West 80th Street Garage Co. v. Commissioner

WEST 80TH STREET GARAGE CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. West 80th Street Garage Co. v. Commissioner Docket No. 13435. United States Board of Tax Appeals 12 B.T.A. 798; 1928 BTA LEXIS 3445; June 25, 1928, Promulgated *3445 For failure on the part of the petitioner to adduce sufficient evidence in support of its allegations in the petition, the respondent's disallowance of a deduction for exhaustion of an alleged leasehold is sustained. Arthur M. Lipkint, C.P.A., for the petitioner. Brice Toole, Esq., for the respondent. MORRIS *798 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1920 amounting to $202.07. The sole question for determination is whether the respondent erred in disallowing a deduction claimed by the petitioner, representing exhaustion of an alleged leasehold, which the respondent contends appears in the books of account as good will set up as a mere balancing entry in the opening balance sheet. FINDINGS OF FACT. The petitioner is a corporation, organized and incorporated under the laws of the State, of New York on February 24, 1919. Samuel H. Stone, president of the petitioner, and Isador Phillips entered into negotiations for the purchase of the business and assets of the Apthorp Garage, occupying a 6-story fireproof building on the south side of 80th Street, 100 feet east of Broadway, *3446 in New York City, which was used as a repair shop by Ralph de Palma, the well known recer. After some negotiations between the parties with respect to the length of the lease on the property to be acquired, which resulted in procuring a longer lease, Moses Levy executed an assignment to the petitioner on February 26, 1919, of all his interest in a certain contract made by him with the Apthorp Garage Co., Inc., for the purchase of its business, conducted at 214 West 80th Street in the City of New York, including the lease and stock and fixtures, in consideration of the sum of $10,000, to be paid in common capital stock of the petitioner, one-half to Isador Phillips and the other half to Samuel H. Stone, for whom the contract was originally obtained. Shortly thereafter, to wit, on March 13, 1919, the Apthorp Garage Co. executed a bill of sale to the petitioner, the pertinent provisions of which are: That THE APTHORP GARAGE COMPANY, a domestic corporation, party of the first part, for and in consideration of the sum of One Hundred Dollars and other valuable consideration, in lawful money of the United States, to it in hand paid, at or before the ensealing and delivery of these presents, *3447 by WEST EIGHTIETH STREET GARAGE Co., INC., a domestic corporation, party of the second part, the *799 receipt whereof is hereby acknowledged, has bargained and sold and by these presents do grant and convey, unto the said party of the second part, its successors and assigns, all of the fixtures, oil tanks, lockers, furniture, supplies and stock of goods, (except the motor in crate, barred of tubes, 16 racing tires, racing wheels and ecolene, all the property of Mr. Ralph DePalma) now in the building at Number 214-216 West Eightieth Street, in the Borough of Manhattan of the City of New York, it being intended to hereby include all of the personal property now, or on February 13th, 1919, in said premises, with the exceptions above stated, and except also such supplies as have since February 13th, 1919 been sold and removed from stock, and except also the corporate books and papers of the party of the first part, and except the cars of customers, or/and their property therein, and except the contents of the lockers; AND ALSO all of the accounts receivable for all business done and service furnished by the party of the first part since February 28th, 1919; AND ALSO*3448 the right to use the name "Apthorp Garage" in connection with said premises (so far as the party of the first part may grant the same), and the party of the first part agrees that it will not hereafter conduct any garage business in the City of New York under said name, or use said name in connection with any garage business in said City. In March, 1919, the petitioner recorded the acquisition of those assets in its books of account by the following journal entry: Began business March 1st, 1919, with following list of assets and liabilities as per instructions from Mr. Phillips: Cash as per cash book $1,652.97 Less refund overdraft 125.00 $1,527.97 Taxes (% payable) 367.33 Taxes, water (% payable) 24.00 Deposit on rent 3,000.00 Stock 1,144.39 Rent 1,000.00 Labor 557.11 Insurance 56.25 Machinery and fixtures 1,500.00 Good will 21,605.61 30,391.33 Capital stock 30,000.00 Total 30,391.33 Subsequently to consummating the foregoing transaction with the Apthorp Garage Co., Inc., the name of the business was changed to that of the petitioner. The petitioner claimed a deduction of $1,322.79, representing exhaustion of a*3449 leasehold, in the computation of net income for 1920, which sum the respondent disallowed, on the ground that the so-called leasehold represented in fact what was entitled good will in the books of account at the commencement of business, which was merely a balancing figure for bookkeeping purposes. *800 OPINION. MORRIS: While it appears sufficiently clear from the testimony that the negotiations entered into in February and March of 1919 resulted in the acquisition of certain of the assets of the Apthorp Garage Co. and the consummation of a lease on the premises occupied by that company, the evidence adduced does not enable us to find as a fact that the amount of $21,605.61, nor any part thereof, recorded in the books of account as "good will," was paid for said lease. The lease itself was not offered in evidence at the hearing of this proceeding, nor was there any testimony as to the life thereof. Therefore, even assuming that a lease was acquired at a cost of $21,605.61 we have no means of determining the pro rata portion of that sum attributable to the taxable year in controversy. The petitioner's counsel submitted a copy of a lease, together with other exhibits, *3450 with his brief, which purports to be the one entered into between the petitioner and the owner of the premises, but we have repeatedly held that ex-parte evidence can not be used in the trial of cases before this Board, and, therefore, those exhibits can not be considered. The petitioner having failed to produce sufficient evidence in support of the contentions and allegations in its petition, the findings of the respondent must be sustained. Judgment will be entered for the respondent.