Aboussie v. United States, 83-1710C(C)
| Decision Date | 19 October 1984 |
| Docket Number | 83-1711C(C).,No. 83-1710C(C),83-1710C(C) |
| Citation | 600 F. Supp. 32 |
| Parties | Alex A. ABOUSSIE and Alice Aboussie, Plaintiffs, v. UNITED STATES of America, Defendant. Robert G. ABOUSSIE and Linda M. Aboussie, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
Gerald Zafft, St. Louis, Mo., for plaintiffs.
Ludwig Adams, Tax Div., Dept. of Justice, Washington, D.C., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case is before the court upon a filing of a claim for refund and the denial thereof.
After consideration of the pleadings, the testimony and exhibits introduced at trial, the credibility of the witnesses, the parties' supplemental briefs and the applicable law, the Court makes the following additional and further findings of fact and conclusions of law. Any finding of fact equally applicable as a conclusion of law is adopted as such, and conversely, any conclusion of law equally applicable as a finding of fact is so adopted.
1. This is an action for the refund of federal individual income taxes.
2. Plaintiffs Alex A. Aboussie and Alice Aboussie, husband and wife, reside at 6736 Eichelberger Avenue, St. Louis, Missouri 63109.
3. Plaintiffs Robert G. Aboussie and Linda Aboussie, husband and wife, reside at 9849 Sunset Greens Drive, St. Louis, Missouri 63127.
4. On their timely-filed Form 1040 return for 1978, Alex A. and Alice Aboussie reported a tax liability of $63,802.00. The tax was paid in full as of April 15, 1979 and the tax was assessed on August 6, 1979.
5. On their timely-filed Form 1040 return for 1978, Robert G. and Linda Aboussie reported a tax liability of $9,447.00. The tax was paid in full as of April 15, 1979 and the tax was assessed on August 6, 1979.
6. On August 15, 1981, Alex A. and Alice Aboussie filed a Form 1040X amended return for 1978 seeking refund of $5,227.00 in tax based upon their distributive share of an alleged loss of the partnership Bevo Place Associates.
7. On August 15, 1981, Robert G. and Linda Aboussie filed a Form 1040X amended return for 1978 seeking refund of $3,742.00 in tax based upon their distributive share of an alleged loss of the partnership Bevo Place Associates.
8. By letters dated May 2, 1983, the claims for refund were disallowed by the Internal Revenue Service.
9. Bevo Place Associates is a Missouri limited partnership formed pursuant to an Agreement of Limited Partnership dated July 19, 1978 for the stated purposes, among others, of acquiring, owning, developing, improving, maintaining and operating an apartment complex in accordance with the provisions of Section 221(d)(4) of the National Housing Act (12 U.S.C. § 1701 et seq.) and Section 8 of the U.S. Housing Act of 1937 (42 U.S.C. § 1437f et seq.).
10. The partners of Bevo Place Associates and their respective partnership interests were:
Name Percentage
Bevo Place, Inc. (Gen. Partner) 1.0%
Medigroup, Inc. (Ltd. Partner) 49.5%
Alex A. Aboussie (Ltd. Partner) 24.75%
Robert G. Aboussie (Ltd. Partner) 24.75%
11. In 1977, Gershman Investment Corp. applied to the Missouri Housing Development Commission (hereinafter referred to as "MHDC") for a loan of $4,950,000.00 to finance low-income housing for the elderly. On December 21, 1977, MHDC issued a Conditional Commitment to lend $4,764,800.00 for the project. On September 20, 1978, MHDC issued a Firm Commitment to lend $4,950,000.00. The Commitment provided that the interest rate on the construction loan was 6% per annum and the interest rate on the permanent loan was 7½% per annum. The Commitment further provided for the payment of a financing fee of 2% of the amount of the loan and a permanent loan fee of 1½% of the amount of the loan, and for the payment of 1% processing fee to Gershman Investment Corp. at initial endorsement, subject to the assignment of FHA's Firm Commitment by Gershman to MHDC.
12. On August 17, 1978, the U.S. Department of Housing and Urban Development, Federal Housing Administration ("FHA") issued its Commitment for Insurance of Advances to Gershman Investment Corp. On September 28, 1978, Gershman Investment Corp. assigned the Commitment to Bevo Place Associates.
13. Also on September 28, 1978, various other documents were executed, including a Building Loan Agreement between MHDC and Bevo Place Associates under the terms of which the following items, among others, were to be paid from the proceeds of the building loan.
a. Interest during construction $222,749.00
b. Real estate taxes 5,000.00
c. FHA mortgage insurance premium 49,500.00
d. Initial service charge 99,000.00
e. MHDC fee 74,250.00
f. Legal, organization & cost
certification 32,500.00
g. Supplementary management
fund 19,800.00
The term of the loan was from September 28, 1978, through August 1, 2020, bearing interest at 6% through Final Endorsement for the construction portion of the loan and 7½% thereafter for the permanent portion of the loan.
14. Subsequent to September 28, 1978, construction commenced and was substantially complete on June 11, 1980.
15. On or about July 14, 1981, a loan closing ("Final Endorsement") was held.
16. Pursuant to draw requests made by Bevo Place Associates, and approved and funded by MHDC, Missouri Title Company disbursed during 1978 the following amounts, among others:
Description Payee Amount
a. Interest MHDC $ 7,468.00
b. Taxes St. Louis 2,434.00
c. Mortgage Insurance FHA 24,750.00
d. Service Charge MHDC 99,000.00
e. MHDC Fee MHDC 74,250.00
f. Legal Fees Medigroup, Inc. 5,000.00
g. Management Fee Medigroup, Inc. 4,950.00
Out of the initial service charge of $99,000.00 paid to MHDC, MHDC paid Gershman Investment Corp. a processing fee of $49,500.00.
17. Plaintiffs have conceded that no portion of the $74,250.00 paid to the MHDC is deductible in 1978 and this court so finds.
18. The suits for refund were filed on July 19, 1983. Plaintiffs claim deductibility in 1978 of items a, b, and g, and portions of items c, d, e, and f, set forth in paragraph sixteen above.
1. This court has jurisdiction over this action pursuant to 28 U.S.C. 1346(a)(1).
2. The expenses at issue in this case are expenses incurred in the construction and acquisition of a capital asset and, therefore, are not deductible in 1978, but must be capitalized and amortized over the life of the Bevo Place Apartments beginning in 1980 when the asset was placed in service. Under 26 U.S.C. 263(a)(1) no deduction is allowable for amounts paid out for new buildings or for improvements made to increase the value of any property. Legal, brokerage, accounting and similar costs incurred in the acquisition or disposition of capital assets are capital expenditures. Woodward v. Commissioner, 397 U.S. 572, 576, 90 S.Ct. 1302, 1305, 25 L.Ed.2d 577 (1970); Blitzer v. United States, 684 F.2d 874, 893, 231 Ct.Cl. 236 (Ct.Cl.1982). The capitalization rule set forth in Section 263(a) serves to prevent a taxpayer from utilizing currently a deduction properly attributable, through amortization, to later years when the capital asset becomes income producing. Commissioner v. Idaho Power Company, 418 U.S. 1, 16, 94 S.Ct. 2757, 2766, 41 L.Ed.2d 535 (1974). "Capital expenditures" include the cost of acquisition of buildings. The items for which plaintiff seeks a deduction were costs of acquisition and construction. Therefore, the expenses at issue must be amortized over the longer life of the capital facility constructed.
3. The Mortgage insurance premium ($24,750.00), the MHDC fee ($74,250.00) and the management fee ($4,950.00) are construction related expenses and as such must be capitalized under the rule of Idaho Power, supra. The term of amortization is the entire life of the Bevo Place Apartments.
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Aboussie v. U.S.
... ... Alex A. ABOUSSIE, Alice Aboussie, Robert Aboussie and Linda ... Aboussie, Appellants, ... UNITED STATES of America, Appellee ... No. 84-2627 ... United States Court of Appeals, ... Eighth ... ...