DocketNumber: Docket No. 29340
Citation Numbers: 1952 U.S. Tax Ct. LEXIS 148, 18 T.C. 690
Judges: Opper,Raum,Raum,Opper
Filed Date: 6/30/1952
Status: Precedential
Modified Date: 1/13/2023
1952 U.S. Tax Ct. LEXIS 148">*148
18 T.C. 690">*690 The respondent has determined a deficiency in income tax for 1943 in the amount of $ 13,417.40. The petitioner contends that there is no deficiency and that he has overpaid the 1943 tax to the extent of $ 11,377.78, for which he has 1952 U.S. Tax Ct. LEXIS 148">*150 filed claim for refund. The question is whether the petitioner is entitled, under
The petitioner filed his return with the collector for the first district of New York. The facts have been stipulated.
FINDINGS OF FACT.
We find the facts as stipulated and incorporate herein by reference the stipulation of facts. The material facts are as follows:
Prior to 1943, the petitioner conducted a civilian school for technological training in aviation, the Aviation Institute of Technology, 18 T.C. 690">*691 located in Long Island City, New York. At some time prior to 1943, the United States Army made a contract with the petitioner for the training of soldiers at the Aviation Institute. The petitioner did not own the property where the school was located.
On January 29, 1943, the petitioner purchased the property where the school was located for $ 125,834.25, 1 after receiving from the War Department a Certificate of Necessity which certified that1952 U.S. Tax Ct. LEXIS 148">*151 the property was necessary in the interest of national defense during the emergency period.
The petitioner owned the property where the Aviation Institute was located, hereinafter called the "emergency facility," until June 7, 1945. On that date title passed to the United States Government under a Declaration of Taking in condemnation of the property for use by the United States. The Government paid the petitioner $ 200,000 for the property. Although title passed to the Government on June 7, 1945, 2 petitioner did not receive payment of the full consideration under the condemnation until January 1946.
The Secretary of War did not ever issue a certificate1952 U.S. Tax Ct. LEXIS 148">*152 that the emergency facility had ceased to be an emergency facility.
The emergency period, for purposes of
In his income tax return for 1943, the petitioner duly elected, under
On November 21, 1945, the petitioner forwarded to the Commissioner a written statement of election to terminate the amortization period with respect to the emergency facility as of September 30, 1945, for the purpose of computing deductions for amortization of the basis of the emergency facility under
The petitioner has filed a timely claim for1952 U.S. Tax Ct. LEXIS 148">*154 refund of income tax for 1943 in the amount of $ 11,377.78, in which he has stated as the ground for the refund that "An additional amortization deduction, with respect to emergency facilities should be allowed in 1943 due to termination of the amortization period on September 30, 1945, by presidential proclamation," and by which he has made claim that he is entitled to recompute the amortization deduction for 1943 on the basis of a 32-month period instead of a 60-month period. The respondent has denied the claim for refund and the claim for recomputation of the amount of the amortization deduction for 1943 and for other years on the basis of the shorter amortization period of 32 months.
The statute of limitations for refund of income tax as well as for assessment of additional tax for the years 1944, 1945, and 1946 will not expire before June 30, 1952.
The petitioner obtained permission in 1946 from the Commissioner, under section 112 (f) of the Code and section 29.112 (f)-2 of Regulations 111, to establish a replacement fund with the proceeds he received for the property -- the emergency facility -- which was taken by the Government in 1945 by condemnation for the use of the Government; 1952 U.S. Tax Ct. LEXIS 148">*155 and in 1947 the petitioner invested $ 121,820.99 of such fund in similar, replacement property. He has filed an amended return for 1946 in which he has reported the recognizable capital gain from the emergency facility to be $ 71,929.01. 4 The petitioner, in his returns for the years 1947 to 1950, both years inclusive, has not claimed any depreciation deductions with respect to the replacement property which he acquired in 1947.
OPINION.
The question is whether the petitioner is entitled, under
1952 U.S. Tax Ct. LEXIS 148">*158 Although the question to be decided relates only to the year 1943, the year before us in this proceeding, the issue will affect the year 1944 if the question is decided for the petitioner.
The respondent has determined that the petitioner did not have the right to make the election under
The petitioner, prior to 1943, conducted an aviation training school which was located on leased property. He had a contract with the 18 T.C. 690">*694 United States Army for the training of soldiers at his school. He gave consideration to the matter of investing his capital in the property. Before he did so, he was granted a Necessity Certificate by the War Department which certified that the property was necessary in the interest of national defense during the emergency period. He invested his capital in the property in January 1943, and he elected, in his income tax return for 1943, to take amortization deductions under
The view of the respondent, under the facts of this proceeding, represents a very narrow interpretation of all of the provisions of
It is clear that the Congress intended to make a liberal provision for the amortization of an emergency facility by allowing the amortization at an accelerated rate; and that
Reading
The petitioner in this proceeding was in a position to receive the benefits of
To say that the petitioner could not properly compute the amortization deductions on his emergency facility for 1945, in his income tax return for 1945, on the basis of an amortization period ending on September 30, 1945, is wholly unrealistic. The return for 1945 was due after the event had occurred which ended the emergency period. The petitioner knew all of the statutory facts on the basis 18 T.C. 690">*696 of which an adjustment in the length of the amortization period could be made. The Commissioner, in his regulations, has taken the view that "The reasonableness of any claim for depreciation shall be determined upon the conditions known to exist at the end of the period for which the return is made." Regs. 111, pp. 125, 126; sec. 29.23 (l)-5. He duly notified the Commissioner of his election to take amortization deduction on the basis of the shorter period of, in his case, 32 months; and he actually computed the amortization deduction1952 U.S. Tax Ct. LEXIS 148">*164 for 1945 on that basis. If it was proper for the petitioner to make the computation for 1945 on that basis, it must inevitably follow as a matter of logic that he is entitled under the provisions of
It is not material under the facts in this proceeding that the property passed from the petitioner during 1945 under a condemnation award by which the petitioner received consideration for the property so taken. We are dealing here with amortization in lieu of depreciation, and the theory involved in the allowance of depreciation deduction applies with equal validity. That theory, as set forth in the Commissioner's regulations, is that a depreciation allowance is necessary because of the
Property may be completely depreciated during the period a taxpayer
1952 U.S. Tax Ct. LEXIS 148">*166 18 T.C. 690">*697 It is necessary for the parties to make recomputation under Rule 50, in the course of which the petitioner will take into consideration revisions of the
The respondent's determination is reversed.
Opper,
The fact that in our prior case there was a tax-free liquidation in 1943 with an accompanying intercompany transfer certainly constitutes no discernible distinction for at least three reasons. First, the
Congress has plainly said of the Presidential proclamation terminating the emergency: "* * * In such case the amortization period with respect to such facility
Raum,
As Judge Opper points out, our decision in
1. The petitioner now agrees that $ 3,500 legal fees are part of the cost of the property, so that the cost was $ 129,334.25.↩
2. The petitioner now admits that he became divested of title on June 7, 1945.↩
3. The amortization deductions taken in all the returns, and claimed, are based on cost of $ 125,834.25. The amortization deductions claimed for 1943 and 1944 on the basis of a 32 month period are, respectively, $ 43,255.52 and $ 47,187.85, total $ 90,443.37. The recomputation of amortization deductions on the basis of the shorter period of 32 months, represents increases of the amortization deductions for 1943 and 1944 in the respective amounts of $ 20,185.91 and $ 22,021.↩
4. Because of adjustments which must be made in the basis and in the correct amounts of amortization allowances, the amount of capital gain will be revised to correspond with the adjustments which the parties are agreed must be made.↩
5.
6. See pp. 127, 128 of Hearings before the Committee on Finance on H. R. 10413, Second Revenue Act of 1940 (revised print), Sept. 3, 4, 5, 1940, 76th Cong. 3d Sess.↩
1. "Senator George. The whole theory being that they are entitled to get back their cost for a facility constructed primarily and exclusively for national-defense purposes?
"Mr. Sullivan. That is correct, Senator George." Hearings before the Senate Committee on Finance on the Second Revenue Act of 1940, 76th Cong., 3d Sess., p. 128.↩