Weighing v. Comm'r of Internal Revenue , Docket No. 4893-66.
| Decision Date | 21 August 1969 |
| Docket Number | Docket No. 4893-66. |
| Citation | 52 T.C. 850 |
| Parties | PEERLESS WEIGHING AND VENDING MACHINE CORPORATION, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harry A. Bernbach (an officer), for the petitioner.
Wallace Musoff and Marvin A. Fein, for the respondent.
Petitioner paid and accrued about $26,000 in 1963 in order to accelerate the termination of a lease (which was to expire in 1970) so that petitioner could demolish an existing building and put the property to a more profitable use. The lease was successfully terminated at the end of 1963 and demolition commenced on Jan. 3, 1965. Held: Petitioner is not entitled to deduct the $26,000 in 1963 as a business expense under sec. 162 of the Internal Revenue Code of 1954. The expenditure was for a capital asset (the unexpired term of the lease) which had a definite life beginning after the year before us.
Respondent has determined a deficiency in petitioner's Federal income tax for the year 1963 in the amount of $13,497.04.
The only issue for decision is whether petitioner is entitled to a deduction under section 162 of the Internal Revenue Code of 19541 for expenditures incurred in relocating a tenant from an office building. Several other adjustments that were made by respondent in his statutory notice of deficiency have not been contested.
Some of the facts have been stipulated and are so found. The stipulations and exhibits attached thereto are incorporated herein by this reference.
Peerless Weighing & Vending Machine Corp. (hereinafter sometimes referred to as Peerless or petitioner) is a Delaware corporation with its principal place of business at Long Island, N.Y. It filed its corporate income tax return for the taxable year 1963 with the district director of internal revenue, Brooklyn district.
Petitioner owns and operates parking lots, garages and industrial properties in Long Island, N.Y., and in Chicago, Ill. For the years 1961, 1962 and, 1963, Peerless' principal business activity and source of income was from the operation of its garages and parking lots.
On March 30, 1962, Peerless purchased property, on which stood a 6-story building at 231-235 South Wabash Avenue, Chicago, Ill. (sometimes hereinafter referred to as 231), at a cost of $404,050. The cost was allocated as follows:
+-----------------+
¦Land ¦$328,467¦
+--------+--------¦
¦Building¦75,583 ¦
+--------+--------¦
¦Total ¦404,050 ¦
+-----------------+
At the time of purchase, the building at 231 had five tenants, each occupying an entire floor. The lessees, the expiration date of their lease, and their annual rents were as follows:
+-------------------------------------------------+
¦ ¦Lease ¦ ¦
+-----------------------------+------------+------¦
¦ ¦expiration ¦ ¦
+-----------------------------+------------+------¦
¦Lessees ¦date ¦Rent ¦
+-----------------------------+------------+------¦
¦Marks Bros. Jewelers, Inc ¦12/31/63 ¦$5,400¦
+-----------------------------+------------+------¦
¦Bain's Inc ¦6/30/65 ¦9,000 ¦
+-----------------------------+------------+------¦
¦Home Arts Guild Corp ¦4/30/70 ¦9,000 ¦
+-----------------------------+------------+------¦
¦Boulevard Art Publishers, Inc¦4/30/62 ¦8,400 ¦
+-----------------------------+------------+------¦
¦Harding Hotel Co ¦4/30/62 ¦20,000¦
+-------------------------------------------------+
Boulevard Art Publishers, Inc., had vacated the building by January 1962, though it continued paying rent until April 30, 1962, at which time it allowed its lease to expire without renewal. The leases of Harding Hotel Co. and Marks Bros. Jewelers, Inc., were not renewed upon their expiration. Bain's Inc. vacated the building and stopped paying rent by December 17, 1962, after having been declared bankrupt. Home Arts Guild Corp. (hereinafter sometimes referred to as Home Arts) was to be the building's only tenant as of January 1, 1964.
On August 30, 1963, Peerless entered into an agreement with Home Arts for termination of its lease. Pursuant to said agreement Peerless promised to remodel the second floor of a building at West Randolph Street, Chicago, Ill., to which Home Arts was relocating. Peerless, under clause 5 of the agreement, also agreed to pay Home Arts $500 per month to apply toward the rent for the premises at West Randolph Street ‘beginning with the month of March, 1964, and ending with the month of April, 1965.’
The remodeling of Home Arts' new premises began in September 1963, and on December 27, 1963, Home Arts vacated 231. Pursuant to the agreement of August 30, 1963, Peerless expended $25,955.85, of which $20,455.85 was spent in remodeling, and $5,500 in payments to Home Arts under clause 5 of the agreement. The entire amount was either paid or accrued on the books and records of Peerless during the year 1963.
Peerless began demolition of the building at 231 on January 3, 1964, as the first step in the property's conversion to a parking lot. Demolition was completed on July 10, 1964, and as of October 21, 1964, the conversion to a parking lot was complete. In total the building was operated for rental purposes for 21 months.
Peerless' income from the property at 231 from the time of purchase through December 31, 1967, was as follows:
+--------------------------------------------------------------+
¦Year ¦Gross income ¦Source ¦
+--------------------------------------+--------------+--------¦
¦1962 ¦$17,288 ¦Rent. ¦
+--------------------------------------+--------------+--------¦
¦1963 ¦14,400 ¦Do. ¦
+--------------------------------------+--------------+--------¦
¦(Jan. 1, 1964, through Oct. 20, 1964) ¦0 ¦Do. ¦
+--------------------------------------+--------------+--------¦
¦1964 ¦ ¦ ¦
+--------------------------------------+--------------+--------¦
¦(Oct. 21, 1964, through Dec. 31, 1964)¦15,208 ¦Parking.¦
+--------------------------------------+--------------+--------¦
¦1965 ¦57,206 ¦Do. ¦
+--------------------------------------+--------------+--------¦
¦1966 ¦70,077 ¦Do. ¦
+--------------------------------------+--------------+--------¦
¦1967...To continue reading
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