West Coast Hollywood Theatres v. Commissioner

Memorandum Findings of Fact and Opinion

The Commissioner determined deficiencies in income tax for the years 1938 and 1939 in the respective amounts of $2,296.88 and $1,295.94. The deficiencies resulted solely from the disallowance of alleged excessive depreciation deductions on six theatre buildings, theatre equipment, and for the year 1938 office equipment. At the hearing petitioner's counsel waived the assignment of error with respect to the disallowance of depreciation on equipment in the Stadium Theatre to the extent of $3,525.89 for the year 1938.

FINDINGS OF Fact

Petitioner is a California corporation engaged in the operation of motion picture theatres in and around Los Angeles. The following are the motion picture theatres, all of them so-called neighborhood theatres, which petitioner owned during the calendar years 1938 and 1939, the dates when they were constructed, the dates of acquisition by petitioner, the costs to petitioner, and the dates and amounts of capital*477 improvements made by petitioner to the end of 1939:

Through the calendar years 1938 and 1939 petitioner claimed annual depreciation for income tax purposes on a straight line basis, according a total life of 35 years to each theatre from the date of its construction, and a life to subsequent capital additions equivalent to the estimated remaining life of the theatre at the time of such additions. In the notice of deficiency the Commissioner determined that the Apollo Theatre had a useful economic life of 50 years and that the other five theatres had useful economic lives of 40 years. The useful economic lives of the theatres*478 in question from the dates of their construction, taking into account depreciation and obsolescence, were: 33 1/3 years for the Apollo, Rivoli, and Filmarte; and 35 years for the Carmel, El Portal and Stadium.

During the calendar years 1938 and 1939 petitioner owned the equipment in the Apollo, Beverly, Carmel, El Portal, Filmarte, Paramount (now known as Loma), Stadium and Valley theatres and also certain office equipment. The following are the years of purchase and cost of the equipment in issue here upon which the taxpayer claimed depreciation in its federal income tax returns for the years 1938 and 1939 and the theatres in which such equipment had been installed:

*479 The theatre and office equipment in the eight theatres enumerated in the foregoing paragraph had a composite life of eight years. This finding does not apply to theatre seats and sound equipment, as to which there is no issue in the present case.

Opinion

ARUNDELL, Judge: The only matter in dispute between the parties in respect of the six theatre buildings was the length of their respective useful economic lives. The parties were in agreement upon their costs and the dates of construction and/or acquisition by petitioner. We are of opinion that the evidence supports the ultimate finding of useful economic lives of the buildings. No useful purpose would be served by reviewing the evidence. It is sufficient to note that as to the three larger theatres our finding is in accordance with the rate of depreciation adopted and followed by petitioner for many years; and as to the other three the Commissioner's own witness testified that the useful economic lives would not exceed 33 1/3 years.

Respondent concedes on brief that the evidence justifies petitioner's claim that eight years is the correct composite life attributable to the theatre and office equipment. We agree that this is true*480 and a finding to that effect has been made.

Decision will be entered under Rule 50.