Hunter v. Commissioner

Carola Hunter v. Commissioner. Robert Hunter v. Commissioner.

Hunter v. Commissioner

Docket Nos. 111501, 111502.

United States Tax Court

1943 Tax Ct. Memo LEXIS 183; 2 T.C.M. (CCH) 502; T.C.M. (RIA) 43351;

July 24, 1943

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G. F. Hammond, Esq., for the petitioners. Lawrence R. Bloomenthal, Esq., for the respondent.

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STERNHAGEN

Memorandum Findings of Fact and Opinion

The Commissioner determined deficiencies in income tax for 1940 of $1,052.05 in Docket No. 111501, and $1,713.70 in Docket No. 111502. The only question is whether $6,209.81 spent in 1940 was for repairs and maintenance, and deductible as contended by the petitioners, or for permanent improvements and betterments, as determined by the respondent.

Findings of Fact

The petitioners, as partners, operated a farm of about 137 acres about fifteen miles from Youngstown, Ohio. Robert Hunter is president of Hunter Construction Company, of Youngstown, Ohio, engaged in the construction business.

The farm was bought by petitioner July 1, 1940, from one who had lived on it and operated it and agreed to continue. In September, 1940, he left the farm and a new tenant moved in.

The buildings on the farm, including a farmhouse, chicken coop, pigpen, sheep shed and dairy barn, were in bad condition, and the new tenant refused to move in until the place was thoroughly renovated. The farmhouse was over 155 years old. Walls were removed and others built in to enlarge the second floor. It was painted and redecorated. New concrete floors were laid in the chicken coop and pigpen and a concrete side wall was constructed in the chicken coop. Rotted or decayed boards were removed from all the buildings and replaced with new lumber. All the buildings, which appeared never to have been painted, were painted as were also farm machinery and equipment. The buildings had been equipped with electric lights but the installation had never been inspected and was reconditioned to meet the approval of county inspectors. Gutters, downspouts and roof slate were replaced.

In 1940, $743.49 was spent for dynamite, caps and fuses, to remove stumps and rocks to enlarge the fields. Buildings were damaged, consisting mostly of broken windows and sash, and petitioners paid $55.65 to repair the damage.

A creek which ran through the farm had formed an elbow extending toward the barnyard. This threatened erosion and serious damage. To prevent further damage, the elbow was removed by restoring the original bed of the creek. This was done at a cost of $1,313.94. To prevent erosion on other parts of the farm 2,063 lineal feet of trenches were dug in which drain file were laid at a cost of $337.90.

The following shows amounts spent for reconditioning the farm and buildings:

Dynamite, fuses and caps	$ 743.49
Repair damage to windows and sash
caused by dynamiting	55.65
Sand, gravel and cement, rental of
concrete mixer and operator, loan
of two men to mix concrete, haul-
ing timber to raise chicken coop
and pigpen, all to lay concrete
floor in coop and pen and con-
struct two-foot wall in chicken
coop	518.56
Lumber, nails and other supplies
for chicken coop and pigpen	176.65
Lumber. nails and other supplies to
recondition sheep shed	135.92
Paint, turpentine, brushes and other
supplies for painting outside of
farmhouse and other buildings and
equipment and machinery	537.84
To tinsmith, labor and supplies to
correct bad gutter condition, down-
spouts, replace slate fallen out on
roofs	132.67
Papering and painting inside of
farmhouse	215.92
Gravel, cement, lime, concrete blocks
used to recondition main dairy barn	153.14
Lumber, other supplies, and labor, to
recondition all buildings, but mostly
for farmhouse, including $5 for
mixer for sidewalks	956.97
Electrical supplies to correct electric
installation in chicken coop, pigpen
and farmhouse	62.09
Digging 2,063 feet of trenches and
drain tile	337.90
Relocation of creek bed	1,313.94
Sewer, tile, etc.	17.93
Sheets of heater tin, etc.	4.08
Miscellaneous items purchased from
July 22 to September 27, 1940	329.72
Total	$5,692.47

The following amounts were paid in 1940 for gasoline used in the operation of machinery on the farm, replacement of broken glass, and incidentals, such as lime, valves and bushings, and whitewash:

90 gallons of gasoline	$ 12.15
Two lights of glass to replace broken
windows	4.29
Lime, valves and bushings, white-
wash	4.12
Total	$ 20.56

The petitioners concede that the following items were not for repairs:

Electric switch, bathroom set, chicken
trough, sash cord, drain stoppers,
etc.	$ 8.16
Medicine cabinet for farmhouse	5.14
Outside flxtures and bath fixtures	11.57
4,500 feet of 2 x 6, nails and putty
(Petitioner unable to state where
these supplies were used)	286.91
Lime sewer	95.00
Saddle, bridle, blanket and other
miscellaneous items	30.00
Two pairs housings for harness	60.00
Total	$ 496.78

Opinion

STERNHAGEN, Judge: With the exception of the $20.56 paid for gasoline, glass, lime, whitewash, valves and bushings, the evidence shows that the expenditures made by the petitioners were for the purpose of improving and reconditioning the farm, not as an incident of current operation, - an ordinary and necessary expense of carrying on business, - but of putting it in shape and condition for permanent or indefinite operation; and this upon the assumption that it was to be operated as a business. Such expenditures are not deductible as expenses of operation but are added to the cost of the investment, to be recovered either through sale or depreciation throughout the life of the investment. See I. M. Cowell, 18 B.T.A. 997">18 B.T.A. 997,; Mertens, Law of Federal Income Taxation, § 25.30. Only the $20.56 is properly deductible; the deduction of the rest was properly disallowed.

Decision will be entered under Rule 50.