Asthmanefrin Co. v. Comm'r of Internal Revenue, Docket No. 51339.

• Decision Date: 29 February 1956
• Docket Number: Docket No. 51339.
• Citation: 25 T.C. 1139
• Parties: ASTHMANEFRIN COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

25 T.C. 1139

ASTHMANEFRIN COMPANY, INC., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 51339.

Tax Court of the United States.

Filed February 29, 1956.

Where, under Oregon law, there was no lien for taxes attached to real estate at the time of the acquisition of such property in April and there was no personal liability for such taxes, the vendee who purchased the property previous to the lien date, and paid the taxes in November of the taxable year, is entitled to deduct such taxes under section 23(c), I.R.C. 1939, and is not required to add the amount of such taxes to the cost of the property. Frank H. Spears, Esq., and Cody W. Shatley, Esq., for the petitioner.

Wendell M. Basye, Esq., for the respondent.

OPINION.

VAN FOSSAN, Judge:

Respondent determined a deficiency of $404.38 in petitioner's income tax for the year 1949. The deficiency was, in part, consequent on respondent's holding that the sum of $746.50 expended by petitioner in November and December 1949 for the payment of 1949-1950 real property ad valorem taxes on two parcels of real estate acquired by petitioner in April 1949, should be capitalized as a part of the cost of such property and that such sum was not deductible from gross income as taxes paid. This holding gives rise to the sole issue. A second issue stated in the petition has been conceded by the taxpayer.

With the exception of the one statement adduced by oral testimony— i.e., that the real property taxes for the year 1948-1949, which were prorated pursuant to contract, were capitalized on the 1949 tax return, all facts were stipulated.

Respondent contends that the taxes were assessed on January 1, 1949, the date the description of the real property to be assessed was entered on the assessment roll. Petitioner contends that the entry on the assessment roll as of January 1, 1949, was but the first step in the taxing process; that the tax was thereafter subject to revision by the board of equalization in the month of May and did not become final and a lien against the property until July 1, 1949; that when petitioner acquired the property in April, the tax was not a lien on the property; that no part of the tax was due and payable until November 1949; that under the Oregon tax statutes there was no personal liability for real property ad valorem taxes except in the single instance where the value of the real property has been or may be substantially dissipated, removed, or destroyed by the owner thereof or by his authority.

In brief the stipulated facts are:

Petitioner is an Oregon corporation located in Portland, Oregon, and filed its corporation income tax return for the year 1949 with the then collector of internal revenue at Portland, Oregon.

Petitioner kept its books and filed its income tax returns on an accrual basis of accounting on the basis of the calendar year.

On or about March 30, 1949, the petitioner, as purchaser, and Rychen M. Paddack and Juanita W. Paddack, as sellers, entered into a contract for the purchase and sale of certain land with a building thereon located in the City of Portland, County of Multnomah, State of Oregon. The contract provided that the real property taxes for the fiscal year commencing July 1, 1948, and ending June 30, 1949, were to be prorated between the parties on a fiscal year basis. No mention or agreement whatsoever was made in the contract for the payment of the real property taxes for the fiscal year commencing July 1, 1949, and ending June 30, 1950. Pursuant to the contract the real property was duly conveyed by Rychen M. Paddack and Juanita W. Paddack to petitioner on April 13, 1949, by a warranty deed dated April 13, 1949, recorded April 28, 1949, in Book 1332 at page 490, Deed Records of Multnomah County, Oregon.

On or about April 8, 1949, the petitioner, as purchaser, and T. R. Asbahr and Florence N. Asbahr, as sellers, entered into a contract for the purchase and sale of certain land located in the City of Portland, County of Multnomah, State of Oregon. The contract provided that the real property taxes for the fiscal year commencing July 1, 1948, and ending June 30, 1949, were to be prorated between the parties on a fiscal year basis. No mention or agreement whatsoever was made in the contract for the payment of the real property taxes for the fiscal year commencing July 1, 1949, and ending June 30, 1950. Pursuant to the contract the land was duly conveyed by T. R. Asbahr and Florence N. Asbahr to petitioner on April 25, 1949, by a warranty deed dated April 25, 1949, recorded April 26, 1949, in Book 1332 at page 154, Deed Records of Multnomah County, Oregon.

On November 7, 1949, the petitioner paid the sum of $679.72 to the sheriff and tax collector of Multnomah County, Oregon, for property taxes assessed on the real property acquired April 13, 1949. The taxes paid November 7, 1949, were assessed January 1, 1949, for the tax year beginning July 1, 1949, and ending June 30, 1950.

On December 5, 1949 the petitioner paid the sum of $66.78 to the sheriff and tax collector of Multnomah County, Oregon, for taxes assessed on the tract of land acquired April 25, 1949. The taxes paid December 5, 1949, were assessed January 1, 1949, for the tax year beginning July 1, 1949, and ending June 30, 1950.

The real property acquired by petitioner on April 13, 1949, was...