1927 BTA LEXIS 2520 | B.T.A. | 1927
Lead Opinion
The Board is of the opinion that petitioner was entitled to a deduction of $18,212.87 from gross income for the taxable year, representing the unextinguished cost or March 1, 1913, value of permanent improvements made by .it to the leased premises in question. The improvements had a useful life greater than the term of the lease. The Commissioner determined a deduction for the taxable year of 8 per cent on the improvements. The lease contained no privilege of renewal. The improvements became the property of the lessor. The petitioner was entitled to exhaust its expenditures for the improvements over the term of the lease. Gladding Dry Goods Co., 2 B. T. A. 336; G. S. Stewart, 2 B. T. A. 1016.
The Commissioner contends that inasmuch as petitioner continued to use the leased premises, together with the improvements thereon, it was entitled to a deduction in.the taxable year of only a reasonable allowance for the exhaustion of the improvements which he determined to be 8 per cent. Had the petitioner upon the cancellation of the lease in question entered into a new lease for a term of years and had continued the use of the same premises in its business, we. would require it to exhaust the unextinguished cost or March 1, 1913, value of these permanent improvements over the term of the new lease. Werner & Werner Clothing & Furnishing Goods Co., 9 B. T. A. 69. However, petitioner did not make a new lease for á term of years. It merely continued to occupy the premises at will upon the solicitation of the owner. So far as petitioner’s investment was concerned, it was in no different situation than it would have been had it rented another building. Upon cancellation of the lease there was no basis for the further ratable exhaustion of the cost of the improvements unless it would be upon the basis of the remaining useful life. We think that would be carrying the matter too far.
Two witnesses testified that in their opinion the lease, as a whole, had a fair market value of $25,000 on March 1, 1913, but from a consideration of their testimony and the entire evidence in the record, the Board is not convinced that the lease, independent of the improvements made by petitioner, had any such market value on that date. These witnesses apparently based their opinion of the March 1, 1913, value upon the lease as a whole including the improvements which had been made costing more than $32,000. The only other circumstance mentioned by the witnesses as a basis of their opinion was that sometime after the lease was executed it became known that plans were being made to erect a large hotel and a theatre within a short distance of the leased premises. On the whole the Board is of the opinion that the March 1, 1913, value claimed, independent of the cost of improvements made by the lessee, has not been established. Petitioner could probably have sold the lease on March 1, 1913, for some amount in excess of the
Reviewed by the Board.
Judgment will be entered on 15 days’ notice, under Bule 50.