Adams, Cushing & Foster, Inc. v. Commissioner

ADAMS, CUSHING & FOSTER, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Adams, Cushing & Foster, Inc. v. Commissioner Docket No. 16079. United States Board of Tax Appeals 19 B.T.A. 89; 1930 BTA LEXIS 2473; February 27, 1930, Promulgated *2473 Proposed additional assessment for the fiscal year ended January 31, 1921, held not barred by the statute of limitations. Myles Salt Co., Ltd.,18 B.T.A. 742. Frank J. Albus, Esq., for the petitioner. W. Frank Gibbs, Esq., for the respondent. SMITH *89 This proceeding involves a deficiency in income and profits tax for the fiscal year ended January 31, 1321, in the amount of $16,371.62. The petitioner alleges error on the part of the respondent in increasing its income by the net amount received during the taxable year in consideration for the assignment of a lease, and also pleads the statute of limitations as a bar to the assessment and collection of any additional tax for the year involved. FINDINGS OF FACT. For the fiscal year ended January 31, 1921, the petitioner filed a consolidated income and profits-tax return with the Moore Pen Co. The said return was filed on April 14, 1921. At the beginning of the fiscal year ended January 31, 1921, the petitioner occupied premises at 168 Devonshire Street, Boston, Mass., under a lease which ran for 8 years and 4 months from March 1, 1916. During the fiscal year*2474 1921 the First National Bank of Boston entered into negotiations with the petitioner to acquire from it the unexpired portion of the lease to the premises at 168 Devonshire Street. As a result of these negotiations the petitioner, in May, 1920, agreed to relinquish its rights to the lease at 168 Devonshire Street and assign the unexpired portion thereof to the First National Bank of Boston upon payment of $52,500. The said $52,500 was thereupon paid by the First National Bank of Boston to the petitioner. The petitioner considered that the payment of the $52,500 was to cover obsolescence, moving expense and loss due to removal of its location of business at 108 Federal Street, Boston, Mass., and consequently did not report any profit on the transaction. The Commissioner in auditing the return of the petitioner for the fiscal year ended January 31, 1921, determined that the $52,500 received from the First National Bank of Boston should be included in the income of the petitioner for the fiscal year 1921, and against this amount the Commissioner allowed as a deduction the sum of $6,752.41 representing moving expense of the petitioner *90 in moving to its new location, and allowed*2475 the amount of $4,842.96 representing obsolescence due to moving and allowed additional depreciation in the amounts of $500.86 and $3,552.33, making total deductions against the $52,500 of $15,648.56, and included the balance of $36,851.44 as income for the fiscal year 1921. No contention is raised in this proceeding with respect to any of the adjustments mentioned above except the Commissioner's inclusion of the $36,851.44 as taxable income for the fiscal year 1921, the petitioner contending that this balance should be spread over the remaining four years which the lease would have had to run had it not been canceled. Petitioner kept its books on the accrual basis. Under date of March 18, 1926, the respondent forwarded to the petitioner a deficiency notice proposing an additional assessment of tax in the amount of $16,371.62 for the taxable year ended January 31, 1921. The proposed additional assessment is based upon the reports of an internal revenue agent on the petitioner and the Moore Pen Co. dated June 25, 1925, and June 26, 1925, respectively. In his reports the agent disallowed consolidation determining the separate incomes of the petitioner and the Moore Pen Co. *2476 and included in the petitioner's income for the year 1921 an amount received as compensation for the cancellation of a lease, less moving expense, which items were entered on the books of the petitioner in an account called "Reserved for loss on relocation." The exemption of $2,000 taken by the petitioner on its return was reduced by the agent to eleven-twelfths of that amount, or $1,833.34. The agent in his report on the Moore Pen Co. made no disallowance of deductions taken on the consolidated return nor additions to income as shown thereon and determined an overassessment in the amount of $484.34. The respondent reversed the ruling of the revenue agent only with respect to consolidation, and computed the petitioner's tax liability upon the basis of the consolidated return originally filed subject to the changes made by the agent. The return filed by the petitioner and the Moore Pen Co. for the taxable year ended January 31, 1921, was not a false or fraudulent return. The petitioner and the respondent have not entered into any agreement extending the time for the assessment and collection of any additional taxes for the year ended January 31, 1921. OPINION. *2477 SMITH: The petitioner contends that the statute of limitations question here raised comes squarely within our decisions in Fred T.*91 ; ; ; ; and others wherein we held, in effect, that, a return having been filed under the 1918 Act, a taxpayer was not required to file under the Revenue Act of 1921 an additional return for a fiscal year ended within the year 1921, except where the taxpayer was subject to an additional tax liability under the provisions of the latter act. At the hearing the parties submitted a statement of agreed facts substantially as set forth in our findings of fact above. The facts shown, we think, conform more nearly to those in , and , particularly the latter, since the petitioner herein has filed no return for the taxable year before us under the provisions of the 1921 Act, in which we held that in cases where the tax liability was increased by the*2478 provisions of the 1921 Act a new return was required to be filed after the passage of that act and that the statute of limitations would run from the filing of such return. In the Myles Salt Co., Ltd., case we said: Since admittedly the petitioner had a greater tax liability under the Revenue Act of 1921 for the fiscal year ended February 28, 1921, than it had under the Revenue Act of 1918 for the same fiscal year, and since it filed no return as required by the Revenue Act of 1921 and the regulations of the Commissioner thereunder, we are of the opinion that the statute of limitations has not operated to bar the assessment and collection of the deficiency determined by the respondent in the amount of $13,848.22. It will be noted that in the Myles Salt Co., Ltd., case the petitioner had claimed in its return filed under the 1918 Act a credit of $2,000, whereas under the 1921 Act it was entitled to a credit of only $1,666.66. Likewise, the petitioner here claimed a credit of $2,000 in its return to which it was entitled under the 1918 Act, but under the 1921 Act it was entitled to a credit of only eleven-twelfths of that amount, or $1,833.34. It was on account of the*2479 difference in the amount of the credit allowable under the 1918 and 1921 Acts that the Fred T. Ley & Co. case and others upon which the petitioner relies are distinguishable from the Wanamaker and the Myles Salt Co., Ltd., cases, as well as the instant one. Upon authority of John Wanamaker Philadelphia and Myles Salt Co., Ltd., we hold that the assessment and collection of the deficiency herein is not barred by the statute of limitations. In its brief the petitioner states: The assessment and/or collection of any additional tax from the petitioner for the fiscal year ended January 31, 1921 appears so clearly to be outlawed that the petitioner in this appeal is relying solely on the question of the expiration of the statute of limitations. *92 Regardless of whether the petitioner intended to waive its contention with respect to the merits, we are satisfied from the facts shown, substantially all of which have been stipulated by the parties, that the respondent properly included in petitioner's income the amount received by it during the year in consideration for the assignment of its lease to the First National Bank of Boston. The assignment was*2480 completely executed and the transaction closed during the taxable year and the petitioner's gain thereon was ascertainable to a certainty at that time. We have before us no evidence refuting the correctness of the respondent's determination of the amount of the petitioner's taxable gain. Judgment will be entered for the respondent.