Skilling v. Commissioner , 41 B.T.A. 888 ( 1940 )

JOSEPH KENNARD SKILLING AND ANNA M. REED SKILLING, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Skilling v. Commissioner

Docket No. 95355.

United States Board of Tax Appeals

41 B.T.A. 888; 1940 BTA LEXIS 1129;

April 18, 1940, Promulgated

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The value of a one-fourth interest in a building erected by petitioners' lessee and repossessed on his default in the payment of rentals during the taxable year held to be income in the year of repossession. Helvering v. Bruun,309 U.S. 461">309 U.S. 461.

John B. Peery, C.P.A., for the petitioners.

Ellyne E. Strickland, Esq., for the respondent.

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TYSON

Petitioners seek redetermination of a deficiency of $21,626.76 in income tax for the calendar year 1936, of which, however, only $20,753.74 is contested. This disputed amount arises from the inclusion in petitioners' income for 1936 of $60,000 as representing the value of petitioners' one-fourth interest in a certain building erected by petitioners' lessee and repossessed by the lessors during the taxable year on the lessee's default. We adopt as our findings the facts stipulated by the parties but set forth hereinafter only such of those facts as are deemed essential to consideration of the issue presented.

FINDINGS OF FACT.

The petitioners are husband and wife, whose post office address is c/o Girard Trust Co., Philadelphia, Pennsylvania. For the taxable year 1936 they filed a joint income tax return.

In 1925 Anna M. Reed (now Anna M. Skilling), then single, was the owner of a one-fourth undivided interest in certain premises located at 1600 and 1602 Chestnut Street, Philadelphia, Pennsylvania. On September 30 of that year she joined with her contenants in a 50-year lease of the property by the terms of which the lessee was to pay certain specified rentals and was also to erect a building on the premises within two years of the date of execution of the lease. Provision was made also in the lease for forfeiture of the lease and repossession of the premises by the lessor on default in the payment of rentals by the lessee.

In accordance with the terms of the lease, so providing, the lessee of the premises in question erected thereon a new building without cost to the petitioners. During the taxable year 1936 the lessee defaulted in payment of rentals and the premises were repossessed and full use and control thereof obtained by the lessors. At the time of repossession the fair market value of the building erected by the lessee was $240,000 and it had a useful life at that time of not exceeding 50 years.

In their joint return for the year 1936 the petitioners did not report as income any amount representing that one-fourth interest in the value of the building on the premises repossessed in that year.

OPINION.

TYSON: The issue here - whether income is realized by the lessor from the repossession, on default of the lessee, of a building erected by the lessee without cost to the lessor - is the same as that decided by the Supreme Court in , and our decision is controlled by the ruling in that case. There, a building was erected by the lessee on the leased premises and the value of the building at the time of its repossession by the lessor was held to be income to the lessor in the year of the repossession. We perceive no difference important here between the facts in the Bruun case, supra, and the instant case.

Accordingly, we hold that income of $60,000 was realized by petitioners during the taxable year 1936 from the repossession of the leased premises and the building erected thereon by the lessee.

Decision will be entered under Rule 50.