Waldheim Realty & Inv. Co. v. Comm'r of Internal Revenue
| Decision Date | 13 March 1956 |
| Docket Number | Docket No. 52586. |
| Citation | 25 T.C. 1216 |
| Parties | WALDHEIM REALTY AND INVESTMENT COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In computing its income for 1950, 1951, and 1952, petitioner, a cash basis taxpayer, deducted insurance premiums paid during such years even though the insurance coverage so purchased extended to years subsequent to 1952. It had consistently followed this practice in previous years, including 1947, 1948, and 1949. The respondent determined that the insurance premiums paid in 1950, 1951, and 1952 should be prorated over the period of coverage purchased by such premiums. Petitioner claimed that, if proration is required, it should be allowed to prorate to the years in issue those portions of insurance premiums paid by it in 1947, 1948, and 1949, which are applicable to the years in issue. Held, a cash basis taxpayer must prorate insurance premiums paid in one year over the term of coverage purchased with such premiums. Held, further, since prepaid insurance premiums constitute prepaid expenditures, and since petitioner deducted such expenditures in years now barred by the statute of limitation, it may not claim an additional deduction by allocating a portion of such prepaid insurance premiums to the years here in issue. Owen T. Armstrong, Esq., for the petitioner.
William H. Welch, Esq., for the respondent.
This proceeding involves the following deficiencies in income tax determined by the respondent under the provisions of the 1939 Code:
+--------------------+
¦Year ¦Deficiency ¦
+------+-------------¦
¦1950 ¦$1,789.27 ¦
+------+-------------¦
¦1951 ¦3,423.24 ¦
+------+-------------¦
¦1952 ¦388.49 ¦
+--------------------+
The issues are: (1) Whether petitioner may deduct the entire amount of insurance premiums paid during the years in issue in computing its income for such years, when a part of such premiums was for insurance coverage in years subsequent to those in which the premiums were paid; and (2) if not, whether petitioner may deduct that portion of insurance premiums paid in 1947, 1948, and 1949, which was for insurance coverage for 1950, 1951, and 1952, in computing its income for such latter years, even though it deducted the full amount of premiums paid in 1947, 1948, and 1949 in computing its income for those years.
All of the facts were stipulated, are so found, and are incorporated herein by this reference.
Petitioner, a Missouri corporation, kept its books and reported its income on the cash receipts and disbursements method and filed its returns for the years 1950 and 1951 with the collector of internal revenue for the first district of Missouri, and its return for the year 1952 with the director of internal revenue at St. Louis.
Since its incorporation in 1905, petitioner has been engaged in the business of owning and managing real estate. Petitioner covered its properties with insurance protection for which it paid the following premiums during the years indicated:
+-----------------+
¦Year ¦Amount ¦
+------+----------¦
¦1947 ¦$7,596.15 ¦
+------+----------¦
¦1948 ¦10,966.58 ¦
+------+----------¦
¦1949 ¦9,835.06 ¦
+------+----------¦
¦1950 ¦$7,576.43 ¦
+------+----------¦
¦1951 ¦13,125.74 ¦
+------+----------¦
¦1952 ¦9,794.67 ¦
+-----------------+
The insurance coverage for which the above premiums were paid was in many instances for years subsequent to the year in which the premium was paid.
In computing its taxable income, the petitioner deducted the aforementioned premium payments in the year in which such payments were made.
Set forth below are the prorated portions of insurance premiums paid in 1947, 1948, and 1949, applicable to the years 1950, 1951, and 1952:
+-----------------+
¦Year ¦Amount ¦
+------+----------¦
¦1950 ¦$6,295.19 ¦
+------+----------¦
¦1951 ¦3,705.11 ¦
+------+----------¦
¦1952 ¦1,253.25 ¦
+-----------------+
Set forth below are the prorated portions of insurance premiums paid in 1950, 1951, and 1952, applicable to such years:
+-----------------+
¦Year ¦Amount ¦
+------+----------¦
¦1950 ¦$3,092.05 ¦
+------+----------¦
¦1951 ¦6,025.41 ¦
+------+----------¦
¦1952 ¦9,171.40 ¦
+-----------------+
Of the total amount of premiums paid for insurance during 1950, 1951, and 1952, the amount of $12,207.98 was attributable to years subsequent to the year 1952. The respondent disallowed the deduction of that sum during the years in issue.
In support of his determination that the portion of insurance premiums paid by the petitioner during the years in issue, which was applicable to years subsequent to 1952, should be disallowed as a deduction and prorated to subsequent years, the respondent argues that after several changes of positions on this question, he, this Court, and the Court of Appeals for the First Circuit are now in accord that insurance premiums paid by a cash basis taxpayer in one year, for insurance coverage extending over several years, must be prorated over such years.
We think the respondent's...
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