Brecklein v. Bookwalter

• Decision Date: 15 July 1964
• Docket Number: Civ. A. No. 13236-4.
• Citation: 231 F. Supp. 404
• Parties: Joseph H. BRECKLEIN and Frances R. Brecklein, Plaintiffs, v. Edwin O. BOOKWALTER, Defendant.
• Court: U.S. District Court — Western District of Missouri

231 F. Supp. 404

Joseph H. BRECKLEIN and Frances R. Brecklein, Plaintiffs, v. Edwin O. BOOKWALTER, Defendant.

Civ. A. No. 13236-4.

United States District Court W. D. Missouri, W. D.

July 15, 1964.

Watson, Ess, Marshall & Enggas, by Samuel J. Molby and Russell W. Baker, Kansas City, Mo., for plaintiffs.

F. Russell Millin, U. S. Atty., by William A. Kitchen, Asst. U. S. Atty., Kansas City, Mo., Robert W. Ryan, Jr., Atty., Dept. of Justice, Washington, D. C., for defendant.

BECKER, District Judge.

In this suit for refund of income taxes for the year 1957 in the sum of $9,222.62 (or, in the alternative, in the sum of $4,161.17) the following facts appear from the discovery proceedings, the pre-trial proceedings, the admissions of the parties, and hearing on the plaintiffs' motion for summary judgment. The motion for summary judgment was expanded into a plenary evidentiary hearing on the separate issue of alleged discrimination.

FACTS

On June 25, 1954, the City of Kansas City, Missouri, enacted Ordinance No. 17974 authorizing the acquisition and construction of offstreet parking facilities for the business district in and around the intersections of 31st Street and Linwood Boulevard with Troost Avenue. The ordinance determined the district which was deemed to be benefitted from the proposed improvements and against which special assessments would be made in accordance with Sections 151 and 152 of the Charter of Kansas City. The plaintiff Joseph Brecklein, individually and as trustee, owned real property in the benefit district.

In due course, pursuant to the ordinance and City Charter, special tax bills were issued against business rental properties owned by the plaintiff Joseph Brecklein individually and as trustee, as follows: Special tax bills Nos. 77 and 79 in the total amount of $9,114.30 were issued against the property owned by Joseph Brecklein as trustee. Special tax bill No. 78 in the amount of $10,315.00 was issued against the property owned by plaintiff Joseph Brecklein individually.

Under the terms of the tax bills the principal sum could be paid in one lump sum without interest, or in five annual installments with 6 per cent interest on the unpaid balances.

On January 15, 1957, plaintiff Joseph Brecklein, individually and as trustee, paid the special assessments of tax bills Nos. 77, 78, and 79. Thereafter on or before April 15, 1958, Joseph Brecklein and the plaintiff Frances Brecklein, his wife, filed a joint individual income tax return for 1957 in which they did not deduct as an expense the payment of the special assessment paid on the individual property of Joseph Brecklein.

On or before April 15, 1958, Joseph Brecklein as trustee filed a fiduciary income tax return in which the special assessment paid as trustee was not deducted as an expense. However on June 3, 1960, the plaintiff Joseph Brecklein as trustee filed an amended fiduciary return for 1957, claiming an additional expense deduction of $10,315.00.

On November 21, 1958, and June 7, 1960, the plaintiffs filed claims for refund of an alleged overpayment of income taxes resulting from failure to deduct the special assessments paid in 1957. (The plaintiffs were affected individually by the trust property assessment because Joseph Brecklein was a beneficiary of the trust and obligated to report and pay taxes on the individual income reflected by the fiduciary return.)

THE WIRTHMAN BUILDING

In the same Kansas City special benefit district in which plaintiff Joseph Brecklein owned the business rental properties involved in this case, a partnership owned a business rental property known as the Wirthman Building. A special assessment for the proposed offstreet parking improvement was made against this building. The owners elected to pay the assessment in five annual installments. The partnership fiscal year ended on January 31 of each year. For the fiscal year ended January 31, 1958, the Wirthman Building owners capitalized the first installment. Later, after revocation of the determination letter hereafter mentioned, the owners capitalized the installments paid during the fiscal years ended January 31 of 1961 and 1962.

But in the returns for the fiscal years ended January 31 of 1959 and 1960, the installments paid were deducted as ordinary and necessary business expenses under the authority of the following determination letter of June 18, 1959, issued by the District Director:

"Wirthman Building c/o Norman Asher 134 North LaSalle Chicago, Illinois

"Gentlemen:

"This refers to your letter dated June 5, 1959, relative to the deductibility for Federal income tax purposes, of benefit assessments made against your property at 3100 Troost Avenue, Kansas City, Missouri, for installing and maintaining public parking lots.

"The information submitted in your letter, and information in this office, discloses that the Wirthman Building is a partnership operating a business office building at 3100 Troost Avenue, Kansas City, Missouri. Partnership income tax returns, Form 1065, are filed in the Kansas City, Missouri District. In 1954 the City of Kansas City passed an ordinance authorizing the acquisition of off-street parking facilities for the 31st and Troost District and providing for the assessment of benefits in the benefit district. The partnership became a member of the 31st and Troost Off-Street Parking Association and made a deposit of $2,500.00 in 1957 for the purpose of participating in certain costs. Their share of the benefit assessments made by the City amounted to $12,910.00 which can be paid over a period of five years. The first payment of the assessment was made in June, 1957. You request to be advised whether such benefit assessments are deductible for Federal income tax purposes as ordinary and necessary business expenses. The Special Ruling of May 21, 1958, in the case of the City of Bismarck, North Dakota, was cited as the basis for your contention that the benefit assessments are deductible as the installments are paid.

"The purpose of the parking space in the Bismarck special ruling, and in your case, are similar. In both instances the basic purpose was to provide parking space for a particular commercial district and to advance the ecomonic sic activity of the district. The conclusion in the Special Ruling was stated as follows:

"`Upon the basis of the information submitted, it is the conclusion of this office that the assessments described constitute allowable deductions by taxpayers engaged in a trade or business in the area involved as ordinary and necessary business expenses under Section 162 of the Internal Revenue Code of 1954, provided the taxpayer can show that such payments are reasonable, bear a direct relationship to his business and are made with a reasonable expectation of a financial return commensurate with the amount paid.'

"`Since the question is a factual one, final determination will be made by the appropriate field office after examination of the return of any taxpayer claiming the deduction.'

"In view of the foregoing, it is the opinion of this office that the benefit assessments paid for the cost and maintaining of parking lots in the 31st and Troost district are ordinary and necessary business expenses. This opinion is subject, however, to any final determination, after examination of returns already filed, of whether such payments are reasonable, bear a direct relationship to your office building business, and were made with a reasonable expectation of a financial return commensurate with the amount paid.

"Very truly yours "E. O. BOOKWALTER DISTRICT DIRECTOR "Lester V. Lechliter Chief, Audit Division"

This determination letter was revoked by a letter dated January 12, 1961, as follows:

"Wirthman Building c/o Norman Asher 134 N. LaSalle Chicago, Illinois

"Gentlemen:

"This refers to our letter addressed to you under date of June 18, 1959, relating to the deductibility for Federal income tax purposes of certain benefit assessments. These assessments were levied by the City of Kansas City, Missouri, against your property located at 3100 Troost Avenue, specifically for the purpose of providing funds with which to furnish off-street parking facilities.

"The opinion expressed in our letter was predicated upon a ruling issued by the Tax Rulings Division of the National Office covering similar assessments by the City of Bismarck, North Dakota. In that ruling, it was held (subject to a factual determination to the contrary) that the assessments appeared to be allowable as business expense under Section 162 of the Internal Revenue Code of 1954.

"Further consideration has been given this matter, and it is concluded that the assessments are for local benefits of a kind tending to increase the value of the property assessed. Under the provisions of Section 164 (b) (5) of the Internal Revenue Code of 1954 and the applicable regulations, assessments of this type are neither deductible for income tax purposes as a tax or as a business expense. See Rev.Rul. 60-327, Internal Revenue Bulletin 1960-42, page 12, dated October 17, 1960.

"In view of the foregoing, our letter dated June 18, 1959, no longer reflects the position of this office. Accordingly, no deductions should be claimed for the special assessments referred to above in the returns filed henceforth by the partnership.

"Very truly yours "Lester V. Lechliter Chief, Audit Division "WMTraver:vc"

The Wirthman Building letter revocation was applied prospectively only, leaving the deductions of two installments undisturbed by retroactive application of the letter of revocation.

THE BISMARCK, NORTH DAKOTA, RULING

The Wirthman Building determination letter followed a ruling issued on May 21, 1958, to the City of Bismarck, North Dakota, by the Acting Director, Tax Rulings Division, concerning the deductibility for federal income tax purposes of special assessments against commercial properties to finance off-street parking facilities. (No...