George v. Commissioner of Internal Revenue, Docket No. 31032
| Citation | 22 BTA 189 |
| Decision Date | 17 February 1931 |
| Docket Number | 47788.,Docket No. 31032 |
| Parties | EDWIN S. GEORGE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Raymond H. Berry, Esq., and C. Frederic Stanton, Esq., for the petitioner.
Hartford Allen, Esq., for the respondent.
These proceedings, which were consolidated for hearing and decision, were brought for the redetermination of deficiences in income tax for the years 1923, 1924, 1925, 1926, and 1927, in amounts as follows:
1923 _____________________________________ $6,301.57
1924 _____________________________________ 9,503.55
1925 _____________________________________ 8,596.98
1926 _____________________________________ 5,571.41
1927 _____________________________________ 2,305.92
The issues are: (1) The value as of March 1, 1913, of various parcels of land sold by petitioner in the years 1923, 1924, 1925, 1926, and 1927, respectively; (2) whether or not losses sustained by the petitioner in the years 1926 and 1927 in the operation of certain orchards were losses incurred by him in a trade or business.
Petitioner alleged, among other things, that the respondent erred by refusing to allow the deduction from gross income of the sum of $500 which was contributed by petitioner during the year 1925 to the Woodward Avenue Improvement Association of Detroit, Mich. At the hearing of this proceeding the respondent, by his counsel, conceded that such deduction should be allowed.
A fourth allegation of error contained in the petition has been abandoned by the petitioner.
FINDINGS OF FACT.
About the year 1906 the petitioner built a residence in the Bloomfield Hills section of Oakland County, Michigan. His residence and the land immediately surrounding it were located on a road known as the Long Lake Road. At the time of the hearing of this proceeding the petitioner had occupied this property as his permanent residence from the year 1908 or 1909. From 1909 to 1918 he bought land in the immediate neighborhood of his home at varying prices per acre, until in 1918 he owned more than 1,100 acres. This property embraced land bordering on three lakes known as Forest Lake, Island Lake, and Lower Long Lake. Petitioner's residence was situated on the shores of Lower Long Lake. These lakes are known as "unmeandered" lakes. Title to property on an unmeandered lake extends into the bed of the lake, while title to property on meandered lakes extends only to the meandered line of the lake. Meandered lakes are public lakes but unmeandered lakes are private property. Petitioner owned almost all of the land surrounding these three lakes as well as nearly the whole of the lakes themselves. He could control the purpose for which the lakes were to be used. There were also two other much smaller lakes on petitioner's property, and about 40 per cent of his total holdings was under water. In the year 1913 petitioner purchased about 28 acres of land which had no lake frontage. This was the first purchase made by him of land without water frontage. This purchase cost petitioner $12,000, or at the rate of approximately $428 per acre. This land was close to petitioner's home, but was on the south side of Long Lake Road, the other property owned by the petitioner at that time being north of Long Lake Road. In 1914 petitioner purchased 70 acres of land without water front for about $357 per acre, and in 1916 he purchased 120 acres for approximately $600 per acre. This latter land had a small frontage on Island Lake.
With the increase in the use of the automobile during the years immediately prior to 1913 the lake property in Oakland County, Michigan, was in increasing demand for residential purposes and the value of property with lake frontage appreciated largely from 1907 or 1908 to 1913. Meanwhile the Long Lake Road had been improved through the efforts of the petitioner and others, and it had become a good gravel road, well adapted to use by automobiles. The distance from Lower Long Lake to the City Hall in Detroit was 22½ miles. Access to the petitioner's property from Detroit was by way of Woodward Avenue and Long Lake Road, Woodward Avenue being the leading thoroughfare between Detroit and the Bloomfield Hills section, and the drive by automobile from the petitioner's property to Detroit by way of Woodward Avenue and Long Lake Road occupied a little more than an hour in time. There was also an electric street car service between Detroit and Bloomfield Center, which place was at the junction of Long Lake Road and Woodward Avenue. Bloomfield Center was about four miles from petitioner's property. The electric street car line from Detroit was operated under a 20-minute headway, and a trip from Detroit to Bloomfield Center required a little over an hour in time. In 1913 the Grand Trunk Railroad had a line from Detroit to Birmingham, Mich., which latter place was six miles from petitioner's property.
Before and during the year 1913 prominent citizens of Detroit were purchasing tracts of land in the neighborhood of petitioner's property for residential purposes, and expensive residences were being erected thereon. At that time, however, none of petitioner's property was in the market for sale. It had not been subdivided into lots, was not platted until the year 1921, and none of it was offered for sale until the latter year. However, in 1913, when selling property bordering on the lakes in the Bloomfield Hills section, it was customary to sell such property at a price per front foot. In 1912 an automobile club bought 100 feet of land fronting on Pine Lake, which was about two miles from Lower Long Lake, and paid $7,000 for such land, namely, at the rate of $70 per front foot. In 1913 a 75-foot frontage on Pine Lake was sold for $6,000, or at the rate of $80 a front foot, and in that year a contract was made to sell a frontage of 280 feet on the same lake for $21,000, or at the rate of $75 a front foot. Lots located on Pine Lake sold in 1912 and 1913 were 400 feet in depth. The property on Pine Lake was not platted or subdivided in 1913. In that year such property was not in general as desirable as land fronting on Lower Long Lake, for the reason that Pine Lake was a meandered lake and the public had access to it, while the public could be excluded from Lower Long Lake because that lake was an unmeandered lake. Lower Long Lake also was nearer than Pine Lake to the city of Detroit. However, the demand for Pine Lake property developed more quickly than for property located on other nearby lakes because of the presence of the automobile club at Pine Lake.
In or about the month of May, 1913, 210 feet of lake frontage on Lower Long Lake were sold. This property was included in the small part of the shore frontage of Lower Long Lake which was not owned by the petitioner. It was sold in two parcels of 105 feet frontage each, one parcel being sold for $5,000 and the other for about $4,000 or at a front-foot rate of $48.60 and a little over $38, respectively. The parcels so sold were from 200 feet to 250 feet in depth. Figured as acreage, these parcels were sold for between $8,000 and $10,000 per acre. There was also sold a small strip on the easterly side of Lower Long Lake, measuring about 30 feet in depth and 20 feet on the lake front. The price for this small parcel was $600. The parcels on Lower Long Lake sold in 1913 were similar in type to those sold by petitioner in the years 1923, 1924, 1925, 1926, and 1927 which are in question in this proceeding. Petitioner's land, bordering on the lakes embraced within his property, rose from the edge of the lake in knolls or bluffs, the higher bluffs being more valuable for residential purposes than the lower. A small part of the petitioner's land on the shore of Lower Long Lake was swampy and not suitable for residential purposes, the same condition being true to some extent of the shore of Forest Lake. In 1913 petitioner's property surrounding the lakes referred to consisted of a large number of acres which were behind the line of the lots sold in the years in question as lake-front property. In that year the land back of the lakes, which is referred to in the evidence as land on the hills, had an acreage value of approximately $400. Most of this part of petitioner's property was wooded. In 1913, however, the property immediately contiguous to the shores of the lakes was the most valuable portion of petitioner's property, the shore property on Forest Lake, because of its contour, being somewhat less...
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