DocketNumber： Docket No. 30456.
Citation Numbers： 15 T.C.M. 88, 1956 Tax Ct. Memo LEXIS 281, 1956 T.C. Memo. 17
Filed Date： 1/20/1956
Status： Non-Precedential
Modified Date： 11/21/2020
1956 Tax Ct. Memo LEXIS 281">*281 Income: Sales: Unrecorded transactions. - Income from sales of real property was not recorded on accrual-basis taxpayer's books and not reported on his returns. Since contradictory evidence was absent, the Commissioner was held to have properly determined additional income from these sales for the taxable years.
Business expenses: Allocation of accounting charges. - Accountant's bill to taxpayer, intended as the total fee for services rendered and to be rendered in several tax matters against taxpayer and other interested parties, failed to show an allocation of charges. The Commissioner was sustained in his allocation of the amount which represented an ordinary and necessary business expenditure of the taxpayer.
Memorandum Findings of Fact and Opinion
OPPER, Judge: This is a related proceeding to those in Paul Haimovitz, Docket No. 15929, et al., decided by Memorandum Findings of Fact and Opinion filed this day [
| Fiscal Year Ended | |
| September 30 | Deficiency |
| 1944 | $1,792.31 |
| 1945 | 1,696.21 |
| 1946 | 3,016.76 |
Findings of Fact
Some of the facts have been stipulated and are hereby found.
Petitioner is a Florida corporation organized on or about October 1, 1932. Its principal place of business is in Tampa, Florida. Its income and excess profits tax returns for each of the fiscal years ended September 30, 1944 through September 30, 1946, were prepared by a certified public accountant and were filed with the collector of internal revenue for the district of Florida. Each of these returns was filed on an accrual basis.
In 1926 Ben Haimovitz, deceased, acquired the assets of a defunct lumber concern and engaged in the retail lumber and building materials business as a sole proprietorship until he1956 Tax Ct. Memo LEXIS 281">*283 incorporated petitioner in 1932 to take over and operate the business. On or about October 6, 1932, Ben transferred the assets of the proprietary lumber concern to petitioner. Ben, joined by his wife, Lillian Haimovitz, deceased, also transferred by deed on or about the same date certain real estate consisting of the following:
Englewood Subdivision
Lots 1, 2, 3, 4, 5, 6, and 7 of Block 12
Lots 1, 3, 4, 5, 15, 16, 17, and 18 of Block 13
Campobello Subdivision
Lot 4 of Block 5
Lots 8, 9, 10, and 11 of Block 6
Lots 8, 9, 10, and 11 of Block 12
Lots 1 and 2 of Block 17
Lots 2 and 3 of Block 19
Lot 1 of Block 20
Lot 11 of Block 24
Lots 7 and 8 of Block 34
Mount Carmel Subdivision
Lot 1 of Block 1
Garry Town Subdivision
Lots 9 and 12 of Block 13
Lot 8, Block 12, Campobello Subdivision, was sold to the First Born Church of Living God sometime prior to April 21, 1944. The south one-half of Lots 8 and 9, Block 6, Campobello Subdivision, was sold to Thomas Langston on or about March 26, 1945.
During each of the fiscal years ended September 30, 1944 through September 30, 1946, petitioner made sales of real estate. These transactions were not recorded on petitioner's1956 Tax Ct. Memo LEXIS 281">*284 books for any of the fiscal years in question. In addition, petitioner did not report any income from these transactions on its income tax returns.
For the fiscal year ended September 30, 1944, petitioner realized a profit from the sale of real estate described as Lot 8, Block 12, Campobello Subdivision, as follows:
| Sale Price | Net Cost | Net Profit |
| $2,000.00 | $619.00 | $1,381.00 |
| Cost Less | |||
| Sale | Depreciation Pre- | ||
| Property | Price | viously Allowed | Net Profit |
| South one-half, Lots 8 and 9, Block 6, Campo- | |||
| bello Subdivision | $1,800.00 | $250.00 | $1,550.00 |
| Lot 10, Block 6, Campobello Subdivision | 1,400.00 | 200.00 | 1,200.00 |
| Lot 11, Block 6, Campobello Subdivision | 1,500.00 | 200.00 | 1,300.00 |
| Sale Price | Cost | Net Profit |
| $6,600.00 | $900.00 | $5,700.00 |
Petitioner's profits of $1,381, $4,312.50 and $5,700 are properly includible in its net income for the respective fiscal years ending September 30, 1944, 1945 and 1946.
A certified public accountant was employed in 1943 by Ben, Lillian, and petitioner to represent them in pending income tax matters. At that time no notice of deficiency had been issued to any of these taxpayers. Each of them gave the accountant powers of attorney which he filed with the Bureau of Internal Revenue.
During the latter part of 1943 or early part of 1944, after several letters had passed between Ben and the accountant, the latter tendered a bill for an accounting fee in the amount of $5,250. Of this amount, $250 represented a charge for service rendered to petitioner up to that time. 1956 Tax Ct. Memo LEXIS 281">*286 The balance of the bill, $5,000, did not represent charges for accounting services rendered up to that time, but instead was intended as a payment toward whatever the total fee might be for services to be rendered in any of the tax matters pending against Ben, Lillian, petitioner, and the Haimovitz interests in general. This was the first bill that the accountant had tendered.
In its income tax return filed for the fiscal year ended September 30, 1944, petitioner claimed under Schedule K a deduction for audit and legal expense in the amount of $5,253. This deduction represented, to the extent of $5,000, the retainer fee charged by the accountant in connection with his employment by the Haimovitz interests. Respondent determined that of the deduction for audit and legal expenses claimed by petitioner, $2,500 of such amount was applicable to Ben and $250 was applicable to Lillian.
Of the deduction claimed by petitioner in the amount of $5,253 for audit and legal expense, $2,750 was not an ordinary and necessary expenditure incurred in its business.
Opinion
As the case is presented, but two issues remain, one relating to respondent's determination of additional income from real1956 Tax Ct. Memo LEXIS 281">*287 estate sales and the other to respondent's disallowance of a claimed expense deduction.
With respect to the first issue, we have found the facts in conformity with respondent's determination. The sales were admittedly made by petitioner and the possible character of only two of the sales appears from the record. The sale in fiscal 1944 appears to be a mortgage transaction and one of the sales in fiscal 1945 appears to be an "Agreement for Deed," although referred to as a mortgage by petitioner's witness. Notwithstanding this incomplete record and its failure to request any findings of fact, petitioner suggests that all of its sales are governed by our decision in
Respecting the second issue, the deficiency must also be sustained, this time on the testimony of petitioner's own witness. Petitioner paid a $5,000 retainer fee which was admittedly charged to cover an accountant's services with respect to Ben and Lillian as well as petitioner. No allocation1956 Tax Ct. Memo LEXIS 281">*288 of charges was made by the accountant or petitioner and the evidence shows that the accountant was engaged in work on all Haimovitz interests as a result of his employment. Petitioner apparently questions only the right of respondent to make any allocation rather than the amount of the allocation made. Under these circumstances we must sustain respondent's determination.
Decision will be entered for the respondent.