Cowell v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 31 January 1930 |
| Docket Number | 17431,23372-23374.,Docket No. 17430 |
| Parties | I. M. COWELL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. H. E. COWELL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. S. H. COWELL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Max Thelen, Esq., for the petitioners.
R. W. Wilson, Esq., for the respondent.
These proceedings were consolidated for hearing. The amounts of the deficiencies and the amounts in controversy are as follows:
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| Docket | | Amount of | Amount in
| No. | Year | deficiency | controversy
-------------------------------------|--------|---------|------------|------------
| | | 1920 | $3,856.56 | $3,856.56
I. M. Cowell _______________________ | 17430 | The issues are: (1) Whether the respondent erred in including in the taxable income of I. M. Cowell and H. E. Cowell for 1920, 1921, and 1923, interest on certain time certificates of deposit; and (2) whether the petitioners, I. M. Cowell, H. E. Cowell, and S. H. Cowell, are entitled to deduct for 1923 their proportionate shares of certain expenditures for the repair and remodeling of a hotel building owned jointly by them.
In Docket Nos. 17430 and 17431, issues pleaded as to the inclusion of certain rents and salaries in gross income were not urged at the hearing and are, therefore, regarded as abandoned.
In Docket Nos. 23373 and 23374, the respondent determined over-assessments for 1922 and contests the jurisdiction of the Board.
FINDINGS OF FACT.
The petitioners are individuals with principal office at 2 Market Street, San Francisco, Calif. During the years 1919 to 1923, inclusive, they kept their books on the cash receipts and disbursements basis.
The Wells Fargo Nevada National Bank of San Francisco, now the Wells Fargo Bank & Union Trust Co., issued to Isabella M. Cowell five time certificates of deposit: Nos. 1514, 1515, and 1516, dated April 10, 1919, for $50,000 each; No. 1517, dated April 10, 1919, for $37,396.84; and No. 1577, dated January 21, 1920, for $27,396.88. It issued to Helen E. Cowell two similar certificates, No. 1518, dated April 10, 1919, for $50,000, and No. 1520, dated April 10, 1919, for $43,233.53. Certificate No. 1514 is typical and is as follows:
Time
CERTIFICATE OF DEPOSIT
NOT Subject to Check
SAN FRANCISCO, CAL. Apr. 10 1919 191 — No. 1514
ISABELLA M. COWELL has deposited with
WELLS FARGO NEVADA NATIONAL BANK 11-16
of San Francisco.
FIFTY THOUSAND 00/100 Dollars $50000oo/100 payable to the order
of SELF ON TEN DAYS NOTICE FROM EITHER THE PAYEE OR THE BANK
ON OR BEFORE ONE YEAR AFTER DATE after date, on the return of
this Certificate properly endorsed, with interest at the rate of THREE
per cent per annum.
This Certificate is not Payable Until
Due, and Interest Ceases at Maturity.
E. L. ROURKE J. E. JACKSON
Accountant.
Cashier.
All of the certificates were issued on the printed form generally used by the bank for time certificates of deposit, and were identical with those generally issued, except for the words and figures shown in italics in the certificate set out above. The words specifying time of payment varied according to the terms under which each certificate was issued and the time at which it was payable.
The bank maintains a certificate of deposit register covering certificates issued by it. Therein the record of the aforesaid certificates of deposit is as follows:
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| | | | | Rate, | | |
Date | Number | Favor | Time | Amount | per | Interest | Interest | Paid
| | | | | cent | due | paid |
---------------|--------|----------------|-----------------------|------------|-------|----------|----------|---------------
Apr. 10, 1919 | 1514 | Isabella M. | On 10 days' notice | $50,000.00 | 3 | ________ | ________ |
| | Cowell. | from either the | | | | |
| | | payee or the bank, | | | | |
| | | 1 year after date. | | | | |
Do _______ | 1515 | ____ do _____ | _____ do ____________ | 50,000.00 | 3 | ________ | ________ |
Do _______ | 1516 | ____ do _____ | _____ do ____________ | 50,000.00 | 3 | 1,175.34 | 1,175.34 | Jan. 21, 1920
Do _______ | 1517 | ____ do _____ | _____ do ____________ | 37,396.84 | 3 | 879.19 | 879.19 | Do
Do _______ | 1518 | Helen E. | _____ do ____________ | 50,000.00 | 3 | ________ | ________ |
| | Cowell. | | | | | |
Do _______ | 1520 | ____ do _____ | _____ do ____________ | 43,233.53 | 3 | ________ | ________ |
Jan. 21, 1920 | 1577 | Isabella M. | 10 days' notice on or | 27,396.84 | 3 | 20.27 | 20.27 | Jan. 31, 1920
| | Cowell. | before 1 year. | | | | |
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The register is the only record maintained by the bank relating to certificates of deposit. When a certificate is paid, the date of payment is entered in the "Paid" column. The payment on the date appearing in that column always includes the payment of the principal, plus whatever interest may be due, and the entry of the date always indicates a complete liquidation of the account. Certificates Nos. 1514, 1515, 1518, and 1520 have never been paid; and the bank has not paid, nor has it credited on its books or set apart, to the holders, any interest on the certificates. Certificates Nos. 1516, 1517, and 1577 were cashed in January, 1920, and interest thereon from the date of issuance to date of payment was paid at the same time.
In the year 1923 the petitioners, I. M. Cowell, H. E. Cowell, and S. H. Cowell, were the joint owners of a hotel building in Stockton, Calif., known as the Trethaway Hotel Building. The building was in need of many repairs and replacements, and substantial alterations were made to comply with local building regulations. The electric wiring and plumbing were replaced; a new heating system was installed; the interior was reconstructed so as to provide direct light and air to rooms which did not previously have it, which involved jacking up the entire building and placing steel supports for the superstructure. The roof, forty-eight windows, the sheet metal facing on the front of the building, and the rain-water leaders and boxes were replaced; and repairs and replacements were made to the plaster, concrete in rear yard and front sidewalk, sidewalk doors, locks, and window shades. The interior and exterior of the building were painted and the walls were repapered.
A contract was entered into for the performance of this work, and the work was performed in 1923 at a total cost of $32,719.53.
The concrete in the yard at the rear of the building was cracked and uneven, and the specifications submitted to the contractor called for the repair of the yard. The cost of repairing the concrete was $122.
The sidewalk doors, which are made of iron, were buckled and the I-beams or channel iron with which they were reinforced were taken off and reriveted and the doors were straightened to follow the contour of the sidewalk at a cost of $28.
Many of the old doors had locks from which the keys were missing, and the locks were repaired and placed in working order at a cost of $22.
The plastering was cracked and marred throughout the full area from moving furniture, and was patched up by cutting out the cracks and refilling with new plaster, after which the rooms were papered over the plaster. The cost of this work was $1,300.
Decayed rain-water leaders and boxes were repaired and replaced at a cost of $150.
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