John Glackner Realty Corp. v. Commissioner

JOHN GLACKNER REALTY CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT John Glackner Realty Corp. v. Commissioner Docket No. 10338. United States Board of Tax Appeals 11 B.T.A. 151; 1928 BTA LEXIS 3863; March 22, 1928, Promulgated *3863 The petitioner on January 17, 1919, acquired four properties, each consisting of land and buildings, for which it gave all of its capital stock without allocating any shares to any one of the properties. The market value of two of the properties on the above date determined herein for the purpose of computing the gain derived upon their sale in 1921 and the allowable depreciation in 1920 and 1921. Henry Mannix, Esq., for the petitioner. Robert A. Littleton, Esq., for the respondent. MURDOCK *151 This is a proceeding for the redetermination of deficiencies in income tax for the calendar year 1920 in the amount of $38.30, and *152 in income and profits taxes for the calendar year 1921 in the amount of $4,058.83. The petition contains five allegations of error on the part of the Commissioner, three of which were abandoned entirely at the trial and a fourth somewhat modified. It is now contended that the Commissioner erred (a) in increasing the petitioner's net income for the year 1921 by the amount of $14,190.97 as profit on the sale during the year of two pieces of improved property, the increase being claimed to be erroneous due to*3864 the Commissioner's incorrect determination of the cost of these properties to the petitioner; (b) in allowing an insufficient amount for depreciation on the two properties for the years 1920 and 1921. FINDINGS OF FACT. The petitioner is a corporation organized in January, 1919, under the laws of the State of New York, with its office at New York City. On January 17, 1919, immediately after its organization, the petitioner issued all of its capital stock consisting of 4,500 shares, having a par value of $100 per share, to John Glackner, the president of the petitioner, in exchange for four properties situated in the Borough of Manhattan, New York City, no particular number of shares being allocated to any one property. During the year 1921, the petitioner sold two of these properties known as 207 West 121st Street and 841 Amsterdam Avenue. The former was a three-story and basement brick residence, containing nine rooms and two baths, on a lot 16 feet X 100 feet, 11 inches, and was sold by the petitioner in September, 1921, at a net price of $13,536. The latter was a five-story and cellar brick building, containing eight apartments on the upper floors and four storerooms*3865 on the ground floor, and having a two-story and cellar brick extension on the rear. It was constructed on a corner lot, fronting 25 feet, 11 inches, on Amsterdam Avenue and extending 100 feet along 101st Street, and was sold by the petitioner in October, 1921, at a net price of $61,062.50. The remaining two properties were still owned by the petitioner at the date of hearing. OPINION. MURDOCK: The petitioner corporation having acquired the two properties in question after March 1, 1913, the profit or loss on their sale in 1921 is to be determined by the difference between the net selling price and the cost to the petitioner, properly depreciated to date of sale, and since the petitioner issued all of its capital stock for these two properties and two others, as a whole, the cost thereof *153 to the petitioner was the market value of the properties at the date of acquisition. ; and see . The parties have apparently proceeded upon the theory that this was the proper basis for determining gain or loss on the sale. To prove this value for the two properties*3866 with which we are concerned the petitioner offered the depositions of two real estate brokers who had each been engaged in that business in New York City for more than 25 years. Each of the witnesses was qualified by his experience and his knowledge of the properties in question to give a reliable opinion as to their market value on January 17, 1919. One of the witnesses examined the properties in October, 1924, and the other witness made his examination in August, 1926. The testimony also showed that the properties were in substantially the same condition on the dates of these examinations as they were on January 17, 1919. The respondent has offered no evidence to contradict the testimony of these witnesses and we see no reason why their opinions are not to be relied upon. Therefore, basing our findings upon their testimony, we are of the opinion that on January 17, 1919, the market value of the property at 207 West 121st Street was $7,200 for the land and $5,300 for the building. The petitioner in its brief has only claimed a market value for the property at 841 Amsterdam Avenue on the basis of the lower of the two values given by the two witnesses. Although this value may*3867 be somewhat conservative, we agree with the petitioner that the January 17, 1919, market value of the Amsterdam Avenue property was at least that amount, which was $45,000 for the land and $14,000 for the building. The value of the buildings should be depreciated properly to the date of sale for the purpose of computing gain or loss. Both parties have agreed that a proper rate of depreciation for the buildings was that determined by the examining revenue agent, or 4 per cent for the West 121st Street property and 3 per cent for the Amsterdam Avenue property. The evidence does not show what amounts the Commissioner has allowed as depreciation on these two properties for the taxable year. Therefore, we are unable to find whether or not his determination in this respect was erroneous, and are only able to state that in the light of the evidence and the agreement of the parties the depreciation for the taxable years should be determined by using the values as found above, and the rates of depreciation which the petitioner and the respondent have agreed are correct. Judgment will be entered in accordance with the foregoing opinion on notice of 15 days, under Rule 50.