Winter Realty & Constr. Co. v. Comm'r of Internal Revenue
| Decision Date | 09 June 1943 |
| Docket Number | Docket No. 107310. |
| Citation | 2 T.C. 38 |
| Court | U.S. Tax Court |
| Parties | WINTER REALTY & CONSTRUCTION CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
OPINION TEXT STARTS HERE
1. Prior to the taxable years here involved portions of certain properties owned by petitioner were condemned and taken for street widening. The compensation for the taking was paid to petitioner in the taxable years 1932, 1935, and 1936. Held, under section 112(f) of the Revenue Acts of 1932, 1934, and 1936, petitioner did not expend any of the award money in the establishment of a replacement fund but did expend part thereof forthwith in good faith in the acquisition of other property similar or related in service or use to the property taken; held, further, in determining the amount of the gain to be recognized under the last sentence of section 112(f), the amount of ‘money which is not so expended‘ is the gross award less commission fees, special assessments levied against the remaining properties, and the amount expended in the acquisition of other property similar or related in service or use to the property taken.
2. During the taxable years 1935 and 1936 petitioner received in addition to the above awards certain amounts designated as interest. Held, the amounts so designated were not a part of the awards but were compensation for delay in payments, Kieselbach et al. v. Commissioner, 317 U.S. 399; held, further, the amounts so designated did not accrue as income until 1935 and 1936, when the final court decrees were entered, Patrick McGuirl, Inc. v. Commissioner, 74 Fed.(2d) 729, followed; held, further, the difference between the amounts so received and the amounts so reported in 1935 and 1936, was correctly added to income in those years by the respondent.
3. Upon the record, held, petitioner has not shown that its officers actually rendered any personal services that would call for a reasonable allowance for salaries or other compensation of an amount in excess of that determined and allowed by the respondent for the taxable years 1935 to 1938, inclusive. William Cogger, Esq., and Philip F. Biggins, Esq., for the petitioner.
Thomas H. Lewis, Jr., Esq., for the respondent.
This proceeding involves the determination by the respondent of deficiencies in income and excess profits taxes against petitioner in amounts and for taxable years as follows:
+----------------------------------+
¦Year¦Income tax¦Excess profits tax¦
+----+----------+------------------¦
¦1932¦$2,609.82 ¦ ¦
+----+----------+------------------¦
¦1935¦21,333.59 ¦$7,326.42 ¦
+----+----------+------------------¦
¦1936¦25,878.65 ¦13,240.82 ¦
+----+----------+------------------¦
¦1937¦2,006.30 ¦ ¦
+----+----------+------------------¦
¦1938¦127.90 ¦ ¦
+----------------------------------+
Petitioner has assigned eight errors as follows:
(a) For the year 1932 the Respondent erred in adding to Petitioner's income alleged capital gain of $23,527.98.
(b) For the year 1935 the Respondent erred in adding to Petitioner's income alleged capital gain of $125,735.57.
(c) For the year 1936 the Respondent erred in adding to Petitioner's income alleged capital gain of $101,116.10.
(d) For the year 1932 the Respondent erred by adding to Petitioner's income interest disallowed as a deduction, amounting to $3,415.67.
(e) For the year 1932 the Respondent erred by disallowing as a deduction taxes amounting to $9,600.33.
(f) For the year 1935 the Respondent erred by disallowing an interest deduction of $24,537.59.
(g) For the year 1935 the Respondent erred in disallowing officers' salaries of $8,400; and for the years 1936, 1937, and 1938 the Respondent erred in disallowing in each year, as officers' salaries, $19,200.00.
(h) For the year 1936 the Respondent erred by disallowing as an interest deduction $7,287.98.
In addition to the above adjustments to net income made by the respondent which petitioner has assigned as error, the respondent made adjustments to net income for the years 1932, 1935, 1937, and 1938 on account of depreciation which have been accepted by petitioner.
Petitioner is a corporation, with its principal office in Flushing, New York. Its returns for the periods here involved were filed with the collector of internal revenue at Brooklyn, New York. The returns were made on the accrual basis.
Issues (a), (b), and (c).— The respondent, in adjusting petitioner's net income for the years 1932, 1935, and 1936, added thereto as capital gain the amounts of $23,527.98, $125,735.57, and $101,116.10, respectively. In a statement attached to the deficiency notice he explained the adjustment for 1932 as follows:
(a) It is held that the profit realized from the condemnation of property by the City of New York constitutes taxable income since the proceeds of the awards were not forthwith expended in the acquisition of other property similar or related in service, or use to the property condemned; nor in the acquisition of control of a corporation owning such property; nor in the establishment of a replacement fund, in accordance with the provisions of section 112(f) of the applicable Revenue Acts.
(Here follows a computation resulting in a determination of profit of $23,527.98 from the condemnation of property for the year 1932.)
The respondent's explanation of the adjustments for 1935 and 1936 was the same as for 1932, except for the computation of the respective capital gains of $125,735.57 and $101,116.10.
At some time prior to November 4, 1931, the city of New York commenced proceedings for the condemnation and taking of property necessary to widen a public thoroughfare known as Northern Boulevard in Flushing, New York. Title to the property taken passed to the city of New York on November 4, 1931. A part of this property taken was at the time of the taking owned by petitioner and consisted of five parcels designated as parcels 2, 14, 29, 36a, and 31.
Petitioner was paid for this taking by the city of New York on dates and in amounts1 as follows:
+-------------------------------------------------------------------+
¦Date ¦Parcel No. ¦Designated as¦Designated as¦Total ¦
+------------+--------------+-------------+-------------+-----------¦
¦ ¦ ¦award ¦interest ¦ ¦
+------------+--------------+-------------+-------------+-----------¦
¦May 12, 1932¦2, 14, 29, 36a¦$107,978.40 ¦ ¦$107,978.40¦
+------------+--------------+-------------+-------------+-----------¦
¦May 12, 1932¦31 ¦61,486.20 ¦ ¦61,486.20 ¦
+------------+--------------+-------------+-------------+-----------¦
¦August 1932 ¦? ¦200.00 ¦ ¦200.00 ¦
+------------+--------------+-------------+-------------+-----------¦
¦Nov. 7, 1935¦2, 14, 29, 36a¦142,021.60 ¦$39,025.75 ¦181,047.35 ¦
+------------+--------------+-------------+-------------+-----------¦
¦May 4, 1936 ¦31 ¦118,513.80 ¦35,066.19 ¦153,579.99 ¦
+------------+--------------+-------------+-------------+-----------¦
¦June 4, 1936¦? ¦300.00 ¦ ¦300.00 ¦
+------------+--------------+-------------+-------------+-----------¦
¦Total ¦ ¦430,500.00 ¦74,091.94 ¦504,591.94 ¦
+-------------------------------------------------------------------+
In collecting these awards petitioner expended for legal fees $9,371.79 in 1932, $10,862.84 in 1935, and $10,750.60 in 1936, or a total of $30,985.23. The city of New York made an assessment against the remaining property in 1935 of $5,423.19, and, instead of issuing a warrant for the above total amount of $181,047.35, it issued two warrants, one for $5,423.19 and one for $175,624.16. The city of New York also made an assessment against the remaining property in 1936 of $6,946.95, and instead of issuing a warrant for the above total amount of $153,579.99, it issued two warrants, one for $6,946.95 and one for $146,633.04.
The amount of capital gain realized by petitioner (exclusive of interest) due to the taking of the above mentioned property was as follows:
+------------------+
¦1932 ¦$23,527.98 ¦
+-----+------------¦
¦1935 ¦125,735.57 ¦
+-----+------------¦
¦1936 ¦101,116.10 ¦
+-----+------------¦
¦Total¦$250,379.65 ¦
+------------------+
The amount of the awards with respect to parcels Nos. 2, 14, 29, and 36a was in litigation until settled on or about November 7, 1935. The amount of the award with respect to parcel No. 31 was in litigation until settled on or about May 4, 1936.
The above total awards (except the two awards of $200 and $300) were for land and buildings, respectively, as follows:
+------------------------------------+
¦Parcel No.¦Land ¦Buildings¦Total ¦
+----------+-------+---------+-------¦
¦2, 14 ¦$60,000¦$4,000 ¦$64,000¦
+----------+-------+---------+-------¦
¦29 ¦155,000¦22,000 ¦177,000¦
+----------+-------+---------+-------¦
¦36a ¦7,000 ¦2,000 ¦9,000 ¦
+----------+-------+---------+-------¦
¦ ¦222,000¦28,000 ¦250,000¦
+----------+-------+---------+-------¦
¦31 ¦170,000¦10,000 ¦180,000¦
+----------+-------+---------+-------¦
¦Total ¦392,000¦38,000 ¦430,000¦
+------------------------------------+
The nature of the above buildings which were compulsorily or involuntarily converted into money was as follows. On parcels 2 and 14 there was a two-story frame building. The first floor was used as a bicycle repair shop and a motorcycle salesroom. The second floor was occupied as an apartment. One tenant occupied that building for about five years preceding 1931. On parcel 29 there was a large brick warehouse erected about 1918 or 1919. It was one building divided by a curtain fireproof wall and was three stories high in front and two stories high in the rear. It also contained a concrete garage which was used for the storage of a moving van....
To continue reading
Request your trial
-
Casalina Corp. v. Comm'r of Internal Revenue
...by the District Court. Baltimore & Ohio Railroad Co., 29 B.T.A. 368, 373 (1933), affd. 78 F.2d 460 (C.A. 4, 1935); Winter Realty & Construction Co., 2 T.C. 38 (1943), modified on appeal on other issues 149 F.2d 567 (C.A. 2, 1945), certiorari denied 326 U.S. 754 (1945); William Justin Petit,......
-
Templeton v. Comm'r of Internal Revenue
...cert. denied 375 U.S. 922 (1963); Winter Realty & Const. Co. v. Commissioner, 149 F.2d 567, 569 (2d Cir. 1945), affg. on this issue 2 T.C. 38 (1943), cert. denied 326 U.S. 754 (1945); Gaynor News Co., supra at 1177; Massillon-Cleveland-Akron Sign Co., 15 T.C. 79, 82 (1950); Washington Marke......
-
Liant Record, Inc. v. CIR
...Bull. 517. But see earlier Tax Court cases, M. J. Calbeck Corp. v. Commissioner, 36 B.T.A. 452 (1937); Winter Realty & Constr. Co. v. Commissioner, 2 T.C. 38, 41, 45, 53-55 (1943) (as to the $51,116.25), aff'd in part and reversed in part without mentioning this issue, 149 F.2d 567 (2 Cir.)......
-
Loco Realty Company v. CIR
...a financial test". Washington Market Co., 1932, 25 B.T.A. 576, 584; Davis Regulator Co., 1937, 36 B.T.A. 437, 443; Winter Realty & Construction Co., 1943, 2 T.C. 38, 53. "Functionally the new building was not similar to or related in use to the old building". Lynchburg Nat'l Bank & Trust Co......