McManigal v. Commissioner

*932 The respondent has asserted a deficiency in income tax for the year 1919 in the amount of $293.34. In the original petition it is alleged that the respondent erred in adding to the sales price sustained depreciation of $1,000 on improvements in the determination of profit resulting from the sale of a farm and buildings. At the hearing the petition was amended to include a claim for the deduction of the amount of $2,500 alleged to have been expended by the petitioner in the taxable year for cattle and corn.

FINDINGS OF FACT.

The petitioner is a resident of the State of Iowa, and during the taxable year was engaged in farming and in breeding, purchasing and feeding live stock for sale.

*933 In the year 1919 the petitioner sold a farm and for the land and improvements thereon received*3690 the amount of $54,000. Such farm was made up of two parcels of real estate, one acquired prior to March 1, 1913, with a value of $25,000 at that date, and the other in 1916 at a cost of $9,000. After the acquisition of the land in question the petitioner made capital expenditures in connection therewith in the amount of $3,900. During the petitioner's ownership the improvements on the farm sustained allowable depreciation in the amount of $1,000. The sale resulted in a net taxable gain of $17,100.

The total income of the petitioner from his farming and feeding operations in the taxable year as reported in his income-tax return was $8,336.87, which was reduced by deducting expenses, repairs and depreciation in the amount of $7,892.58, to a net operating income of $444.29. Included in the expenditures allowed by the respondent were two items of $2,549.22 and $2,136.28, representing respectively amounts expended for feed and for the purchase of live stock on hand at the close of the year. During the year the petitioner borrowed $2,500 which was used in the purchase of live stock for resale and of feed.

OPINION.

*3691 LANSDON: In his income-tax return for the taxable year the petitioner deducted from the sales price received for his farm the amount of $1,000 representing depreciation of improvements sustained during his ownership and reported a profit of $15,100 realized from the sale. Upon audit of such return the Commissioner added the sustained and allowable depreciation to the sales price and determined a profit of $17,100. On this issue the determination of the respondent is approved. ; .

At the hearing the petitioner, on permission granted, amended his petition to include a claim for an additional deduction from his gross operating income for the taxable year of the amount of $2,500. He alleges that he borrowed such amount from banks in 1919 and expended the whole thereof in the purchase of cattle and corn; that within the year the corn was fed to live stock intended for sale; that the live stock purchased was either sold within the year or on hand at the close of the year; and that the said $2,500 was inadvertently omitted from the amounts claimed as deductions from operating income. *3692 The evidence on this point is not sufficiently clear to enable us to make a finding of fact favorable to the petitioner. The record shows that during the taxable year the petitioner expended $2,594.22 for feed and that at the end of such year he had live stock not sold of the value of $2,136.28. It is clear that the amount in question was borrowed as alleged, but nothing in the record proves that it *934 was used for the purchase of corn and cattle in addition to the amounts allowed by the respondent as deductions from operating income on account of the purchase of feed and live stock unsold at the close of the year. Since borrowed money is not a deductible item from gross income for the purpose of determining tax liability there is no basis upon which this claim can be allowed.

Reviewed by the Board.

Judgment will be entered for the respondent.