DocketNumber： Docket No. 14830.
Citation Numbers： 12 B.T.A. 867, 1928 BTA LEXIS 3437
Judges： Littleton
Filed Date： 6/27/1928
Status： Precedential
Modified Date： 11/21/2020
*867 The Commissioner determined a deficiency of $157.21 for 1920 and $1,155.34 for 1921. The petitioner claims that the Commissioner erred in refusing to allow it to deduct as an ordinary and necessary expense in the taxable years a portion of the sum of $25,000 expended in connection with the construction of a building on a certain tract of land to be leased to the Sinclair Oil Co. The Commissioner held that the expenditure of this sum was a part of the cost of improvements to be depreciated over the life of the building rather than over the five-year term of the lease of petitioner to the Sinclair Oil Co.
*868 FINDINGS OF FACT.
Petitioner has its principal office at Indianapolis, Ind. It purchased certain land in Shreveport, La., with the intention later to develop, but in the meantime the Sinclair Oil Co. proposed to petitioner that petitioner erect a building upon the land according to the special requirements of the Oil Company and that it would lease the same for a period of five years at an annual rental of $54,000. The lease was only obtainable*3438 in the beginning on the theory that the building would be ready for occupancy April 1, 1920. In order to effect the completion of the building the petitioner expended considerable extra money. Later, after it was realized that in spite of the unusual efforts and notwithstanding the extra amount of money being expended to complete the building by April 1, 1920, the building could not be completed and be ready for occupancy by that time, petitioner then entered into negotiations with the Sinclair Oil Co. for the extension of the date for completion of the building from April 1 to April 20, 1920. In order that this extension might be obtained from the lessee it was necessary for the petitioner to agree to make certain special alterations in addition so as to make the building more suitable for the lessee's purposes. This was agreed to and petitioner expended $25,000 for such special improvements and alterations in the plan for the building being erected in excess of the amount which would have been expended in completing the building under the plans first agreed upon had the building been completed by April 1, 1920. This extra cost of the building was such as would not have been*3439 necessary had petitioner been able to complete the building by April 1, 1920, but was due to the demands made by the Sinclair Oil Co., lessee, for the extension of the period for completion of the building to a later date. The petitioner claimed a deduction from gross income in the taxable years of a pro rata portion of the extra cost of $25,000 upon the life of the lease of five years. The Commissioner held that the $25,000 represented a part of the cost of the building to the petitioner and should be included in the total cost of the improvements and exhausted over the life of the building.
OPINION.
LITTLETON: The Board is of the opinion that the Commissioner did not err in denying the petitioner the right to amortize the amount of $25,000 over the five-year lease to the Sinclair Oil Co.
Although this amount probably would not have been expended in connection with the construction of the building had petitioner been able to complete the building by April 1, 1920, and the fact is that this expenditure was made necessary by reason of changes in the *869 plans of the construction of the building to suit the special needs of lessee in order to obtain the consent of*3440 the lessee to the completion of the building at a date subsequent to that originally agreed upon, the amount was none the less part of the cost of the building and can not be deducted from gross income over the five-year term of the lease. ; ; ; ; ; .