Gloyd v. Commissioner of Internal Revenue, 9226.

• Decision Date: 12 April 1933
• Docket Number: No. 9226.,9226.
• Citation: 63 F.2d 649
• Parties: GLOYD v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

63 F.2d 649 (1933)

GLOYD v. COMMISSIONER OF INTERNAL REVENUE.

No. 9226.

Circuit Court of Appeals, Eighth Circuit.

March 2, 1933.

Rehearing Denied April 12, 1933.

George E. H. Goodner, of Washington, D. C., for petitioner.

Helen R. Carloss, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and W. Frank Gibbs, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before STONE and KENYON, Circuit Judges, and CANT, District Judge.

KENYON, Circuit Judge.

Certain of petitioner's income taxes for the years 1924, 1925, and 1926 are involved in a petition for review by this court of a decision of the United States Board of Tax Appeals. The facts are these: Petitioner, a resident of Kansas City, Mo., was prior to 1918 a member of a partnership (consisting of himself and a brother, A. M. Gloyd) engaged in the lumber business, and later in the real estate business. This partnership owned a two-thirds interest in an office building in Kansas City known as the Gloyd building, and also owned a warehouse known as the Ward building. In 1918 A. M. Gloyd died, and petitioner wound up the affairs of the partnership under court direction. These two buildings and the land upon which they were situated were sold on October 30, 1920, at public auction to the Gloyd Realty Company for $700,000. This company was a corporation composed principally of petitioner and some relatives. It was organized less than a month prior to the sale for the purpose of bidding up or buying in the partnership interest in these buildings. Petitioner advanced three-fourths and S. M. Gloyd one-fourth of the $700,000. This sale was contested by the widow of the deceased partner, but it was finally approved by the Supreme Court of Missouri in May, 1922. Petitioner, who had managed the properties as surviving partner pending final approval of the sale, deeded them after such approval to the Gloyd Realty Company. This company immediately dissolved and made distribution of its assets to its stockholders on May 22, 1922. Petitioner in this way obtained an undivided three-fourths interest in the Ward building and a one-half interest in the Gloyd building, which he held through the years 1924, 1925, and 1926.

Petitioner sought in his computation of taxable income for these years a deduction for depreciation annually on these buildings. The Commissioner of Internal Revenue allowed annual depreciation on the two buildings at the rate of 2½ per cent. on a valuation of $475,000. Before the Board of Tax Appeals, as shown by its opinion, both parties agreed that for the years in question a reasonable allowance for exhaustion, wear and tear, and obsolescence of petitioner's property in these two buildings under the Revenue Act of 1924, c. 234, §§ 204 and 214, 43 Stat. 253, and the Revenue Act of 1926, c. 27, §§ 204, 214, 44 Stat. 9 (26 US CA §§ 935, 955 and notes) should be measured at the rate of 2½ per cent. There is no dispute as to that. The dispute is as to the proper basis for the application of the percentage rate. Petitioner claimed that the deduction on account of depreciation should be on a basis of a valuation of $350,000 for the Gloyd building, and $850,000 for the Ward building as of May 22, 1922, the date he acquired his interest in these buildings. The Board held the basic date of valuation for depreciation purposes was May 22, 1922, and this holding is accepted by both parties hereto as correct. The Board held that the evidence supported a valuation as to the Gloyd building of $350,000. The controversy as to this building therefore passes out of the picture. As to the Ward building, the Board found the evidence supported a valuation of $400,000 (exclusive of land) on May 22, 1922, and that petitioner was entitled to an annual depreciation reduction of 2½ per cent. for the years in question on his three-fourths interest therein.

Petitioner claims the Board erred in this finding, and that it should have found a value of $850,000. This question is one of fact, and the Board's finding thereon will be sustained if there is substantial evidence to support it. Denver Live Stock Commission Co. v. Commissioner of Internal Revenue (C. C. A. 8) 29 F.(2d) 543; Feeders' Supply Co. v. Commissioner of Internal Revenue (C. C. A. 8) 31 F.(2d) 274; Burkett v. Commissioner of Internal Revenue (C. C. A. 8) 31 F.(2d) 667; Franciscus Realty Co. v. Commissioner of Internal Revenue (C. C. A. 8) 39 F. (2d) 583; Williams v. Commissioner of Internal Revenue (C. C. A. 8) 44 F.(2d) 467; Russell et al. v. Commissioner of Internal Revenue (C. C. A. 1) 45 F.(2d) 100; Refling v. Burnet, Commissioner of Internal Revenue (C. C. A. 8) 47 F.(2d) 859.

The Ward building was nine stories high, and contained approximately 576,000 square feet of store space. It was well located in Kansas City for a warehouse. When built, it was leased to Montgomery Ward & Co. for a period of twenty years from January 1, 1911, at an annual rental of $76,150.

Petitioner introduced six expert witnesses, experienced real estate agents and dealers in Kansas City, who testified to the value of the Ward building, some of them testifying as to such value exclusive of the grounds on which the buildings were located, and others including the grounds. Witnesses Waller, Guignon, McKecknie, Carey and Hagerman placed values on the building alone as of May 22, 1922, ranging from $812,000 to $1,531,200. Witness Halvorson placed a value on the Ward building and grounds of $1,000,000.

Respondent offered no testimony, but the Board of Tax Appeals evidently was not willing to accept at its full face value the evidence of the experts. In referring to them, its opinion says: "The evidence in respect of the Ward Building supports a value of $400,000. The witnesses who gave their opinions gave too little consideration to the fixed rentals and the duration and terms of the lease. For nine years the gross rent was fixed and the owner was required to bear substantial expenses. This would undoubtedly have held the value down in 1922 below the figure which might have been arrived at if the property were economically free. The evidence does not, and perhaps could not, supply a definite figure of value in these circumstances. We think that $400,000 is a fair market evaluation of the building. Petitioner's interest was $300,000 and his depreciation deduction for each year is therefore $7,500."

Petitioner claims that the Board of Tax Appeals was not authorized to disregard the undisputed testimony of the experts and substitute its own opinion; that there was no showing that the Board had special knowledge of the property involved, or special qualifications of an expert witness on real estate valuations; that the Board, in finding a valuation of $400,000, set up its own arbitrary evaluation, with no evidence whatever upon which to base it.

Of course, there must be substantial evidence to support the finding of the Board or it cannot stand, but we do not understand the law to be that the Board is compelled to accept the evidence of experts as to values of property. It is within its province to accept such evidence in toto, in part, or not at all. Its weight is with the trial Board, and its worth is for its sound judgment to determine. It is not required to surrender its judgment to the judgment of experts. It is the one to determine the facts — not the experts.

The correct rule is stated in Anchor Co., Inc., v. Commissioner of Internal Revenue (C. C. A. 4) 42 F.(2d) 99, 100: "It is said that the Board had before it no evidence, except the testimony of Franklin, as to market value on March 1, 1913; but this ignores the determination of the Commissioner, which was before the Board, and, as shown above, was prima facie correct. And even if this were not true, we do not think that the Board, on the question of valuation, is to be held bound by the opinion of experts. Such evidence is competent, but it is not to be blindly followed. It should be weighed by the Board in the light of the other facts developed in the case and of the general knowledge and experience of the members, and is by them to be given only such weight as in the light thereof may seem to be just and reasonable."

Speaking of purely opinion...