Title Ins. & Trust Co. v. Commissioner

TITLE INSURANCE & TRUST CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Title Ins. & Trust Co. v. Commissioner Docket No. 9195. United States Board of Tax Appeals 11 B.T.A. 288; 1928 BTA LEXIS 3838; March 28, 1928, Promulgated *3838 1. DEDUCTION. - In 1919 petitioner paid $1,670 taxes assessed against it by Los Angeles County, Calif., upon escrow deposits. Petitioner was not reimbursed therefor by the parties of the escrows. Held, that the said amount of taxes paid by petitioner is a proper deduction from its gross income for the year 1919 under section 234(a)(3) of the Revenue Act of 1918. 2. SAME. - Held, that petitioner may deduct from its gross income for 1919 the amount of $366.81, taxes assessed by the State of California upon its capital stock holdings in various banks. Respondent conceded the propriety of the deduction thereof. 3. Loss. - Petitioner purchased property in 1895, which had a March 1, 1913, value in excess of cost and which was disposed of at a loss in 1919. Held, that the deductible loss is the difference between the selling price and cost properly depreciated from date of acquisition to date of disposition, under authority of Noaker Ice Cream Co.,9 B.T.A. 1100. 4. DEPRECIATION. - Rate determined upon the evidence. A. Calder Mackay, Esq., and George N. Thompson, Esq., for the petitioner. Maxwell E. McDowell, Esq., for the*3839 respondent. TRUSSELL *288 This proceeding results from the respondent's determination of a deficiency in the amount of $11,984.12 in petitioner's income and profits tax for the calendar year 1919. Petitioner alleges that respondent erred in his determination in that he: (1) Disallowed a deduction of $1,670 escrow tax alleged to represent an expense for taxes assessed by the County of Los Angeles; (2) Disallowed a deduction in the amount of $366.81 taxes, representing the amount assessed by the State of California on petitioner's stock holdings in California banks; and (3) That he erroneously computed the amount of the loss sustained from the sale of real property located in Los Angeles. At the hearing on this proceeding petitioner waived its allegation of error relative to the Commissioner's disallowance of a deduction of $981.77 representing "advances charged off," and counsel for the Commissioner conceded that the amount of $366.81 taxes assessed by *289 the State of California on petitioner's bank stock holdings is a proper and allowable deduction from petitioner's gross income for the year 1919. FINDINGS OF FACT. Petitioner is a corporation*3840 organized under the laws of the State of California, and was during the year 1919, and also for many years prior thereto, engaged in the title insurance and trust business in Los Angeles. 1. On December 1, 1919, petitioner paid to W. O. Welch, Tax Collector of Los Angeles County, Calif., taxes in the amount of $1,670, which amount represented the taxes levied and assessed upon the total amount of escrow deposits with petitioner as of the first Monday in March, 1919. Those funds were deposited to the credit of petitioner and represented funds held in escrow for the convenience of the depositaries and were disposed of upon the completion of the escrows. The taxes in question were paid by petitioner as an expense incident to its regular business of holding escrow deposits. For rendering such services, petitioner charged its various escrow depositaries a regular "escrow fee," which was the only charge made. The said taxes, as such, were not charged to the escrow depositaries. 2. During the year 1919 the State of California levied, assessed and collected taxes in the amount of $366.81 upon capital stock owned by petitioner in various banks, which taxes were paid by the respective*3841 banks and treated by petitioner as an addition to dividends received and an addition to taxes paid in accordance with article 566, Regulations 45. In 1895 petitioner purchased certain property situated at New High and Franklin Streets, Los Angeles, which was occupied as its place of business until 1912, and the cost of the same was $96,732.14, that amount being apportioned $40,000 to the land and $56,732.14 to the four-story building. In 1904 two additional stories were added to the building at a cost of $21,000. The office building is constructed of brick with steel frame-work and a basement under the entire structure having a 40 foot front and a 60 foot depth. Due to the sound construction, the character of the use, namely, office space, and the favorable dry climatic conditions of that locality the building has a normal useful life of 60 years from date of construction. The March 1, 1913, fair market value of the said property exceeded cost. Until about the year 1914 the building was located in the business district, but subsequently business activities grew away from that section of the city and the building and property declined in value. In 1919 the said property was*3842 exchanged by petitioner for other property having a value of $60,960. *290 The respondent computed the loss sustained upon the basis of cost of the property exchanged, reduced by a sum representing depreciation sustained from date of acquisition to the date of exchange computed at a rate of 2.5 per cent per annum, he having placed the life of the building at 40 years. Petitioner claims that the life of the building is 60 years from date of acquisition and that, in computing the loss, the cost should be reduced only by depreciation sustained since 1913. OPINION. TRUSSELL: The amount of $1,670 tax paid by petitioner in 1919 to Los Angeles County upon escrow deposits constituted an expense in the ordinary conduct of its regular business of accepting deposits in escrow for which service it charged a regular fee. The amount of the said tax is a proper deduction from petitioner's gross income for 1919 under section 234(a)(3) of the Revenue Act of 1918, which provides for the deduction of taxes, paid or accrued within the taxable year, imposed by authority of any county or other taxing subdivision of any State or Territory, not including those assessed against local benefits*3843 of a kind tending to increase the value of the property assessed. The amount of $366.81 taxes assessed by the State of California, upon petitioner's capital stockholdings in various banks, should be deducted as agreed to by counsel for the parties hereto. The third issue raises the question of the amount of the loss sustained by petitioner upon the disposition in 1919 of property acquired prior to March 1, 1913. Expert testimony adduced at the hearing on this proceeding was to the effect that the March 1, 1913, value of the property was $125,000, which amount was in excess of cost. The evidence establishes the cost, dates of acquisition and disposition and the life of the building as set out in the findings of fact. In computing the amount of the loss respondent has reduced the cost by depreciation at a rate of 2.5 per cent per annum from date of acquisition to date of disposition. Petitioner claims that the rate of depreciation should be 1.666 per cent per annum and that the original cost should not be reduced by depreciation sustained prior to March 1, 1913. The disposition of this question is controlled by the Board's decision in *3844 , and upon the authority of that decision, in computing the amount of the loss sustained, the building should be depreciated from date of acquisition to date of disposition. The rate of depreciation should be 1.666 per cent per annum, the evidence having established that the building had a life of 60 years from date of construction. Judgment will be entered upon 20 days' notice, pursuant to Rule 50.