Gulf Coast Machine & Supply Co. v. Commissioner

Appeal of GULF COAST MACHINE & SUPPLY CO.

Gulf Coast Machine & Supply Co. v. Commissioner

Docket No. 1302.

United States Board of Tax Appeals

1 B.T.A. 757; 1925 BTA LEXIS 2804;

March 16, 1925, decided Submitted February 19, 1925.

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H. A. Mihills, C.P.A., for the taxpayer.

Benjamin H. Saunders, Esq., for the Commissioner.

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Before JAMES, STERNHAGEN, and TRUSSELL.

This appeal is from a proposed additional assessment of income and profits taxes for the year 1920 in the amount of $2,314.18, as set forth in the Commissioner's deficiency letter of November 4, 1924. At the hearing, the Commissioner's answer was amended in respect of the amount of depreciation so as to increase the amount of the deficiency asserted in the 60-day letter. The taxpayer claims a deduction for depreciation, wear and tear, and obsolescence of buildings, machinery, and other business assets, which the Commissioner has disallowed as excessive. From the taxpayer's petition, documentary evidence and oral testimony taken at the hearing, the Board makes the following

FINDINGS OF FACT.

The taxpayer is a corporation engaged in the business of manufacturing oil well supplies, drilling equipment, etc., and operating a general machine shop, with its principal office at Beaumont, Tex. It began business in the location occupied in 1920 in the year 1919. The property in question consists of a machine shop and other buildings situated on premises leased from the Santa Fe Railroad Co. under a year to year lease containing a clause whereby either party may, on 30 days' notice, terminate the lease. In contemplation of such termination of the lease, the taxpayer in 1922 acquired a tract of land nearby that might be used as a shop site. On this alleged anticipated termination of the lease the taxpayer bases its claim for obsolescence in 1920.

The machine shop and blacksmith shop are constructed of steel framing with corrugated iron sides and roofing, as is common in such buildings, the machine shop having a cement floor with a wooden covering. There are other wooden sheds and smaller buildings adjacent. Under the terms of the lease these buildings may be removed by the taxpayer. Because of topographical depression, the premises become flooded during rainy seasons, causing rust and other damage to the machinery and buildings.

The taxpayer claims a depreciation of 10 per cent on the machinery and equipment, and 20 per cent on the buildings, whereas the Commissioner allowed 5 per cent on the equipment and 10 per cent on the buildings. The present buildings have been occupied for seven years and are still in use. Machinery was acquired from time to time, the more expensive items, such as steam hammers, drills, and lathes, being bought second hand.

In arriving at valuations for depreciation purposes, the taxpayer has used the book value of the property at the close of the year 1920. The Commissioner proposes in his amended answer a computation based on an average of the values of the property at the beginning and at the end of the year, but no evidence was introduced on which to base the proposed computation.

DECISION.

The determination of the Commissioner of a deficiency in tax for the year 1920, in the amount of $2,314.18, is approved.