Weisbecker v. Commissioner

*766 These proceedings are for the purpose of determining the correctness of deficiencies determined for the calendar years 1924, 1925, and 1926 in the amounts of $2,381.27, $1,064.11, and $1,215.03, respectively. The question involved is whether the petitioner, keeping its books of account and making its returns on the accrual basis, may deduct, from gross incomes of 1924, 1925, and 1926, $13,846.64, $7,500, and $8,653.36, representing rentals paid in those years for the premises occupied by the petitioner while in the hands of a receiver during the years 1919 and 1920.

FINDINGS OF FACT.

The petitioner is a New York corporation with principal office in New York City. It conducts a large retail market. The petitioner's books of account and tax returns for*2596 1925 and 1926, and for many years prior thereto, were kept and made upon the accrual basis. A part of the premises occupied by the petitioner was leased from the estate of Charles Weisbecker, the owner. These leases contained a cancellation clause providing in the event the lessee, the petitioner herein, went into receivership the owner should have the right, upon due notice, to terminate the leases.

On January 24, 1919, a receiver of all of the property of the petitioner was appointed by the United States District Court for the Southern District of New York; on January 25, 1919, the lessor served notice of cancellation of these leases and demanded a rental for premises; subsequently the lessor demanded $15,000 as the annual rental for one of the properties; the lessor thereafter made further demands both oral and written for the payment of rentals, but notwithstanding such demands the receiver failed to pay any rent whatsoever throughout the entire receivership, which terminated December 31, 1921.

*767 The receiver kept his own books on the accrual basis and the returns which he filed as receiver for the petitioner corporation were kept on the same basis.

During*2597 the years 1924, 1925, and 1926 the petitioner paid in the aggregate the sum of $30,000 to the estate of Charles Weisbecker, the owner, to cover back rental due for the years 1919 and 1920, as follows:

In the income-tax returns of the petitioner filed by the receiver for 1919 and 1920, $15,000 was claimed as a deduction from gross income of each year, on the ground that the same constituted accrued rental. Upon disallowance of the deductions claimed the petitioner appealed to this Board and the Board sustained the Commissioner's disallowance in .

In view of the failure to obtain the deductions for accrued rentals in the years 1919 and 1920, as originally claimed, petitioner then treated the payments for back rent in 1924, 1925, and 1926 as ordinary and necessary expense deductions of those years. The Commissioner has likewise disallowed the deductions made in the years 1924, 1925, and 1926, and has determined deficiencies accordingly.

Although the petitioner disagreed with the determination and findings of the Board made in *2598 , it had no recourse under the statute as it then existed (Revenue Act of 1924), to appeal from the Board to the Circuit Court of Appeals, or otherwise. The petitioner therefore subsequently paid the additional assessments for the years 1919 and 1920, and has filed or is about to file claims for refund of such additional assessments, and if these claims are rejected intends to bring suits for the refund of the additional taxes paid. An additional tax demanded for 1921, by reason of the disallowance of the rental accrual of $15,000, has been paid and a claim for refund filed therefor, which has been rejected by the respondent, and suit has been instituted against the collector in the United States District Court for the recovery of same.

OPINION.

SMITH: The petitioner's books of account were kept and its income-tax returns for 1924, 1925, and 1926 were made upon the accrual basis. Likewise its books of account and returns for prior years from 1919 to 1925 were made upon the same basis. The petitioner contends in these proceedings that the Board's decision in *2599 , was in error and at the *768 hearing of these proceedings it made a motion that the Board reconsider its decision in the above entitled case and permit the deduction of $15,000 rental accrued for each of the years 1919 and 1920. The motion was taken under advisement.

Under the Revenue Act of 1924, the Board had no authority to grant a refund. . The deficiencies involved for the years 1919 and 1920 have been paid. Under the Revenue Acts of 1926 and 1928 the Board has no jurisdiction to determine the amount of overpayments, if any, where the respondent has not determined a deficiency. It is otherwise where the Commissioner has determined a deficiency. . The Board has no jurisdiction to order the respondent to make any refunds to this petitioner for the years 1919 and 1920. The motion for a reconsideration of the decision made with respect to the years 1919 and 1920 is denied.

The petitioner was on the accrual basis for the years 1924, 1925, and 1926. *2600 Upon such basis it is permitted to deduct only amounts properly accruing in those years. If the petitioner owed a certain amount of rental for the use of the premises for the years 1919 and 1920 and paid those amounts in 1924, 1925, and 1926, they were clearly not accruals of 1924, 1925, and 1926. . The claim of the petitioner to deduct these amounts as accruals for those years must be denied. The determination of the deficiencies made for the years 1924, 1925, and 1926 is sustained.

Reviewed by the Board.

Judgment will be entered for the respondent.