Hanlon v. Commissioner

*809 These consolidated proceedings are for the redetermination of deficiencies in income tax for the fiscal year ended January 31, 1923 in the amounts of $6,487.29 and $6,487.28, respectively. The question in issue is whether the allowance for depreciation should be computed upon the cost of property to the donor or the fair market value of the property at the date acquired by the petitioners by gift October 1, 1921.

FINDINGS OF FACT.

The petitioners are residents of Sistersville, W. Va. On October 1, 1921, Mary E. Hanlon received from her brother, and Elizabeth *810 Henaghan from her husband, one and the same individual, as a gift a one-fourth interest in the following properties:

(1) Buildings, machinery and equipment, hereinafter called the "consolidated plant", used*2521 in manufacturing gasoline from "casinghead" gas.

(2) Buildings, machinery and equipment, hereinafter called the "selling station" used in the storage and distribution of "casinghead" gasoline.

Each of the petitioners claimed as a deduction in her income-tax return for the fiscal year ended January 31, 1923, an allowance for depreciation on the aforementioned buildings, machinery, and equipment upon the value of her interest at the date of acquisition, namely, October 1, 1921, which was computed as follows:

In the computation of the deficiencies herein complained of the Commissioner based the allowance for depreciation upon the cost of the properties to the donor, the brother of Mary E. Hanlon and the husband of Elizabeth Henaghan, and by so doing disallowed a portion of the depreciation claimed. The deficiencies determined by the Commissioner result in part from such disallowances.

OPINION.

SMITH: The question presented by these proceedings is purely one of*2522 law, namely, whether the allowance for depreciation permitted by the Revenue Act of 1921 as a deduction from gross income should be based upon the cost of the properties to the donor or upon the value of those properties at the date of acquisition by the petitioners which was October 1, 1921. In , we held that the basis for depletion under the Revenue Act of 1921, where property was acquired by gift subsequent to December 31, 1920, was the fair market value of the property at the date of the gift. The same rule must apply in the computation of an allowance for depreciation. Cf. . Upon the basis of the decision in , it is held that the allowance for depreciation should be based upon the value of the properties at the date of gift.

Judgment will be entered under Rule 50.