Vaira v. Comm'r of Internal Revenue
| Decision Date | 24 September 1969 |
| Docket Number | Docket No. 559-68. |
| Citation | 52 T.C. 986 |
| Parties | PETER VAIRA AND MARY L. VAIRA, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Louis Vaira, for the petitioners.
Joseph M. Abele, for the respondent.
The father of petitioner Peter Vaira devised land to him on condition that he support his mother for life and pay one of his brothers $2,000 over a period of years. Peter accepted the devise and paid out a total of $24,200 in discharge of these obligations. He also added certain improvements to the property. In 1958, a portion of the property was condemned and in 1959 a payment was received. He elected to replace the improvements on the condemned portion under sec. 1033, I.R.C. 1954. After a subsequent hearing, an additional amount was awarded, which was received in 1962.
1. Held, since the value of the land devised to Peter was substantially equal to the value of the obligations he assumed, he acquired the land entirely by purchase, with no element of inheritance, and his basis in the land is determined solely under sec. 1012, I.R.C. 1954. The amount of such basis, including adjustments thereto because of the improvements, is also determined.
2. Held, no part of the condemnation award is attributable to damage to Peter's remaining land.
3. Held, petitioners' replacement period under sec. 1033, I.R.C. 1954, expired on Dec. 31, 1960. By this date the total amount of expenditures in replacement of the condemned property did not exceed the adjusted basis of the condemned property. No part of their gain is insulated from recognition by that section.
4. Held, as cash basis taxpayers, petitioners cannot offset against the 1962 payment the amount of a witness fee for services performed in 1962, but which was not paid until 1963.
5. Held, assessment of the deficiency for 1959 is not barred. Sec. 1033(a) (3)(C), I.R.C. 1954.
6. Held, additions to tax under sec. 6653(a), I.R.C. 1954, for 1959 and 1962 are proper.
7. Held, an unsigned return form does not constitute a return for purposes of sec. 6651, I.R.C. 1954, and the addition to tax under that section is proper.
Respondent determined the following deficiencies and additions to tax in petitioners' income taxes:
+--------------------------------------------------+
¦Calendar year¦Deficiency¦Sec. 66511 ¦Sec. 6653(a)¦
+-------------+----------+------------+------------¦
¦ ¦ ¦addition ¦addition ¦
+-------------+----------+------------+------------¦
¦ ¦ ¦ ¦ ¦
+-------------+----------+------------+------------¦
¦1959 ¦$13,201.23¦ ¦$660.06 ¦
+-------------+----------+------------+------------¦
¦1962 ¦17,494.33 ¦$4,373.58 ¦933.15 ¦
+-------------+----------+------------+------------¦
¦1963 ¦120.00 ¦ ¦6.00 ¦
+-------------+----------+------------+------------¦
¦ ¦ ¦ ¦ ¦
+--------------------------------------------------+
In 1958, the Commonwealth of Pennsylvania condemned certain improved land belonging to petitioner Peter Vaira. The issues are: (1) The basis of the land taken, including adjustments; (2) whether any of the amount realized is attributable to the remaining land; (3) whether any of the gain realized in 1959 is insulated from recognition by section 1033; (4) whether a witness fee paid in 1963 may be used to offset gain realized in 1962; (5) whether assessment of the deficiency for the taxable year 1959 is barred by the statute of limitations; (6) the additions to tax under section 6653(a); and (7) the additions to tax for 1962 under section 6651. Neither the deficiency nor the addition to tax for the taxable year 1963 was put in issue by petitioners and these items are therefore deemed conceded.
Some of the facts have been stipulated and are found accordingly.
Petitioners are husband and wife and had their legal residence in Elizabeth Township, Allegheny County, Pa., at the time of the filing of the petition herein. They filed a joint income tax return on a cash basis for the calendar year 1959 with the district director of internal revenue at Pittsburgh, Pa.
On or before April 15, 1963, petitioners mailed a filled out Form 1040 on a cash basis, for 1962, to the district director of internal revenue at Pittsburgh, Pa. Neither petitioner signed this form but it was accompanied by a signed check for $1,168.67 representing the balance of the tax shown to be due. Respondent accepted the check. Petitioner Mary Vaira is a party herein solely because of her joint tax liability with her husband. Petitioner Peter Vaira shall hereinafter be referred to as Peter.
Frank Vaira, Peter's father, died testate on September 26, 1940. His will devised certain land to Peter as follow :
Item II. I give, devise and bequeath unto my son Pete Vaira, all the real estate with the improvements thereon, which I own on the west side of ‘new’ Route #51, together with a piece of land on the east side of ‘new’ Route #51 upon which my said son, Pete Vaira, has constructed a brick house. This piece of land also to comprise a strip of land extending in front of said house, and of the width thereof, to ‘new’ Route #51 and extending in rear of said house, and of the width thereof, to ‘old’ Route #51, together with strips of land 200 feet on each side of said house, running between said ‘new’ Route #51, and ‘old’ Route #51. My said son Pete Vaira, to have also the right-of-ways for electric wires or cable, for water, for gas, along or about ‘old’ Route #51 from said brick house to Route #31. The entire above bequest, however, to be subject to the provision that he pay unto my son, Robert Vaira, the sum of $12.50 on the 1st day of each month, until he has paid unto him the sum of $2,000 dollars. And provided also that he, along with my son Steve Vaira, may keep, provide, maintain and support my wife Angelina Vaira, as long as she may live. This bequest not to include that which is mentioned in Item VII.
Item V. I give, devise and bequeath unto my beloved wife Angelina Vaira, my money which I have in Italy in Account known as Casse Di Risparmio Postali, Book #01626, together with the right to live in, dwell in, occupy and use, with family maintaining family relationship, our home as long as she may live.
Peter accepted this devise, thereby assuming the obligations it imposed.
The tract of land owned by Frank (hereinafter sometimes referred to as the original Vaira property) had an area of 196 acres and was located on the four corners of traffic Route 51, which ran roughly north and south, and traffic Route 31, which ran roughly east and west. The parties have stipulated that the fair market value of the entire tract as of Frank's death was $9,800 and it was so reported for purposes of State inheritance tax. The value of the acreage with frontage and of the acreage adjacent to the four corners of the intersection was at least equal to the value of the more remote acreage.
Peter received all the land west of Route 51, amounting to 73 acres, including the improvements thereon, consisting of two gasoline service stations, one on the northwest and one on the southwest corner of the intersection. Peter also received 2 acres of land, fronting on the eastern side of Route 51, on which a house, which Peter had built prior to his father's death, was located. The remainder of the 196 acres, including a house in which Frank and his wife, Angelina Vaira, had lived, went to Steve Vaira. The land Peter received had more road frontage than that inherited by Steve.
Angelina, Peter's mother, was 69 years old when her husband died. She requested that Peter pay her $100 each month to discharge his obligation under the will to support her. Peter paid her $100 per month from October 1940 through March 1959, a total of $22,200. In 1940, the present value of an annuity of $100 per month for Angelina's life was $8,080.04. During the period 1941 to 1944, at Angelina's request, Peter also expended $9,953.51 in financing the operation of a farm for her. In addition, he expended an undeterminable amount for certain improvements to the house she lived in, which Frank had bequeathed to his brother Steve.
Peter paid his brother Robert a total of $2,000, pursuant to the terms upon which he accepted his devise. In 1940, the present value of the term annuity in favor of Robert was $1,560.53.
In 1954, Peter changed over the service station at the southwest corner of the intersection from Sunoco to a ‘private brand.’ In this connection, he purchased and installed six tanks and six pumps and remodeled a cabin which had been moved to the site, at a cost of $1,500. In 1954, the useful life of the physical properties of the private-brand service station was 25 years.
In 1956 or 1957, the frame building of the service station at the northwest corner of the intersection (hereinafter referred to as the old Gulf station) burned down. Peter replaced it in 1957 with a one-story concrete-block building at a cost of $7,750. The Gulf Oil Co. owned the pumps and tanks at this service station. In 1957, the useful life of the concrete-block building was 25 years.
On September 19, 1958, the Commonwealth of Pennsylvania condemned part of Peter's land in order to reconstruct Route 51 as a four-lane divided highway. The new highway did not follow the road-bed of the old. Instead it ran alongside and immediately to the west of the old right-of-way. 11.92 acres were taken for the right-of-way and 2.64 acres for slope areas. The strip of land taken was nowhere less than 85 feet wide, and at most points was substantially wider.
The eastern edge of the new right-of-way overlapped the western edge of the old right-of-way for most of the length of the new highway through Peter's land. But, starting about 950 feet from the northern border of Peter's land, the new right-of-way...
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