Washington Fireproof Building Company v. COMMISSIONER OF INTERNAL REVENUE

• Decision Date: 30 November 1934
• Docket Number: Docket No. 70306.
• Parties: WASHINGTON FIREPROOF BUILDING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

31 B.T.A. 824 (1934)

WASHINGTON FIREPROOF BUILDING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 70306.

Board of Tax Appeals.

Promulgated November 30, 1934.

A. Calder Mackay, Esq., for the petitioner.

A. L. Murray, Esq., for the respondent.

OPINION.

ADAMS:

In this proceeding petitioner seeks a redetermination of a proposed deficiency in income tax for the year 1930 in the sum of $1,998.31, and asserts that it overpaid taxes that year and seeks refund.

Petitioner, the Washington Fireproof Building Co., is a corporation with its principal place of business in Los Angeles, California. During the year 1930, and for many years prior thereto, it owned and operated a class A office building in the city of Los Angeles, known as the Washington Building.

The Federal Reserve Bank leased a part of the Washington Building by four leases, the first executed November 1, 1919; another, March 1, 1920; another, November 10, 1922; and another, December 1, 1922, under which leases and the renewals thereof the bank occupied all of the second and third floors of the building, together with part of the fourth floor and part of the basement. These leases, except the first, and renewals contain the following provisions:

* * * That the premises are now in a tenantable and good condition; that the lessee shall take good care of the premises, and they shall not be altered, repaired or changed without written consent of the lessor, and that unless otherwise provided by written agreement, all alterations, improvements and changes that may be required shall be done either by or under the direction of the lessor, but at the cost of the lessee; that all alterations, additions and improvements made in and to the premises shall, unless otherwise provided by written agreement, be the property of the lessor, and shall remain upon and be surrendered with the premises; that all damage or injury done to the premises by the lessee or by any person who may be in or upon the premises with the consent of the lessee, shall be paid for by the lessee; and that the lessee shall at the termination of this lease, surrender the premises to the lessor in as good condition as reasonable and proper use thereof will permit.

* * * The lessee agrees when premises are surrendered that all injury or damage of every kind and character to the interior of the rooms occupied by it, and any part of the floors, wall or ceilings, shall be repaired by the lessor and the amount expended therefor shall be paid by the lessee to the lessor upon demand.

* * * It is understood and agreed that the lessee may remove such partitions, wardrobes, plumbing fixtures and lighting fixtures, from the said premises as may be necessary to satisfactorily accommodate the requirements of the banking business of said lessee; all of said changes and alterations and replacements to be made in a good and workmanlike manner, and at the expense of said lessee and under the direction of said lessor, or its representative. All plaster and waste material shall be removed through the windows by chute to Third Street. All doors, door casings, mouldings, baseboards, chair rails, plumbing and lighting fixtures are to be marked and carefully removed and stored in the storage room of said lessee.

At the expiration of this lease, or in event of the renewal of this lease, at the expiration of such renewal period, all partitions, plumbing, woodwork, lighting fixtures, marble, etc., are to be restored and put in the same position as is shown on the enclosed plat which is intended to represent the original plan of the Fourth Floor. All said renewals are to be done in a good and workmanlike manner, and at the expense of said lessee, and to conform to original woodwork and finish which corresponds with floors above in said building. It being understood that the lessee is to pay monthly rental for said premises as called for in this lease to and including such time as the above described premises are turned over to the said lessor in accordance with the conditions as specified in this paragraph. * * *

Similar provisions to those set out above were added to the original lease after its execution.

Pursuant to the terms of the leases as set out above, the bank made many changes in the building, such as the construction of vaults, the cutting away of some of the floor space to provide additional stairways, the removal of partitions, and various other alterations.

Upon the termination of the leases in 1930, petitioner and the bank agreed upon settlement of the bank's obligation to restore the property to its original condition. This matter was stipulated upon trial as follows:

They (the petitioner) got $45,000 of which they (the petitioner) allocated $6,000 to rent and $39,000 to the amount requisite for putting the building in the condition in which they (the bank) agreed to leave it. The $6,000 was paid as rent to compensate petitioner for the use of its building during the period of three months, which it was estimated would be required to make the necessary repairs and replacements.

The petitioner's books show the $6,000 was credited to rents; $24,000 to miscellaneous income; and $15,000 to a reserve account for replacements. The company made partial restoration during the year at a cost of $8,634.46, which was charged to expense. This did not constitute full restoration of the building.

In the income tax return filed by petitioner for the year 1930, $24,000 of the amount so received from the bank was included in...