Two-Republics Life Ins. Co. v. Commissioner

TWO-REPUBLICS LIFE INSURANCE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Two-Republics Life Ins. Co. v. Commissioner Docket No. 29363. United States Board of Tax Appeals 21 B.T.A. 1355; 1931 BTA LEXIS 2209; January 23, 1931, Promulgated *2209 INCOME OF LIFE INSURANCE COMPANY. - The gross income of a life insurance company, occupying a portion of space in an office building owned by it, may not be increased by an estimated rental value of the space so occupied; and deductions for taxes and other expenses incurred in respect of said office building, and allowed by section 245(a)(6) of the Revenue Act of 1924, may not be denied or abridged on account of the omission of said estimated rental value from gross income. Independent Life Insurance Co. of America,17 B.T.A. 757; Reserve Loan Life Insurance Co.,18 B.T.A. 359, followed. John V. Sees, Esq., for the petitioner. T. M. Mather, Esq., for the respondent. TRUSSELL *1355 This proceeding calls for a redetermination of an alleged deficiency in income tax for the year 1924 in the amount of $552.17. The issue raised in the petition is in respect to the proper treatment of the net value of the company's home office building and the amount of estimated rental value of the space occupied by the company and adjustment of deductions under the provisions of section 245(b) of the Revenue Act of 1924 and*2210 the bar of the statute of limitations pleaded by petitioner at the trial with respect to a motion made on behalf of the respondent for an increase of deficiency. FINDINGS OF FACT. The petitioner is a life insurance company organized under the laws of Texas, with its principal office at El Paso. During the year 1924 it owned, operated and occupied in part an office building, the book value of which was $900,000 at the end of the taxable year. Upon this building property there then rested a mortgage indebtedness in the amount of $300,000. For the year 1924 the income and expenses of the petitioner with respect to this building were as follows: Income received from rents $42,190.54 Taxes paid 12,632.95 Other expenses pertaining to this property 19,826.40 Interest paid upon the mortgage indebtedness 18,600.00 *1356 In making its income tax return for the year 1924, the petitioner reported: Gross income Deductions Income, interest from all sources $39,143.70 Exempt interest $205.89 Rents received from the office building 42,190.54 Excess of 4 per cent of 40,557.56 mean of reserve over exempt interest Estimated rental value of space occupied by petitioner 7,800.00 Taxes 12,632.95 Other real estate 19,826.40 Total 89,134.24 Interest 18,816.67 Deficit from operations 2,905.23 92,039.47 Total 92,039.47 *2211 Upon the audit of this return the respondent increased the estimated rental value of space occupied from $7,800 to $14,268.81; added rents received from other properties in the amount of $2,374.72, and reduced the amount of the excess of 4 per cent of mean of reserve in the amount of $479.03, and set up the gross income and deductions as follows: Gross income Deductions Interest from all sources $39,143.70 Interest exempt $205.89 Rents received from office building 42,190.54 Excess of 4 per cent of 40,078.53 mean of reserve over exempt interest Estimated rental value of space occupied by petitioner 14,268.81 Taxes 12,632.95 Rental income from other properties 2,374.72 Other real estate 19,826.40 Interest 18,816.67 Total 97,977.77 Total 91,560.44 Showing a net income of 6,417.33 97,977.77 The addition of rental income from other properties $2,374.72, and the reduction of the 4 per cent of mean of reserve in the amount of $479.03 are not here in dispute. OPINION. TRUSSELL: The main issue here raised by the petitioner is in respect of the application to petitioner's income tax return for the*2212 year 1924 and the application throughout of the provisions of section 245(b) of the Revenue Act of 1924, which is as follows: No deduction shall be made under paragraphs (6) and (7) of subdivision (a) on account of any real estate owned and occupied in whole or in part by a life insurance company unless there is included in the return of gross income the rental value of the space so occupied. Such rental value shall be not less than a sum which in addition to any rents received from other tenants shall provide a net income (after deducting taxes, depreciation, and all other expenses) at the rate of 4 per centum per annum of the book value at the end of the taxable year of the real estate so owned or occupied. *1357 Since the filing of the pleadings in this action, the Board has had under consideration the foregoing section 245(b) of the Act of 1924, and in , and , has held that any amount of estimated rental value of space occupied by a life insurance company in a building owned by it may not be added to gross income and that the deductions*2213 for taxes and other expenses pertaining to such building, as authorized in section 245(6) and (7) may not be either abridged or denied. In view of these decisions, when we are considering other cases involving similar situations, we may not fail to give effect to our own prior decisions. We are therefore of the opinion that in this case the petitioner's gross income as determined by the respondent in the deficiency letter should be reduced by omitting the item of $14,268.81, treated as the rental value of space occupied by the petitioner in its own building. This will result in the allowable deductions exceeding the gross income and, there being no net income, there can be no deficiency and no increase of deficiency. We are, therefore, of the opinion that the question of the plea of the statute of limitations against an increase of deficiency need not here be considered. Judgment of no deficiency will be entered.