Garrett v. C.I.R., 072066 FEDTAX, 5410-64

Docket Nº:5410-64, 5427-64, 5428-64, 5429-64, 5430-64.
Opinion Judge:WITHLY, Judge:
Party Name:DAN L. and AURORA GARRETT, JR., ET AL.,[1] Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Gino P. Cecchi, for the petitioners. Sheldon N. Sisson, for the respondent.
Case Date:July 20, 1966
Court:United States Tax Court
 
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25 T.C.M. (CCH) 879 (1966)

T.C. Memo. 1966-170

DAN L. and AURORA GARRETT, JR., ET AL., [1] Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 5410-64, 5427-64, 5428-64, 5429-64, 5430-64.

United States Tax Court.

July 20, 1966

Gino P. Cecchi, for the petitioners.

Sheldon N. Sisson, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WITHLY, Judge:

The Commissioner has determined deficiencies in the income tax of the petitioners for 1960 as follows:

Name Docket No. Deficiency

Dan L. and

Aurora

Garrett, Jr. 5410-64 $1,773.48

Gerta Abeles 5427-64 1,265.28

Daniel Geller and

Mona Geller 5428-64 4,213.51

Serge J. Oblin 5429-64 779.35

Fredric Speier

and Christiane

Speier 5430-64 2,044.46

The issues presented are whether for the purpose of computing the partners' distributive shares of the ordinary net loss for 1960 for the partnership, Pacific Properties, the respondent correctly denied: (1) a deduction of $55,244.72 taken by the partnership in its return of income for the period February 26, 1960 through December 31, 1960, as a loss sustained on the demolition of the buildings on certain parcels of its real estate purchased by it during the foregoing period, and (2) a deduction of $2,276.36 taken by the partnership for depreciation on such buildings during the foregoing period. FINDINGS OF FACT Some of the facts have been stipulated and are found accordingly. Dan L. and Aurora Garrett, Jr., are husband and wife and filed their joint Federal income tax return for 1960 with the district director in San Francisco, California. Gerta Abeles filed her Federal income tax return for 1960 with the district director in San Francisco, California. Daniel Geller and Nona Geller are husband and wife and filed their joint Federal income tax return for 1960 with the district director in San Francisco, California. Serge J. Oblin filed his Federal income tax return for 1960 with the district director in San Francisco, California. Fredric Speier and Christiane Speier are husband and wife and filed their joint Federal income tax return for 1960 with the district director in San Francisco, California. Public hearings on a new zoning code for the City of San Francisco began in 1958 and in that year the Board of Supervisors of the City and County of San Francisco, California, adopted the text of a new zoning code for the city. Thereafter the Department of City Planning and the Planning Commission put into final form for public consideration a proposed zoning map. Public hearings on the proposed zoning map were held by the Planning Commission during the first 6 months of 1959 and by the Board of Supervisors intermittently from July 1959 until about November 1, 1959. On November 2, 1959, the Board of Supervisors adopted a zoning map which with the text of the new zoning code became effective 6 months thereafter, or on May 2, 1960. In 1959 and 1960, as well as at the time of the hearing herein, Thomas E. Pierce was a real estate broker licensed by the State of California and in 1960 owned and operated a real estate office under the name of T. Pierce & Company. Charles V. Elliott in 1959 and 1960 also was a real estate broker licensed by the State of California. On May 28, 1959, or prior thereto in 1959, a partnership known as A.E.P.G. Venture, sometimes hereinafter referred to as Venture, was formed and acquired real properties in San Francisco, California. Venture formally began operations on May 28, 1959, and was composed of the following partners with the respective indicated percentages of ownership:

Percentage of

Name ownership

Gerta Abeles 42.10

Charles V. Elliot 33.42

Thomas E. Pierce 12.46

Daniel Geller 12.02

Total 100.00

Pierce acted as manager of the Venture partnership. On the date Venture formally began operations, May 28, 1959, it acquired the following real properties known as: 1131-1135 Geary Street, being Lot 9, Block 714, in San Francisco, California, and 260-262 Myrtle Street, being Lot 9A, Block 714, in San Francisco. On March 7, 1959, Gerta Abeles as a representative of Venture had negotiated for the purchase of the property situated at 1131-1135 Geary Street, with the improvement thereon, namely, a 3-story frame building with a composition roof constructed in 1890 and consisting of 3 flats which had been made into apartments and with the furniture in the apartments, all of which was employed in the conduct of a rooming house both prior to and subsequent to Venture's acquisition thereof. A map attached to the instrument Gerta Abeles had executed for the purchase of the property at 1131-1135 Geary Street showed the following as other properties situated in Block 714 then available for purchase:

Lot 9A (260-262 Myrtle Street) Lot 8 (1137 Geary Street) Lot 10 (1125 Geary Street) Lot 6 (1150 Franklin Street)

As shown by the map, the properties composing Lots 8, 9A, and 10 were adjacent to the property at 1131-1135 Geary Street. Lot 6, a corner lot in the same block as all the foregoing properties, in addition to having frontage on Geary Street and Myrtle Street also faced on Franklin Street. The map also showed the Jack Tar Hotel as being situated immediately across Geary Street from the property situated at 1131-1135 Geary Street. The Jack Tar Hotel is a large hotel in San Francisco which was constructed in 1957 and 1958 and opened for business in 1959. On April 6, 1959, Gerta Abeles as a representative of Venture had negotiated the purchase of the property situated at 260-262 Myrtle Street. To obtain the proper amount of financing for the acquisition and development of the properties situated at 1131-1135 Geary Street and at 260-262 Myrtle Street, applications were made to savings and loan associations to ascertain the amount of the loans that would be granted with respect to such properties. On April 21, 1959, Charles V. Elliott, as agent for Venture, wrote a letter to Eureka Federal Savings and Loan Association, San Francisco, California, requesting a loan on the properties at 1131-1135 Geary Street and at 260-262 Myrtle Street. The letter read, in part, as follows: Please consider this request for a loan in amount of $26,000 to be secured by subject property. Your attention is invited to the major development now in process of construction on the entire square block facing this site. The undersigned, with three other responsible investors are purchasing the property as a permanent investment. A subsequent improvement of the realty will undoubtedly be planned at which time an appropriate payment on the loan will be expected. You will have first opportunity to provide construction and long term financing. At the present, your best term of years will be appreciated considering the age of the property. We are endeavoring to hold the monthly payments around $300.00 (approximately 10 years at 7%). The request for $26,000 is not inflated. The appraisal enclosed is submitted for convenience of your valuator. All areas have been accurately measured by the undersigned who is qualified as an appraiser by the Savings and Loan Commissioner for the State of California. The land was independently valued by an appraiser for Baldwin and Howell at $700.00 per front foot. Please call the undersigned or Mr. Pierce in this office. We will arrange access at your convenience. Your serious consideration of this request is earnestly solicited and we will sincerely appreciate a commitment. (Emphasis added.)...

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