1933 BTA LEXIS 1054 | B.T.A. | 1933
Lead Opinion
Petitioner’s first issue is enlarged upon brief to provide alternative contentions; first, that 25 per centum of the amounts received upon all contracts for sale of lots should be regarded as received upon trust to meet the cost of future construction of improvements, and hence be eliminated from gross income; or, second, that the estimated cost of contemplated improvements should be included as a part of the cost of the property to be used in computing gain upon sales of plots as made. There is ample authority for the proposition that moneys received upon trust are to be excluded from gross income; Los Angeles Cemetery Assn., 2 B.T.A. 495; Greenwood Cemetery Assn., 2 B.T.A. 910; Springdale Cemetery Assn., 3 B.T.A. 223; Metairie Cemetery Assn., 4 B.T.A. 903; Troost Avenue Cemetery Assn., 4 B.T.A. 1169; Inglewood Park Cemetery Assn., 6 B.T.A. 386; Evergreen Cemetery Assn. of Chicago, 21 B.T.A. 1194; Acacia Park Cemetery Assn., Inc., 27 B.T.A. 233; Portland Cremation Assn. v. Commissioner, 31 Fed. (2d) 843; but the question here is whether a portion of the selling price of petitioner’s lots was so received.
Likewise, it has been recognized that the estimated expenditures for improvements which the vendor is bound to make may be included as a part of the cost of the property; Milton A. Mackay, 11 B.T.A. 569; Birdneck Realty Corp., 25 B.T.A. 1084; but the question here is whether petitioner was bound to make improvements.
We are of opinion that both petitioner’s claims must be denied. From the onset it must be remembered that petitioner is not seeking to exclude from its income amounts received upon trust to meet the cost of perpetual care, a service which would be to the benefit of the lot owners. A fund for that purpose was established as provided by statute and respondent has eliminated from petitioner’s gross income the proper additions to that fund. Here petitioner seeks to exclude from its income amounts expended, or to be expended, for improvements to its own property. From those improvements it reaped a benefit through increased sales, at increased prices. As a practical matter, it is obvious that some expenditure for improvements was necessary if petitioner was to carry out the purpose for which it was organized — the sale of burial plots — for some rearrangement of unimproved property is necessary, not only to induce purchases of plots therein, but to create the plots to be sold. Such improvements had to be made before petitioner could carry on its business; whether
Excerpts from some of petitioner’s printed advertising matter, of evidence in the case, serve to illustrate. Leaders such as “ Continual adding of improvements increases values and means higher prices ” and “ Prices are advancing ” call attention to sales of lots in specified sections at a “ Special Pre-Development Price ”, or at “Attractive Prices — Prior to Completion of Development ”, and the following shows the effect of successful development of the property:
Nearly one hundred leading newspapers * * * carried a telegraphic story * * * which referred to Memphis Memorial Park as “ one of the bright spots of the nation’s business horizon.” The story was inspired by the fact that our sales volume is greater than in the last three years.
The record before us does not disclose to what extent petitioner, through its literature and its salesmen, represented to the public that one fourth of the selling price of every lot was to be applied to permanent improvements of the cemetery, but assuming that it did so, it would seem that in making that representation, and in including such a provision in its contracts of sale with its purchasers, it was not assuming an obligation to do specific acts with respect to any particular plot conveyed, but was promising only to make improvements to its own property — a course which doubtless was desired by the purchasers but which certainly was sound business policy for the company. That fact, in our opinion, is sufficient to distinguish this case from those of Acacia Park Cemetery Assn., Inc., supra, and Portland Cremation Assn., supra (reversing 10 B.T.A. 65), upon which petitioner relies.
Examining the resolution of the directors, the notice to the lot owners, and the provision incorporated into the contracts respecting the improvement fund, we are not convinced that a fourth of petitioner’s gross sales was received upon trust and therefore should be excluded from its gross income. It is to be noted that this appropriation of sales proceeds was not made until October 1928, and that the record contains no segregation of sales made thereafter, but even though we assume (but do not so decide) that the attempt to make
We conclude that the portion of the amount of lot sales here in controversy was not received upon trust, but was property a part of petitioner’s gross income. Cf. American Cemetery Co. v. United States, 28 Fed. (2d) 918. Since it was received as income its subsequent disposition, assignment, or restricted use did not affect the taxability upon receipt. Lucas v. Earl, 281 U.S. 111; Moran v. Lucas, 36 Fed. (2d) 546; Cleveland Ry. Co. v. Commissioner, 36 Fed. (2d) 347; Lonsdale v. Commissioner, 32 Fed. (2d) 537; certiorari denied, 280 U.S. 575.
Nor do we think that petitioner’s estimate of the cost of the contemplated improvements should be added to the cost of the plots in advance of expenditures made therefor. It is argued that, because certain of the improvements were mentioned specifically in the sales contracts, petitioner was bound to make them, and that therefore their estimated cost should be added to the cost of the property.
With respect to the second issue we sustain petitioner, for, in our opinion, the suit which it defended proximately resulted from its business, and, consequently, its expenditures made in connection therewith are deductible as ordinary and necessary expenses. Kornhauser v. United States, 276 U.S. 145; Continental Screen Co., 19 B.T.A. 1095; affd., 58 Fed. (2d) 210.
We sustain respondent also in denying the deduction of $5,000 as salary to Bosworth in 1928, for we are not satisfied that petitioner’s accounts were kept on an accrual basis so that this item was properly
Eeviewed by the Board.
Judgment will be entered under Buie 50.