventory for 1919 is as follows:

	Taxpayer	Commissioner
Ewes	$9 per head	$10 per head.
Lambs	$5 per head	$6 per head.
Mixed cattle	$40 per head	$45 per head.
Hay	$10 per ton	$25 per ton.

The ewes were average good range sheep of the Rambouillet type. averaging in weight about 100 pounds, and yielding about 8 pounds of wool per head. They ranged in age from 1 to 8 years, about 75 per cent being between 1 and 4 years old and about 25 per cent being between 5 and 8 years old. The average value per head for the entire band at January 1, 1919, was $10, and on December 31, 1919, was $9.

The value of the lambs at January 1, 1919, was $7 per head, and December 31, 1919, was $6 per head.

The hay was alfalfa, with a small amount of wild hay and blue joint. It was in stacks on his ranches between 15 and 25 miles from the railroad station. It was cut on Sprinkle's ranches and held by him as feed for his own live stock. Its value at January 1, 1919, was $10 per ton, and on December 31, 1919, was $12 per ton.

The cattle were grade Hereford beef type, with some shorthorn blood in them, and consisted of both steers and cows. Their value at December 31, 1919, was $45 per head.

OPINION.

LOVE: The petition contains an allegation that the taxes in controversy are $15,137.26 for the calendar year 1918 and $252.84 for the calendar year 1919. This allegation is admitted in the answer. Testimony was offered by both sides, and the stipulation of counsel was framed apparently upon the understanding that both of these years 1918 and 1919 are in question. However, the deficiency letter annexed to the petition states a deficiency only for the year 1919. The statement which accompanied the deficiency letter and which was filed by petitioner at the hearing states an overassessment for 1918. Therefore, upon the facts before us, we have no jurisdiction to redetermine the tax liability for 1918, since it does not appear that a deficiency was determined for this year, or that the overassessment resulted from the denial of a claim for the abatement of an assessment. Revenue Act of 1926, section 274(g). See . The basis of the Board's jurisdiction must be found in the statute and if the necessary jurisdictional facts are not present, jurisdiction can not be conferred by admissions in the pleadings or agreement of the parties.

The testimony relating to the value of the sheep and lambs is somewhat confused. Much of it related to the varying values for sheep of different ages and there was also some evidence based on a per pound value of lambs and older ewes. Such testimony was not of material assistance in arriving at the value of a band of over 11,000 sheep of different ages and weights. One witness of over 40 years experience in the sheep business and who was acquainted with these particular sheep, testified that the average value at December 31, 1918, was $9 per head, and at December 31, 1919, was $8. A witness called by respondent placed the average value December 31, 1918, at $11 per head, and testified he had sold some yearlings in that year for $15.50. The oldest sheep he thought would not be worth more for $5 per head. He did not fix the value at December 31, 1919. It was not disputed that there was some decline in value during that year. The valuation we have made was arrived at after carefully weighing all of this testimony.

We do not feel warranted by the evidence in disturbing the values found by the Commissioner for the lambs. The clearest testimony relating to the value of the lambs separately places the value higher than that found by the Commissioner.

Also, we have found the value of the cattle at December 31, 1919, to be the same as fixed by Commissioner, viz, $45. This value was testified to by petitioner's own expert.

In regard to the value of the hay, we have the opinion of one witness that it was worth from $6 to $10 per ton both at the beginning and the end of 1919. There was also evidence of sales of hay in bales delivered by railroad at stations in that part of Montana, which was shipped from other points in the State and from Idaho. Such sales in November and December, 1918, ranged from $25 to $30 per ton, and in the same months of 1919 from $29.50 to $31 per ton. The freight charges were paid by the shippers. It is also in evidence that the cost of hauling hay by team or truck is about 50 cents per ton mile. It is argued by respondent that these sales establish a market price for petitioner's hay. Some of the other testimony relates to what a ranchman under the necessity of having hay might be willing to pay for it. This, however, is not a test of the market value. Value is established by the concurring opinion of a buyer and a seller neither of whom is under compulsion, as to the relative desirability of the article and money, expressed in terms of money. We also believe that the value of the hay in bales delivered at the point where the purchaser desires it is not the correct measure of the value of the petitioner's hay. The term value is relative and expresses the relation between the article and money at a particular place and time. Petitioner's hay was in stacks located on his ranches extending from 15 to 25 miles from a railroad station. It is obvious that it would cost money to bale, haul and ship it to another place where a purchaser might be found. These costs must be reckoned in determining the value to the owner of hay circumstanced as this hay was. The amount petitioner would receive for it would be the market price less the charges mentioned, whether they were paid by him or by the purchaser. The test of the value of the hay in his possession is what he can get for this hay, and not what he might be obliged to pay for hay at a distant point. In arriving at the values that we have found for the beginning and the close of the year we have given weight to all of the testimony, including the fact that the winter of 1918-1919 was an open one and the following winter was a hard one. There was an increase in value in the winter of 1919-1920, over the preceding year.

The petition is dismissed as to the year 1918. Judgment will be entered for the year 1919, under Rule 50.