CHATHAM R.R. CO. v. COMMISSIONER

CHATHAM RAILROAD CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

CHATHAM R.R. CO. v. COMMISSIONER

Docket No. 9493.

United States Board of Tax Appeals

9 B.T.A. 94; 1927 BTA LEXIS 2671;

November 14, 1927, Promulgated

---

INCOME. - Prior to the taxable years petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the rental. The lessee paid the Federal tax upon the net income returned by petitioner for each year subsequent to the lease. Held, the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

James S. Y. Ivins, Esq., for the petitioner.

M. N. Fisher, Esq., for the respondent.

---

TRUSSELL

The Commissioner determined deficiencies in income taxes in the amounts of $14.61 for the calendar year 1921, $22.52 for the calendar year 1922, and $22.35 for the calendar year 1923. The issue involved is whether the payment, under the terms of a lease, of the lessor's income tax by the lessee constitutes additional income to the lessor.

FINDINGS OF FACT.

The Chatham Railroad Co. was during the taxable years here involved, a Massachusetts corporation with its principal office at Chatham. It was the owner of a railroad which it leased to the New York, New Haven & Hartford Railway Co. under a long term lease which provided, inter alia, that the lessee would pay the Federal income tax of the lessor. The income tax of petitioner for each year was payable and was paid by its lessee in the following year.

For the years 1921, 1922, and 1923 the tentative Federal income tax, as computed by the Commissioner, was $146.13, $180.17, and $178.75 for the respective years. The additional taxes proposed are predicated upon treating as additional income to the petitioner for the years 1921, 1922, and 1923, respectively, the amounts of the tentative income taxes.

OPINION.

TRUSSELL: The issue presented has been decided by the Board in the , and . Following those decisions, petitioner's taxes for the years 1921, 1922, and 1923 should be recomputed by including in income for each year the amount of the tax due and paid in that year by the lessee on petitioner's income of the next preceding year.

Judgment will be entered on 15 days' notice, pursuant to Rule 50.

Considered by LITTLETON, SMITH, and LOVE.