Lang Body Co. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 15087.
| Decision Date | 27 May 1929 |
| Docket Number | Docket No. 15087. |
| Citation | 16 BTA 728 |
| Parties | LANG BODY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
James H. J. Sykes, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.
On February 9, 1926, the Commissioner made a determination in respect of the income and profits tax of the Lang Body Co., of 3088 West 106th Street, Cleveland, Ohio, for the calendar year 1918 and for the period January 1, 1919, to August 31, 1919, which determination showed an additional tax of $57,310.66 for the calendar year 1918 and no additional tax for the period January 1 to August 31, 1919; said determination showing that the total income and profits tax for the calendar year was $59,524.92 and that $2,214.26 had been assessed upon the original return filed by that company, resulting in a deficiency of $57,310.66. This determination and deficiency related to the tax liability of the Lang Body Co., an Ohio corporation, with its principal offices at the address above stated, and the Commissioner's deficiency notice dated February 9, 1926, was mailed to that company at that address.
In 1918 a Delaware corporation was organized, known as the Lang Body Co., with its principal office at 3088 West 106th Street, Cleveland, Ohio. That corporation took over the assets of the Lang Body Co., an Ohio corporation, and began business about August 31, 1919. On February 9, 1926, the Commissioner made an examination of the tax returns of this corporation and made an audit of its books of account and records for the period ending December 31, 1919, and for the calendar years 1920 and 1921. He determined that this corportion, namely, the Lang Body Co., a Delaware corporation, had a net loss of $18,561.68 for the period ending December 31, 1919, and that for the calendar year 1920 this corporation had a net income of $9,453.83, and that the total tax upon such net income was $745.38; that since no tax had been assessed or paid there was a deficiency for the year 1920 of $745.38. The Commissioner further determined that for the calendar year 1921 the Lang Body Co. of Delaware had a net loss of $239,685.57. The statutory 60-day notice of this determination was mailed to the Lang Body Co., 3088 West 106th Street, Cleveland, Ohio, February 9, 1926.
On April 27, 1926, a petition was filed with the Board styled "Appeal of Lang Body Co., 3088 West 106th Street, Cleveland, Ohio." Paragraphs 1, 2, and 3 of said petition set forth the following:
1. The taxpayer was in 1918 an Ohio corporation with its principal offices at 3088 West 106th Street, now a Delaware corporation with principal offices at the same address.
2. The deficiency letter, copy of which is attached, was mailed to the taxpayer on February 9, 1926 and states a deficiency of $57,310.66.
3. The taxes in controversy are income and profits taxes for the calendar year 1918, the period ended August 31, 1919, the period ended December 31, 1919 and the taxable year 1920, and are more than $10,000.00; to wit, $58,056.04.
The errors assigned in said petition are as follows:
(a) The failure of the Commissioner of Internal Revenue to allow as a deduction in the year 1918, an amount of $37,500.00 paid to Elmer J. Lang, Charles E. J. Lang and L. L. Williams, during the year 1918, in consideration of services rendered by the said individuals and the procurement of certain contracts by said individuals for the corporation.
(b) The failure of the Commissioner of Internal Revenue to allow as a deduction from gross income for the year 1918, amortization of buildings erected solely for the purpose of completing war contracts in the amount of $15,000.00.
(c) The failure of the Commissioner to allow an adequate deduction for depreciation for the years 1918 to 1920 inclusive.
Among other statements contained in the petition in support of the assignments of error, the following appear:
The facts upon which the taxpayer relies as a basis of its appeal are as follows:
(a) The corporation was organized during the year 1917 for the purpose of specializing in the construction of automobile bodies, particularly those for closed automobiles.
(b) Due to the fact that the corporation was in its infancy, the services of the three individuals to whom stock was issued in the amount of $37,500.00 were fixed at only nominal amounts as follows:
C. E. J. Lang, President and Treasurer _____________ $3,505.00
E. J. Lang, Vice-president and General Manager _____ 5,550.00
L. L. Williams, Superintendent _____________________ 3,610.00
There was paid into the corporation during 1917 and the early months of 1918, cash in excess of $250,000.00 on subscriptions for capital stock.
In the early part of 1918, Mr. E. J. Lang was instrumental in securing for the corporation a government contract for certain work in connection with 1,500 White trucks purchased by the government for war purposes.
This contract was secured on as favorable terms as possible, insuring the corporation of a very substantial profit on the same.
In view of the fact that Mr. Lang was drawing only a nominal salary from the corporation, due to it having just been organized, at a directors' meeting held on July 9, 1918, it was agreed that stock of the corporation would be issued to E. J. Lang, Charles E. J. Lang and L. L. Williams, in an amount of $37,500.00 which was to imburse them for the contract which they had secured and to provide reasonable compensation for their services during the year 1918.
* * * * * * *
(c) During the years 1918 and 1919, the taxpayer erected a building at a cost of $32,310.64, which was used solely in connection with the government contract which the corporation was then engaged in.
This building was of cheap construction, not intended for permanent use, has had no value to the corporation since the completion of its government contract and at the present time is detrimental to the present plant.
There was allowed to the taxpayer by the War Department, amortization in the amount of $15,000.00 which was not received by the taxpayer until December 1919 after completion of the taxpayer's contract.
It is the taxpayer's contention that this amortization should be spread over the amortization period during which it was engaged in contractual work for the government and the compensation received in 1919 should be included in its return for the four months' taxable period ended December 31, 1919.
(d) Depreciation of Building.
The taxpayer in 1918 erected a building of mill type construction, it being a brick building with wooden beams, supports and floors and a wooden roof covered with a tar and gravel composition.
It has been the experience of other taxpayers in similar lines of endeavor, that buildings of this construction do not have a longer life than twenty-five to thirty-three years and the taxpayer therefore contends that depreciation should be allowed at least at three per cent per annum as recommended by the Revenue Agent who examined the building, instead of two per cent as allowed by the Commissioner.
This petition was signed "Jacob S. Baruch, Attorney for the Taxpayer" and was sworn to by Charles E. J. Lang before a notary public on March 29, 1926, as follows:
STATE OF OHIO | > SS COUNTY OF CUYAHOGA |
Chas. E. J. Lang, being duly sworn, says that he is the President of the Lang Body Company, above-named, and as such is duly authorized to verify the foregoing petition; that he has read the said petition, or had the same read to him, and is familiar with the statements therein contained, and that the facts therein stated are true, except such facts as are stated to be upon information and belief, and those facts he believes to be true.
(Signed) CHAS. E. J. LANG.
January 3, 1928, after various continuances and hearings on motion, the Commissioner filed his answer to the petition in which he sets forth the following:
1. Answering the allegations in Paragraph 1 of the petition admits that the petitioner is a Delaware corporation with principal offices at No. 3088 West 106th Street, Cleveland, Ohio. Denies the remaining allegations in Paragraph 1 of the petition.
2. Admits that the deficiency letter, a copy of which is attached to the petition, mailed to this petitioner was dated February 9, 1926, and stated a deficiency of $745.38. Denies the remaining allegations of Paragraph 2 of the petition.
3. Admits that the taxes in controversy are $745.38 for the calendar year 1920 proposed against the Lang Body Company of Delaware, but says that the Board has no jurisdiction over the four months' period ended December 31, 1919, for the reason that it appears from the petition and exhibits annexed thereto that no deficiency has been asserted for that period against the taxpayer. He further says that the Board has no jurisdiction over the deficiency asserted for the calendar year 1918 against the Lang Body Company of Ohio for the reason that no petition had been filed by that company from the 60-day letter addressed to it dated February 9, 1926.
5 (a). Admits that the petitioner was organized for the purpose of the manufacture of automobile bodies during the year 1919. Denies the remaining allegations in subparagraph (a) of Paragraph 5.
5 (b). For lack of information upon which to base a belief denies the allegations in subparagraph (b) of Paragraph 5.
5 (c). Admits that in December, 1919, the petitioner received $15,000.00 as an adjustment in connection with contracts previously entered into with the War Department. Denies the remaining allegations in subparagraph (c) of Paragraph 5.
Denies generally and specifically each and every allegation in taxpayer's petition not hereinbefore admitted, qualified, or denied.
March 8, 1928, counsel for the petitioner filed with the Board a "Statement and Consent of Petitioner to Order of Redetermination," as follows:
Comes now the petitioner, by and through...
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