1941 BTA LEXIS 1358 | B.T.A. | 1941
Lead Opinion
The petitioner contends that a portion of the total amount paid to Mary B. Elliott during each of the taxable years was interest and not purchase price. This is directly contrary to the provisions of the written contract entered into by the parties, which shows that the payments of $3,000 made in each of the taxable years were entirely a part of the purchase price and were not interest. The petitioner contends that the true agreement of the parties, as shown by parol evidence, was an agreement to pay a purchase price of $27,500 and interest thereon in the amount of $12,500. The question must turn, of course, upon what was the actual agreement of the parties. Was it an agreement to pay so much as purchase price and the balance as interest? This must be determined from all of the evidence, documentary and otherwise. Although no evidence was excluded on the ground that it was parol evidence tending to vary the terms of the written instrument, nevertheless, the evidence as a whole does not establish that the actual agreement of the parties was different from that which is expressed in their written contract.
While the figure $27,500 appears a number of times, the record, does not justify a finding that the value of the property at the time of the
The petitioner sets out in its brief an elaborate table dividing the total payments of $40,000 over the 15-year period into semiannual payments, dividing the semiannual payments into payments of principal and payments of interest at 5½ percent on a declining balance of principal which begins with $27,500 and is reduced semiannually by the excess of the total semiannual payments over the portion thereof which is shown as interest. If the parties had actually adopted such a table as a part of their agreement, it might be pretty strong evidence in support of the petitioner’s contention. But the first time that any such computation was suggested as having any possible application to the contract of December 1, 1936, was when the auditor made the entry in closing the books of the petitioner
The action of the parties at the time they entered into the contract, including their consideration of the figure $27,500, and their subsequent actions in reporting a part of the payments as interest, are not without probative value. But that evidence is not entirely convincing even by itself, since it does not go far enough to show that they had agreed upon the purchase price of $27,500 with interest thereon at some particular rate of interest for a definite number of years. Cf. Marshall C. Allaben, 35 B. T. A. 327, and Marsh & Marsh, Inc., 5 B. T. A. 902. Opposed to that evidence is the written contract, which is, and was intended to be, evidence of the agreement of the parties, entered into by them deliberately after full consideration and drawn at their request and for their benefit by an attorney. The parties have never made any effort to amend or modify that written agreement to provide for the payment of interest. The written contract is clear and the record as a whole does not show that the parties, when they made their bargain, really intended to pay any portion of the $40,000 as interest. This distinguishes the case of Hudson-Duncan & Co., 36 B. T. A. 554. The sale of property for cash is quite different from a sale upon a deferred payment plan. The fact that the deferred payment sale price is greater than the cash sale price does not make interest of the difference. Anderson & Co., 6 B. T. A. 713, 717. One justification for the increase in price is to make allowance for the additional risk which the seller must assume. Cf. Marsh & Marsh, Inc., supra. The Commissioner did not err in concluding that no part of the periodic payments represented the payment of interest.
The Commissioner, in computing depreciation, has used a portion of the $40,000 cost of the properties as basis. This has resulted in a larger basis than was claimed by the petitioner or than would be allowable otherwise. The Commissioner, however, used a greater estimated remaining life for each building. The final result of his computation was a smaller deduction than the amount claimed by the petitioner. The petitioner had the burden of showing that the probable useful life of each building, as that life might reasonably have been estimated during the taxable years, was less than the period used by the Commissioner. The petitioner has not sustained this burden. Indeed, arguments of its counsel in their briefs indicate a failure to realize that they have this burden. The president of the petitioner testified that, in computing the deductions claimed on the return, an estimate made by Beardsley was used. Beardsley was not called as a witness, his estimates are not a part of the record, the basis of his estimates is not shown, and it is not shown that he was qualified to make estimates of any kind. The petitioner’s counsel apparently relies upon the fact that at the time of the hearing the petitioner was vacating one of the buildings and had decided to demolish the other two. But the evidence does not show that any of these events was anticipated during the taxable years. Deductions for depreciation for 1937 and 1938 must be based, upon facts known or anticipated during those years and not upon the hindsight of subsequent years. The record does not enable the Board to make an independent estimate of the probable useful life of any one of the three buildings or the connecting link as of either of the taxable years. Therefore, the determination of the Commissioner on this point can not be disturbed.
Decision will be entered/ for the respondent.