Miller v. Comm'r of Internal Revenue
| Decision Date | 10 March 1953 |
| Docket Number | Docket No. 34827. |
| Citation | 19 T.C. 1046 |
| Parties | THOMAS MILLER AND AGNES MILLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Charles W. Hergenroeder, Esq., for the petitioners.
Roy E. Graham, Esq., for the respondent.
INCOME— DEDUCTION— LOSS— THEFT— SECTION 23(e)(3).— Amount of loss determined and allowed under section 23(e)(3) where owners paid a contractor and he feloniously absconded with the money after doing only a small part of the work of constructing their residence.
The Commissioner determined a deficiency of $602.14 in income tax for 1948 against the petitioners. The only issue for decision is whether the petitioners are entitled to a deduction of $3,627.36 under section 23(e)(3) resulting from the failure of a contractor to complete the construction of a house.
The petitioners, husband and wife, filed a joint return for 1948 with the collector of internal revenue for the twenty-third district of Pennsylvania.
The petitioners entered into a contract dated December 22, 1947, with Emanuel Landstrom, a general contractor, for the construction of a dwelling on property of the petitioners in Pittsburgh, Pennsylvania. Landstrom agreed to provide all labor and materials for the residence and to construct it in accordance with plans and specifications furnished by the petitioners and made a part of the agreement. The work was to be completed within approximately 90 days after construction began. $11,340 was to be paid to Landstrom for the work, payable $3,500 upon the signing of the contract, and $4,000 ‘When second floor joists are in place & sub-floor is on.‘ The contract did not state when the balance was to be paid. The parties entered into another contract, before work was started, to complete the second floor of the dwelling to include a kitchen, dining room, bedroom, living room, and bath, for the additional amount of $3,384.
The petitioners paid Landstrom $3,500 on December 22, 1947, and $4,000 on February 11, 1948.
Landstrom started work on the dwelling on February 18, 1948, and proceeded in a normal way to construct the building until he abandoned the job and disappeared on or about April 26, 1948. The petitioners have been unable to locate him despite reasonable efforts on their part. They filed a criminal complaint against him and he was indicted by the Grand Jury of Allegheny County, Pennsylvania, at No. 91 April Sessions 1950 for fraudulent conversion, a felony, but the county officers, aided by the petitioner, have not been able to find him and he has not been tried.
The petitioners, on their return for 1948, claimed a deduction of $3,627.36 as a ‘Net loss when contractor abandoned job and stopped work on or about April 26, 1948.‘ The alleged loss was not covered by any bond or insurance and the petitioners in their search for Landstrom never found any assets or property belonging to him.
The Commissioner, in determining the deficiency, disallowed the $3,627.36 and explained:
The following amounts for material and labor had been paid by Landstrom up to the time he abandoned the work and disappeared:
+---------------------------------------------------+
¦Glassport Lumber Company, for material ¦$2,569.64¦
+-----------------------------------------+---------¦
¦Labor for installation of concrete blocks¦200.00 ¦
+-----------------------------------------+---------¦
¦Carpenter labor, 3 men for 3 weeks ¦798.00 ¦
+-----------------------------------------+---------¦
¦Laborer, 3 weeks ¦180.00 ¦
+-----------------------------------------+---------¦
¦Excavation ¦125.00 ¦
+-----------------------------------------+---------¦
¦Total ¦$3,872.64¦
+---------------------------------------------------+
The contract required Landstrom to obtain at his own expense the necessary building permit or permits, to obtain the amounts of workmen's compensation and liability insurance required by law, and to obtain fire insurance sufficient to protect both himself and the owner during the course of construction of the building. The record does not show how much, if anything, the contractor spent prior to...
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