Ames v. COMMISSIONER OF INTERNAL REVENUE

• Citation: 9 BTA 1336
• Decision Date: 16 January 1928
• Docket Number: Docket No. 8895.
• Parties: JOHN S. AMES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

9 B.T.A. 1336 (1928)

JOHN S. AMES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 8895.

Board of Tax Appeals.

Promulgated January 16, 1928.

Burton E. Eames, Esq., for the petitioner.

John W. Fisher, Esq., for the respondent.

The Commissioner determined a deficiency of $4,006.72 in income tax for 1920 and an overassessment of $801.47 in income tax for 1919, and mailed notice thereof to the petitioner under date of September 11, 1925. On November 9, 1925, the petitioner filed with the Board an appeal from such determination of the Commissioner.

FINDINGS OF FACT.

The petitioner is a resident of North Easton, Mass., with his place of business in Boston, Mass.

The petitioner is one of the sons of Frederick L. Ames, who deceased on or about September 13, 1893. Under the will of said Frederick L. Ames, a certain trust was created for the benefit of the petitioner, which so far as is here material, provided that the income thereof was to be paid to him during his natural life and at his decease the principal was to be distributed among his children. Similar trusts were created for the benefit of other children of the decedent.

In 1902 the trustees under the will of said decedent purchased a building at 304-306 Boylston Street, Boston, Mass., of which a one-half undivided interest therein was purchased for the trust of which the petitioner is the life beneficiary and the other undivided one-half interest for the similar trust of which a brother of the petitioner was the life beneficiary. The building upon such property was several stories high. At the rear there was an extension one story in height.

From the time of the purchase until June 1, 1914, the first floor and part of the basement were occupied by a florist. From 1914 to 1919 this portion of the property was vacant during part of the time and during the remainder of such period was occupied by a committee for French wounded and by the Belgian relief committee at a nominal rental. From the date of acquisition to 1919 only the most urgent of repairs were made to the building and in the latter year it was in poor condition. Under date of May 7, 1919, the trustees entered into a lease of the first floor and a portion of the basement for a period of five years from July 1, 1919. The lessee was to use the property as a tea room and restaurant. Under the terms of the lease the lessor was to expend not more than $7,500 in repairs and alterations upon the premises and if more was spent the excess was to be paid by the lessee in equal monthly payments over the term of the lease.

During 1919, the trustees paid out $26 for repairs to such property and $3,831.42 for alterations in such leased portion of the premises. It also paid rental commissions of $487.50 for securing the lease. During the year 1920, the trustees expended $1,667 for repairs to said premises and $6,091.20 for alterations to such leased portion of the premises. Upon their books of account for the trust of which petitioner was beneficiary the trustees charged one-half of the amounts so expended to an account known as "Alterations and Repairs," a part of their capital accounts. During the year 1919, $922.46 of this amount was charged to income and deducted from income distributed to the petitioner. During 1920, the trustees transferred $1,139.80 of this amount from such account to the income account and deducted such amount from the income distributed to the petitioner. During 1921 and 1922, the balance of such expenditures was charged to income account and deducted from the income distributed to the petitioner. The trustees prepared and filed their accounts as trustees with the probate court of the County of Bristol, Mass., in which accounts said expenditures were charged against the income of the life beneficiary in the amounts shown by the books of the trustees, as aforesaid, and which accounts were duly approved by the Judge of said probate court. In computing the deficiency the Commissioner refused to allow the deduction of any portion of said payments.

OPINION.

PHILLIPS:

In computing the distributive share of the petitioner in the net income of the trust estate of which he was the life beneficiary, the Commissioner refused to allow as a deduction any part of the expenditures made by the trustees during the years 1919 and 1920, on the ground that the...