Steverson v. Commissioner

J. N. STEVERSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Steverson v. Commissioner

Docket No. 11179.

United States Board of Tax Appeals

18 B.T.A. 1099; 1930 BTA LEXIS 2525;

February 12, 1930, Promulgated

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">*2525 1. DEPRECIATION DEDUCTION. - For the three years under consideration the petitioner is entitled to additional depreciation deduction computed at the same rates used by the respondent upon other equipment for such additions to equipment as were acquired during the years 1917 to 1921, inclusive.

2. FIRE LOSSES. - Losses arising from the destruction of standing timber by fire occurring during the years 1919 and 1920 are governed by the provisions of the Revenue Act of 1918 and are based upon the cost or March 1, 1913, value whichever is lower. (United States v. Flannery,268 U.S. 98">268 U.S. 98.) The record does not disclose the cost of timber destroyed by fire in 1919 and 1920, and, therefore, a loss deduction can not be allowed.

Id. - For the year 1921 the basis for computing a deduction for fire losses is the March 1, 1913, value, which has been established by the evidence, and the deduction for that year should be allowed.

William S. Pritchard, Esq., for the petitioner.

A. S. Lisenby, Esq., for the respondent.

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TRUSSELL

">*1100 This proceeding results from the determination of deficiencies in income taxes amounting as follows: ">*2526 for 1919, $5,085.76; for 1920, $11,714.46; for 1921, $4,972.37. The petitioner alleges error with reference to the following issues:

(1) An overstatement of the amounts of salaries received during the taxable years from the Pine Lumber Co.;

(2) An understatement of the amounts of cost upon which should be based the computations of the deductions for depreciation;

(3) Failure to allow as deductions from income losses resulting from the destruction of timber by fire during the taxable years.

FINDINGS OF FACT.

The petitioner is a resident of Alabama and is engaged in the business of wholesale lumbering with principal place of business at Birmingham.

During the taxable years the petitioner was the owner of timber and/or timber lands located in the Counties of Clay, Talladega, and Tallapoosa in the State of Alabama, to an extent of approximately 35,000 acres. The lands contained growths of high grade long leaf yellow pine timber which had a fair market value on March 1, 1913, of $4 per thousand feet board measure. The timber lands in Clay and Talladega Counties and 880 acres of the timber lands in Tallapoosa County were acquired by the petitioner prior to March 1, 1913. ">*2527 The forests were rendered highly inflammable by turpentining operations. Fires recurred annually on the properties. On the lands in Talladega and Clay Counties, acquired prior to March 1, 1913, the losses of timber by fire amounted in each of the years 1919, 1920, and 1921 to at least 2,250,000 feet board measure.

There were fires also on timber lands in Tallapoosa County during the taxable years.

Turpentining has a deleterious effect upon the trees, even to the extent of killing some of them. After the fires such of the trees as had not been totally destroyed or rendered unfit for use were salvaged so far as possible.

Included in the assets owned by the petitioner were the following, used in his business and subject to exhaustion, wear and tear:

	Machinery	Furniture and fixtures	Auto trucks	Livestock and vehicles
Book values Jan. 1, 1917	$3,115.00	$1,061.72	Nil.	$8,092.71
Cost of additions:
1917	645.90	131.85	$4,206.45	5,439.41
1918 (stipulated)	3,625.46	200.00	12,670.97	9,160.09
1919 (stipulated)	2,967.11	102.50	10,261.82	3,528.65
1920 (stipulated)	4,055.60	Nil.	11,557.99	1,580.60
1921 (stipulated)	560.00	Nil.	179.55	441.60
Annual rates of exhaustion, wear and tear (stipulated)	per cent 12 1/2	10	33 1/3	20

">*2528 ">*1101 Respondent has allowed deductions from income for depreciation amounting as follows:

For 1919	$3,739.71
For 1920	5,010.60
For 1921	5,858.38

The respondent has allowed deductions from income for depletion of the timber acquired prior to March 1, 1913, based upon a value as of that date of $4 per thousand feet board measure.

The income of the petitioner from salaries received from the Pine Lumber Co. has been stipulated as follows: for 1919, $5,000; for 1920, $5,000; for 1921, $5,000.

OPINION.

TRUSSELL: The first issue in this case presents a question of fact which has been determined by the stipulation of the parties.

The second issue relates to the computation of allowances deductible from income for depreciation. The parties are in agreement as to the annual rates to be applied. We are required to determine the costs to which to apply the rates. In relation to assets acquired prior to January 1, 1917, there is no satisfactory evidence of their cost or of their actual cash value when turned over to the petitioner, and we are not satisfied that the book values and the depreciation allowances upon them, which the respondent has computed, ">*2529 are in error. We, therefore, make no adjustment of this portion of the depreciation deduction allowed by the respondent. The cost of the additions subsequent to January 1, 1917, determined from evidence or by stipulation, is set out in the findings in detail. Upon these additions the allowances for depreciation should be recomputed, using the rates agreed upon.

The remaining issue is a question of deductible losses by fire. During the taxable years the petitioner was an operating lumberman and he was the owner of the timber lands upon which turpentining and logging operations were conducted. The evidence shows that fires occurred in the timber in each of the taxable years. The respondent has allowed no deduction whatever on account of timber consumed by the fires. The issue largely involves questions of fact as to the extent to which valuable timber was destroyed and its value for income-tax purposes.

In , we decided that timber destroyed by storm was properly the subject of a deduction by way of allowance for a loss as provided in section 214(a)(4)(5)(6) of the Revenue Act of 1918, rather than under the provisions">*2530 for the allowance of depletion under section 214(a)(10). We are of the same opinion relative to destruction of timber by fire.

">*1102 With respect to losses actually sustained within a taxable year, the Revenue Act of 1918 provides for the allowance of deductions from income in section 214(a)(4) if incurred in trade or business, and in section 214(a)(6) on property not connected with trade or business if arising from fires, storms, shipwreck or other casualty.

It is well settled that under the 1918 statute losses are only allowable on a basis of cost or of fair market value March 1, 1913, whichever is lower; ; ; ; . There is no evidence in the instant case of the cost of the timber burned and we are unable to make any redetermination with respect to the years 1919 and 1920.

This leaves for consideration the year 1921. The Revenue Act of 1921 makes similar provisions for losses, in section 214(a)(4) and (6) with, however, this further allowance:

">*2531 In case of losses arising from destruction of or damage to property, where the property so destroyed or damaged was acquired before March 1, 1913, the deduction shall be computed upon the basis of its fair market price or value as of March 1, 1913.

In the report of the Conference Committee on the Revenue Bill of 1921 (Rept. No. 486, 67th Cong., 1st sess.) the Committee managers on the part of the House reported at page 25 as follows, relative to amendment 181, amending section 214(a)(6):

Amendment No. 181: The purpose of this amendment and of the similar language in amendment 401 is to remove a doubt in existing law as to whether the basis of such a loss should be the value of the property on March 1, 1913, or the cost thereof, and provides that in case of losses arising from destruction of or damage to property, where the property was acquired before March 1, 1913, the loss deduction shall be computed on the basis of the fair market price or value of the property as of March 1, 1913; and the House recedes.

The losses here under consideration arise from the destruction of or damage to property, consequently, the valuation basis for purposes of the deduction relative to such">*2532 of the property as was acquired prior thereto is the value on March 1, 1913.

A portion of the timber lands in Tallapoosa County was acquired prior to March 1, 1913, but there is no satisfactory evidence of the quantities of timber destroyed on these lands during the taxable years. We, therefore, dismiss them from further consideration.

With respect to the timber lands in Talladega and Clay Counties, acquired prior to March 1, 1913, the respondent has determined a value for the timber of $4 per thousand feet board measure, which is the basis upon which the deductions for depletion, not an issue here, have been computed. We think it should also be the basis for the computation of the losses here under consideration. The petitioner ">*1103 claims higher values, but we are of opinion that the evidence fails to support his claim. We are also required to determine the amount of timber destroyed by the fires. After careful consideration of the testimony of witnesses who were upon the properties at the times of the fires and immediately afterward, we are satisfied that the loss on the lands in Talladega and Clay Counties, acquired prior to March 1, 1913, amounted to at least">*2533 2,250,000 feet in 1921 and that quantity is properly to be considered in the computation of the amount of the deduction which we conclude is allowable.

Judgment will be rendered pursuant to Rule 50.