APPEAL OF HUB, INC., Docket No. 3553
| Decision Date | 19 April 1926 |
| Docket Number | Docket No. 3553,3554. |
| Parties | APPEAL OF THE HUB, INC. |
| Court | U.S. Board of Tax Appeals |
James W. Ewing, W. D. Jamieson, and Harry Friedman, Esqs., for the taxpayer.
Robert A. Littleton, Esq., for the Commissioner.
Before GRAUPNER, TRAMMELL, and PHILLIPS.
Taxpayer appeals from the determination of deficiencies of $9,397.01 and $8,725.26, income and profits taxes for the fiscal years ended January 31, 1920, and January 31, 1921, respectively. The taxpayer alleges that the Commissioner committed error in refusing to allow as paid-in surplus the value of a leasehold acquired by the taxpayer as a gift from its principal stockholder, and in disallowing as a deduction from gross income for each of the years concerned an allowance for exhaustion of such leasehold. The questions involved are identical as to each of the appeals, and at the hearing the appeals were consolidated.
FINDINGS OF FACT.
The taxpayer is a West Virginia corporation with its principal office at Wheeling.
In or about the year 1893, one Fridenberg acquired the lot and building on the northeast corner of Market and Fourteenth Streets, in the City of Wheeling. Fridenberg was not a resident of Wheeling and the property was called to his attention by one Sonneborn, the husband of Fridenberg's youngest sister. Some time prior to 1906, Sonneborn entered into the possession of the property for the purpose of conducting a department store, and placed on the property improvements costing between $50,000 and $60,000. In 1906 the taxpayer was organized and the business was transferred to it, Sonneborn becoming and remaining the principal stockholder. During the years involved, Sonneborn owned approximately 75 per cent and additional stock was owned by his sons.
In 1906 Sonneborn obtained a lease upon said premises at the annual rental of $4,800. This lease was not assigned to the taxpayer, which occupied the premises as a subtenant and paid Sonneborn rental at the rate of $10,000 per year. This lease expired on March 31, 1912. Under date of August 26, 1912, a lease of these premises was entered into between Fridenberg and Sonneborn, effective for a period of 15 years from April 1, 1912, at an annual rental of $10,000, payable quarterly. Shortly after the execution and delivery of such lease, and on or about April 1, 1913, Sonneborn delivered the lease to his son, an officer of the taxpayer, on behalf of the corporation, making an oral assignment thereof to the corporation, and it was placed in its safe. From and after April 1, 1913, all rental becoming due under the lease was paid by the taxpayer directly to Fridenberg.
The premises were well located in the principal shopping district of Wheeling, and on April 1, 1913, the lease had a fair market value of $42,000.
Both parties appear to concede the fact that the lease acquired by Sonneborn in 1912 was acquired by him in his individual capacity and not as a representative of the corporation of which he was president. Prior to that time the taxpayer had been his tenant, and there is nothing that would justify us in reaching any conclusion other than that this lease was taken by...
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