Gainer v. Commissioner, Docket No. 10166-86.
| Decision Date | 01 September 1988 |
| Docket Number | Docket No. 10166-86. |
| Citation | 56 TCM (CCH) 39,1988 TC Memo 416 |
| Parties | John B. Gainer v. Commissioner. |
| Court | U.S. Tax Court |
Richard G. Helzer, 621 S.W. Morrison, Portland, Ore., for the petitioners. William H. Quealy, Jr., for the respondent.
Respondent determined a deficiency in petitioner's Federal income tax for 1981 in the amount of $5,161 together with additions to tax under section 6653(a)1 in the amount of $258 and under section 6659 in the amount of $1,548. The parties have settled all issues except one: Whether petitioner is liable for the addition to tax imposed by section 6659. The resolution of that issue turns on whether the underpayment of petitioner's income tax for 1981 was attributable to a valuation overstatement within the meaning of that section.
All the facts are stipulated.
Petitioner was a resident of Palo Alto, California, when he filed his petition. On September 29, 1981, he paid $4,500 by check and executed a $21,500 promissory note for the acquisition of a 10-percent interest in a FoodSource container. On his income tax return for 1981, petitioner claimed a depreciation deduction and an investment tax credit with respect to the container even though it was neither placed in service nor made available for use in that year. He computed the deduction and credit by using a tax basis of $26,000 or 10 percent of $260,000 for his interest in the container. The fair market value of the FoodSource container was between $52,000 and $60,000, and petitioner's basis in his interest was only $4,500, the amount of his cash investment.
The pertinent language of section 6659 on which the disputed addition to tax depends is as follows:
Section 167(a) provides for a depreciation deduction with respect to property "used" in a "trade or business" or "held for the production of income." Section 48(a) in general terms limits "section 38 property," for which an investment tax credit is allowable, to property for which a depreciation deduction is allowable. Under these sections as well as more explicit language in other sections and in the regulations, depreciation deductions and investment tax credits are allowable only if the property is placed in service or is available for use during the taxable year. See secs. 38(a), 46(a)(1), 46(c)(2), 48(a), and 167(a) and secs. 1.46-3(d)(1), 1.167(a)-10(b), and 1.167(a)-11(e)(1)(i), Income Tax Regs.
A taxpayer's basis for the property, on the other hand, is a factor in computing the amounts of the depreciation deduction and the investment tax credit. Secs. 46(c) and 167(g); sec. 1.46-3(a) and 1.167(g)-1, Income Tax Regs. If the taxpayer overstates his basis in computing either his depreciation deduction or investment tax credit, an underpayment of tax may ensue.
Petitioner contends that, within the meaning of section 6659, his underpayment of tax for 1981 was "attributable to" the fact that the FoodSource container was not placed in service and was not available for use in that year and that, therefore, the addition to tax is not applicable. Respondent recognizes that petitioner is not entitled to the claimed depreciation deduction and investment tax credit because the container was not placed in service and was not available for use in 1981. Respondent argues, however, that petitioner's underpayment of tax was also attributable to his overstatement of his basis for the container. Because of the overstatement of basis, respondent maintains that the addition to tax is applicable.
In Todd v. Commissioner Dec. 44,294, 89 T.C. 912 (1987), on appeal (5th Cir., Jan. 26, 1988), this Court was faced with similar contentions involving almost identical facts with respect to a FoodSource container. In the light of a careful analysis of the language and legislative history of section 6659 and the related section 6621(c) (previously sec. 6621(d)), this Court held that the underpayments of tax in that case were not "attributable to" an overstatement of basis but to the fact that the container was neither placed in service nor available for use in the tax year before the Court. We adhere to that holding.
In view of the stipulation that petitioner's basis for the container was $4,500, petitioner's overstatement of its basis alone would not support a denial of the entire depreciation deduction and investment tax credit claimed on his return. In contrast, the failure to place the container in service or have it available for use in the tax year supports a denial of the full amount of the deduction and credit. Petitioner is not entitled to any...
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