Belmont Lumber Co. v. Commissioner

Memorandum Findings of Fact and Opinion

OPPER, Judge: This is a related proceeding to those in Paul Haimovitz, Docket No. 15929, et al., decided by Memorandum Findings of Fact and Opinion filed this day [T.C. Memo. 1956-15]. Respondent determined deficiencies*282 in income taxes of petitioner as follows:

Findings of Fact

Some of the facts have been stipulated and are hereby found.

Petitioner is a Florida corporation organized on or about October 1, 1932. Its principal place of business is in Tampa, Florida. Its income and excess profits tax returns for each of the fiscal years ended September 30, 1944 through September 30, 1946, were prepared by a certified public accountant and were filed with the collector of internal revenue for the district of Florida. Each of these returns was filed on an accrual basis.

In 1926 Ben Haimovitz, deceased, acquired the assets of a defunct lumber concern and engaged in the retail lumber and building materials business as a sole proprietorship until he*283 incorporated petitioner in 1932 to take over and operate the business. On or about October 6, 1932, Ben transferred the assets of the proprietary lumber concern to petitioner. Ben, joined by his wife, Lillian Haimovitz, deceased, also transferred by deed on or about the same date certain real estate consisting of the following:

Englewood Subdivision

Lots 1, 2, 3, 4, 5, 6, and 7 of Block 12

Lots 1, 3, 4, 5, 15, 16, 17, and 18 of Block 13

Campobello Subdivision

Lot 4 of Block 5

Lots 8, 9, 10, and 11 of Block 6

Lots 8, 9, 10, and 11 of Block 12

Lots 1 and 2 of Block 17

Lots 2 and 3 of Block 19

Lot 1 of Block 20

Lot 11 of Block 24

Lots 7 and 8 of Block 34

Mount Carmel Subdivision

Lot 1 of Block 1

Garry Town Subdivision

Lots 9 and 12 of Block 13

Lot 8, Block 12, Campobello Subdivision, was sold to the First Born Church of Living God sometime prior to April 21, 1944. The south one-half of Lots 8 and 9, Block 6, Campobello Subdivision, was sold to Thomas Langston on or about March 26, 1945.

During each of the fiscal years ended September 30, 1944 through September 30, 1946, petitioner made sales of real estate. These transactions were not recorded on petitioner's*284 books for any of the fiscal years in question. In addition, petitioner did not report any income from these transactions on its income tax returns.

For the fiscal year ended September 30, 1944, petitioner realized a profit from the sale of real estate described as Lot 8, Block 12, Campobello Subdivision, as follows:

Petitioner's profits of $1,381, $4,312.50 and $5,700 are properly includible in its net income for the respective fiscal years ending September 30, 1944, 1945 and 1946.

A certified public accountant was employed in 1943 by Ben, Lillian, and petitioner to represent them in pending income tax matters. At that time no notice of deficiency had been issued to any of these taxpayers. Each of them gave the accountant powers of attorney which he filed with the Bureau of Internal Revenue.

During the latter part of 1943 or early part of 1944, after several letters had passed between Ben and the accountant, the latter tendered a bill for an accounting fee in the amount of $5,250. Of this amount, $250 represented a charge for service rendered to petitioner up to that time. *286 The balance of the bill, $5,000, did not represent charges for accounting services rendered up to that time, but instead was intended as a payment toward whatever the total fee might be for services to be rendered in any of the tax matters pending against Ben, Lillian, petitioner, and the Haimovitz interests in general. This was the first bill that the accountant had tendered.

In its income tax return filed for the fiscal year ended September 30, 1944, petitioner claimed under Schedule K a deduction for audit and legal expense in the amount of $5,253. This deduction represented, to the extent of $5,000, the retainer fee charged by the accountant in connection with his employment by the Haimovitz interests. Respondent determined that of the deduction for audit and legal expenses claimed by petitioner, $2,500 of such amount was applicable to Ben and $250 was applicable to Lillian.

Of the deduction claimed by petitioner in the amount of $5,253 for audit and legal expense, $2,750 was not an ordinary and necessary expenditure incurred in its business.

Opinion

As the case is presented, but two issues remain, one relating to respondent's determination of additional income from real*287 estate sales and the other to respondent's disallowance of a claimed expense deduction.

With respect to the first issue, we have found the facts in conformity with respondent's determination. The sales were admittedly made by petitioner and the possible character of only two of the sales appears from the record. The sale in fiscal 1944 appears to be a mortgage transaction and one of the sales in fiscal 1945 appears to be an "Agreement for Deed," although referred to as a mortgage by petitioner's witness. Notwithstanding this incomplete record and its failure to request any findings of fact, petitioner suggests that all of its sales are governed by our decision in Nina J. Ennis, 17 T.C. 465. This is its only argument. The present record permits no such conclusion for it contains no evidence to disturb respondent's determination. And see Arthur E. Wood, 25 T.C. - (December 14, 1955).

Respecting the second issue, the deficiency must also be sustained, this time on the testimony of petitioner's own witness. Petitioner paid a $5,000 retainer fee which was admittedly charged to cover an accountant's services with respect to Ben and Lillian as well as petitioner. No allocation*288 of charges was made by the accountant or petitioner and the evidence shows that the accountant was engaged in work on all Haimovitz interests as a result of his employment. Petitioner apparently questions only the right of respondent to make any allocation rather than the amount of the allocation made. Under these circumstances we must sustain respondent's determination. Ecco High Frequency Corp. v. Commissioner, (C.A. 2) 167 Fed. (2d) 583, certiorari denied 335 U.S. 825.

Decision will be entered for the respondent.