Foehl v. Commissioner, Docket No. 82022.

• Decision Date: 31 March 1961
• Docket Number: Docket No. 82022.
• Citation: 1961 TC Memo 93,20 TCM (CCH) 418
• Parties: Charles A. Foehl, Jr., and Mary Mason Foehl v. Commissioner.
• Court: U.S. Tax Court

20 T.C.M. (CCH) 418 (1961)

T. C. Memo. 1961-93.

Charles A. Foehl, Jr., and Mary Mason Foehl v. Commissioner.

Docket No. 82022.

United States Tax Court.

Filed March 31, 1961.

James M. Keith, Esq., 100 N. St., Pittsfield, Mass., for the petitioners. Douglas D. Robertson, Esq., for the respondent.

Memorandum Findings of Fact and Opinion

SCOTT, Judge:

Respondent determined a deficiency in the petitioners' income tax for the year 1954 in the amount of $1,412.61. The question for decision is whether petitioners are entitled to a deduction of $1,891.80 as a loss incurred in a trade or business or a transaction entered into for profit.

Findings of Fact

The petitioners are husband and wife who now reside in Williamstown, Massachusetts. They filed a joint income tax return and an amended joint income tax return for the year 1954 with the district director of internal revenue for the district of Massachusetts.

In October 1948 petitioners purchased a 2-acre plot of land in Llewellyn Park, West Orange, New Jersey. This land had formerly been the site of a residence which had been torn down prior to petitioners' purchase of the property. The property had been landscaped and was planted with a number of trees. It was unimproved except for a swimming pool and two small 1-room bathhouses. The purchase price of the property was $12,958.55. Petitioners' purpose in buying the property was to build a personal residence thereon. Petitioners hired an architect who examined the site and drew up plans for a house. After the plans were drawn, petitioners decided that the cost of building a residence of the size they wanted was more than they were willing to spend at that time.

In 1950 petitioner, Charles A. Foehl, Jr., hereinafter referred to as petitioner, accepted an indefinite appointment as treasurer of Williams College, Williamstown, Massachusetts, and he and his family moved to Williamstown in October 1950. Prior to assuming his position as treasurer of Williams College, petitioner had been actively engaged in the practice of law in Newark, New Jersey. When petitioner accepted the appointment as treasurer of Williams College and moved to Williamstown, he planned to remain at Williamstown in that position for the remainder of his life or until such time as he might retire. Upon acceptance of the position as treasurer of Williams College, petitioner sold the home in which he and his family were then residing in South Orange, New Jersey.

Shortly before moving to Williamstown, Massachusetts in 1950, petitioners decided to dispose of the Llewellyn Park property as expeditiously as possible. Around the first of October 1950 petitioners placed the property in the hands of a realtor, listing it for rent or for sale. Petitioner was primarily anxious to dispose of the property but in the interim wanted to obtain what income he could from it. In November 1950 the West Orange, New Jersey area was subjected to a severe storm and most of the property in Llewellyn Park, including petitioners' property, was damaged. Petitioners had an appraisal made of the property and on the basis of such appraisal claimed in their 1950 income tax return a casualty loss of $5,000. As a result of an audit by an internal revenue agent this casualty loss was reduced to $4,000 and petitioners agreed to the reduction.

For approximately 2 to 3 months in the summer of 1951 petitioners' property was rented to the operators of a summer camp. The entire property was rented, but the primary use made of the property was of the swimming pool and bathhouses. The total rent paid for the property for the summer of 1951 was $150. Other than for this period in the summer of 1951, the Llewellyn Park property was never rented. In 1952 petitioner unsuccessfully negotiated with the operators of the summer camp who had rented the property in 1951 and also unsuccessfully negotiated with an association known as the Llewellyn Park Association as to the possibility of renting the Llewellyn Park property.

The Llewellyn Park property was sold by petitioners in January 1954 for $7,066.75. To petitioner's knowledge no offer of sale was received during the years 1950 to 1954 except the one which resulted in the final sale. Petitioners paid the real estate taxes on the Llewellyn Park property for all of the years between the time of its purchase and sale. Such taxes were between $500 and $600 a year. In the original income tax return filed by petitioners for the year 1954 they claimed a capital loss in the amount of $5,891.80 on the sale of the Llewellyn Park property, such amount being the difference between the cost of the property to petitioners of $12,958.55 and the selling price thereof of $7,066.75. Petitioners, in their amended return for the year 1954 filed on June 17, 1955, claimed a capital loss on this property in the amount of $1,891.80 which amount was the difference between an adjusted basis of $8,958.55 (arrived at by reducing the original cost by the $4,000 casualty loss which had been allowed in computing their 1950 income tax) and the selling price of $7,066.75. Respondent, in the notice of deficiency, disallowed the loss claimed in the original income tax return for 1954 in the amount of $5,891.80 on the ground that it did not constitute an allowable deduction within the scope of section 165 of the Internal Revenue Code of 1954.

Opinion

Petitioners contend that although the Llewellyn Park property was originally acquired as residential property, it was converted to business property in October 1950 when it was offered for rent or sale. Petitioners argue that at that time they had definitely abandoned the idea of building a personal residence on the property because of their decision to permanently move to Williamstown, Massachusetts. Petitioners take the position that the property either became property used in a trade or business and thus the loss one arising from a trade or business, or that the property had been appropriated to income-producing purposes and therefore the loss was one incurred in a transaction entered into for...