ZWETCHKENBAUM v. Commissioner
| Decision Date | 29 November 1962 |
| Docket Number | Docket No. 87571,90553,90556,87579,87580,90559. |
| Citation | 21 TCM (CCH) 1493,1962 TC Memo 283 |
| Parties | Joseph A. Zwetchkenbaum and Morrisa B. Zwetchkenbaum, et al. v. Commissioner. |
| Court | U.S. Tax Court |
James T. Lodge, Esq., and Walter F. Gibbons, Esq., for the petitioners. J. Frost Walker, Jr., Esq., and John R. Berman, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in income taxes as to petitioners for the year ended December 31, 1957, as follows:
Docket
No. Petitioner Deficiency
87571 Joseph A. Zwetchkenbaum and
Morrisa B. Zwetchkenbaum .................. $ 3,659.40
87579 Robert Kaplan and Lorrain
Kaplan .................................... 2,773.15
87580 Sheldon Kaplan and Harriet
Kaplan .................................... 3,038.99
90553 Edward Zwetchkenbaum and
Matilda Zwetchkenbaum ..................... 11,088.87
90554 Robert G. Levye and Josephine
K. Levye .................................. 1,189.57
90555 Matilda Zwetchkenbaum
Guardian for Susan Zwetchkenbaum .......... 1,219.84
90556 Gussie Kaplan ............................... 8,013.46
90559 Barbara Zwetchkenbaum Poplack ............... 1,205.56
The issue is whether petitioners are entitled to deduct the unrecovered cost of leasehold improvements to property in the year their partnership vacated the property without awaiting the termination of the leases.
Some of the facts have been stipulated and are found accordingly.
Petitioners Edward and Matilda Zwetchkenbaum, Robert G. and Josephine K. Levye, Matilda Zwetchkenbaum, guardian for Susan Zwetchkenbaum, Gussie Kaplan, and Barbara Zwetchkenbaum Poplack filed their income tax returns for 1957 with the director of internal revenue for the district of Massachusetts. Petitioners Joseph A. and Morrisa B. Zwetchkenbaum, Robert and Lorrain Kaplan, and Sheldon and Harriet Kaplan filed their income tax returns for 1957 with the director of internal revenue for the district of Rhode Island.
Petitioners or their husbands were, at all times here material, partners in New York Lace Store, which specialized in retail women's and children's wear with its principal place of business in Pawtucket, Rhode Island. New York Lace Store (hereinafter called the partnership) filed its partnership income tax return for the year ended December 31, 1957 with the director of internal revenue for the district of Rhode Island.
The partnership is the lessee of premises located at 14-30 Broad Street in Pawtucket, Rhode Island, known as the Slater Building, under indenture of lease dated November 1, 1946, for a term of 25 years, beginning with the first day of June 1947 and ending on the first day of June 1972, at an annual rental of $58,700 up to December 1, 1949, and $61,800 during the remainder of the lease. A portion of these premises is subleased by the partnership to Adams Drug Company, Inc., under a lease which expires May 31, 1972.
The partnership is the lessee of the first floor and basements, together with additional space in the Taylor Building, located at 32-42 Broad Street in Pawtucket, Rhode Island, under indenture of lease dated May 28, 1948, which commenced July 15, 1950, for a period of 21 years and 10½ months, terminating May 31, 1972. The annual rental under the lease is $26,000 per year. A portion of these premises is subleased by the partnership to Almac's, Inc., a retail grocery, under a lease which expires June 14, 1966.
The partnership is the sublessee from Almac's, Inc., for a period ending June 14, 1966, of the second and third floors of premises known as the Whipple Building and of premises known as the Whipple Garages, located adjacent to the other leased premises.
The partnership made various improvements prior to 1957 on the premises occupied by it as a retail store under the aforementioned leases and sublease. The improvements were general in nature and constituted a permanent part of the property. The cost, depreciation allowed or allowable prior to January 1, 1957, and the remaining cost are allocated as follows:
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Depreciation
allowed Remaining
Building and section Cost or allowable cost
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Whipple Building ....................................... $ 29,270.44 $ 8,078.99 $ 21,191.45
Whipple Garages ........................................ 15,120.90 4,173.04 10,947.86
___________ ___________ ___________
44,391.34 12,252.03 32,139.31
___________ ___________ ___________
Taylor & Slater Buildings
Primrose Room and Teen Shop ............................ 17,586.50 6,610.92 10,975.58
Basements .............................................. 6,311.00 2,371.48 3,939.52
Customers' lavatory .................................... 5,092.00 1,915.31 3,176.69
Employees' room and lavatory ........................... 6,737.64 2,533.16 4,204.48
Store front and windows, Slater Building ............... 39,439.00 14,874.90 24,564.10
Store front and windows, Taylor Building ............... 13,086.00 4,936.80 8,149.20
Front display windows .................................. 9,187.43 3,466.08 5,721.35
Miscellaneous walls, fire doors, construction, floors .. 52,303.66 19,725.68 32,577.98
___________ __________ ___________
149,743.23 56,434.33 93,308.90
___________ __________ ___________
Total ............................................... $194,134.57 $68,686.36 $125,448.21
The improvements on the premises referred to as the Whipple Building represented expenditures for newly constructed office space, air conditioning, heating, sprinklers, and lavatories. These offices were occupied by the merchandising, accounting, and advertising departments and various buyers of the partnership.
The improvements on the premises referred to above as the Whipple Garages consisted of expenditures for new walls, tile floors, heating and air conditioning equipment, sprinklers, and decorations.
The improvements referred to as the Primrose Room and Teen Shop involved expenditures to construct a retail selling area with luxurious surroundings and lighting in order to provide space for the marketing of a more expensive line of apparel. These improvements consisted of paneled walls, finished columns, curved stairways, false ceilings, spotlighting and indirect lighting, and a curved separate entrance. The alterations were made to attract a higher quality trade.
The improvements referred to above as basements represented expenditures to convert basement areas, primarily that in the Taylor Building, to a receiving and marking room to be used in the handling of merchandise sold by the partnership on the premises on Broad Street. The expenditures included payments for stairways and chutes, walls and partitions, air conditioning duct work, and lighting fixtures.
The improvements referred to as customers' lavatory consisted of facilities for the use of customers on the second floor of the Slater Building.
The expenditures designated as employees' room and lavatory were for the construction of facilities for the use of approximately 100 full-time and part-time employees on the second floor of the Taylor Building. These expenditures were for lavatory fixtures, plumbing and installation and partitioning to construct the employees' lavatory, and partitioning and lighting to construct the employees' recreation room.
The improvements referred to as store front and windows, Slater Building, and store front and windows, Taylor Building, involved expenditures which were made to construct a store front and display windows to be used in the conduct of business of the partnership. The expenditures were for changes in the store front and lighting as well as an entrance and entrance lobby from Broad Street. These improvements were made to achieve an...
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