Wilson v. Commissioner , 12 B.T.A. 403 ( 1928 )

F. H. WILSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Wilson v. Commissioner

Docket No. 1911.

United States Board of Tax Appeals

12 B.T.A. 403; 1928 BTA LEXIS 3554;

June 5, 1928, Promulgated

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">*3554 1. Receipt of proceeds of sale by taxpayer's agent constitutes receipt by a taxpayer on a cash receipts and disbursements basis.

2. Value of land determined.

3. Loss incurred on account of destruction of grapevines allowed in part.

4. Value of stock determined.

5. Rate of depreciation of petitioner's orchard determined.

A. Calder Mackay, Esq., for the petitioner.

George G. Witter, Esq., for the respondent.

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VAN FOSSAN

">*403 Petitioner asks a redetermination of deficiencies found by respondent for the years 1917, 1918, and 1919, aggregating $17,806.30. Error is alleged (1) in the allocation of income to the several years; (2) in the value as of March 1, 1913, placed on certain lands sold by petitioner; (3) in disallowing a loss sustained by destruction of grapevines; (4) in the value as of March 1, 1913, placed on certain stock sold by petitioner; (5) in refusing to allow a rate of 5 per cent depreciation on petitioner's orchards.

FINDINGS OF FACT.

In the year 1900 petitioner acquired a ranch of 320 acres, to which he gave the name Miramonte Ranch. From 1900 to 1905 petitioner was engaged in leveling and cultivating the">*3555 land and planting the same to grapevines and peach and plum orchards. By 1913 all of the ranch was planted in fruit excepting 14 acres in alfalfa, and the vineyards and orchards were in full production. On the ranch there were erected a packing house worth $6,000, and an irrigation system consisting of a mile or more of a 12-inch main feeder concrete pipe line and open ditches. The soil was of a rich alluvial character well suited for growing all kinds of fruit. Petitioner's products commanded top prices in the market.

The cost of bringing the ranch to the state of cultivation existing in 1913 was $450 per acre, exclusive of the original cost of the land.

In 1919 petitioner sold 117.85 acres of the Miramonte Ranch for $141,420. At the time of sale all of this land was producing grapes planted in 1904 or 1905 and all had been producing in 1913. The fair ">*404 market value of this land on March 1, 1913, was $600 per acre. Petitioner received $15,000 on account of the purchase price in the year 1919.

In 1919 a dangerous and destructive disease known as the Nematode was found to exist in certain sections of petitioner's land. To counteract this disease it is necessary">*3556 to pull out and destroy the vines and trees. In 1918 petitioner grubbed out 14 acres of Emperor grapevines planted in 1914, and 8 acres of Malaga grapevines planted in 1905. In 1919 petitioner grubbed out 6 acres of Malaga grapevines planted in 1905, and 8 acres of peach trees planted in 1902. The normal life of Emperor grapevines is 20 years after planting and that of Malagas is 25 years. The normal life of a peach tree is 20 years after planting. The peach trees had not borne for 3 years before being grubbed out. Both the grapevines and peach trees begin to bear when 5 years old.

Petitioner stated the fair market value of the Malaga grapevines and peach trees destroyed in 1918 and 1919 to be $450 per acre but qualified that figure by stating that the residual value of the irrigation system, the leveling of the ground and all other improvements should be deducted. The amount of these deductions was not established. The cost of the Emperor grapevines from 1914 to date of destruction in 1919 was $450 per acre.

Previous to 1910 petitioner as an individual was also engaged in the nursery business. In 1910 the Fresno Nursery Co. was organized and petitioner acquired 250">*3557 shares of the capital stock in consideration of certain nursery buildings, equipment, and growing stock. One hundred shares were issued to C. B. Harkness and endorsed back to petitioner. No payment was ever made on the stock. One hundred shares were also issued to C. A. Chalmers, which was endorsed back to petitioner. No payment was ever made on this stock. The remaining 50 shares were issued to petitioner's brother as a present. On March 1, 1913, petitioner was the owner of 350 shares of stock and in 1916 acquired 100 shares from C. A. Chalmers. As of May, 1919, the records of the Fresno Nursery Co. showed the following entries in the capital account:

Animals	$900.00
Building	1,857.25
Furniture and fixtures	800.00
Implements	2,143.50
F.H.W. 1/2	25,000.00
C.A.C. 1/5	10,000.00
W.J.W. 1/10	5,000.00
F.H.W.C.B.H. 1/15	10,000.00
Growing Nursery Acct	12,888.97

Petitioner denied the accuracy of the records as shown. In 1913 the Fresno Nursery Co. was growing 500,000 trees and 1,000,000 ">*405 grapevines, together with some ornamentals. Petitioner sold 450 shares of Fresno Nursery Co. stock in 1917 for $29,700.

Petitioner marketed his fruit">*3558 almost exclusively through the Earle Fruit Co. This company was a member of the California Fruit Distributors. Payment for fruit sold was received by petitioner through the Earle Fruit Co. In December, 1917, the Earle Fruit Co. received $2,284.87 on account of fruit shipped and sold. This sum was not remitted to petitioner until after January 1, 1918. Respondent placed this amount in income for 1917. Similarly, in December, 1918, the Earle Fruit Co. received $15,002.70, which was remitted to petitioner after January 1, 1919. This amount was placed in 1918 income by respondent. In December, 1919, the Earle Fruit Co. received $29,976.95, which was not remitted to petitioner until after January 1, 1920. This sum respondent placed in 1919 income. Petitioner was on a cash receipts and disbursements basis.

OPINION.

VAN FOSSAN: The first error alleged in the petition arises from the holding by respondent that petitioner received certain income in each of the years 1917, 1918, and 1919 although the sums involved were not physically received by petitioner until after the close of each taxable year. It is a well established principle of law that receipt by an agent is receipt">*3559 by the principal. This applies in tax cases. . It applies even though the party be on a cash receipts basis. ; . So far as the record shows the Earle Fruit Co. was acting as an agent for petitioner. Petitioner so characterized the relationship when he said, "My returns came through the agent through whom I deal, the Earle Fruit Company." There is nothing proving the contrary and every reasonable conclusion from the testimony is that Earle Fruit Co. was the agent of petitioner. As such, receipt of payment by it for goods sold was receipt by petitioner and respondent was not in error in so treating the payments in question. The case of , dealt with a peculiar set of facts and did not lay down a general rule in conflict with the Strauss case. It is not an authority here.

The second error alleged is the value as of March 1, 1913, fixed by respondent for 117.85 acres of land sold by petitioner in 1919 for $141,420. The testimony of petitioner's witness is that it was worth $600 per acre. ">*3560 Respondent produced no witnesses and failed to shake the value assigned or to cast doubt on the credibility of the witness produced by petitioner. We find the value to be $600 per acre as of March 1, 1913. This value is in excess of the cost of the land.

The next assignment of error is that respondent disallowed a loss sustained in 1918 and 1919 by the destruction of grapevines. This ">*406 destruction was made necessary by the presence of a disease in certain parts of the vineyards and orchards. Petitioner proved the destruction in 1918 of 14 acres of Emperor grapevines planted in 1914, the same being of a total reasonably expected life of 20 years, and 8 acres of Malaga grapes planted in 1905 of a total reasonably expected life of 25 years. In 1919 petitioner destroyed 6 acres of Malagas planted in 1905 and 8 acres of peach trees planted in 1902. The fair market value of the Malaga grapevines and peach trees was stated to be $450 per acre but the witness qualified that value by stating that there should be deducted the residual value of the irrigation system, the leveling of the ground, and other improvements. The amount of such deduction was not proved and we have">*3561 no data from which to compute it. We do not know whether it would amount to $50 or $100 per acre, or more or less than those amounts. The cost of growing the Emperor grapevines was $450 per acre. They were planted in 1914 and destroyed in 1919. This represents a deductible loss. As to the peach trees attention is called to the fact that the allegation of error covers only grapevines and though some data were placed in evidence the petition was not amended to conform with the proof. It is also noted that though the peach trees were stated to be of a value of $450 per acre they had not borne fruit for three years before destruction in 1919. Were the loss on the trees presented by the pleadings this fact would raise a serious question as to when the loss, if any, was sustained.

The fourth error alleged is the value as of March 1, 1913, placed by respondent on the stock of the Fresno Nursery Co. sold by petitioner in 1917 for $29,700. Here again we find shortage of proof or confusion in the record. Though there is some evidence indicating the possibility of a higher 1913 value than that allowed by the respondent, there is other evidence that confuses the proof and discounts">*3562 the claim for higher value. Respondent allowed a value of $15,000 for the stock owned on March 1, 1913, and added to that the sum of $2,700 paid for 100 shares in 1916. Upon the whole record we are unable to find that the stock was worth more than the value so allowed.

The last issue raised by the pleadings is the depreciation allowed by respondent on petitioner's orchards. No error is alleged as to the depreciation on vineyards. The evidence establishes that the total reasonable life of a peach tree is 20 years after planting. There is no evidence of the life of a plum tree, nor have we any evidence of the actual acreage of orchards owned by petitioner in the taxable years. The fair market value per acre on March 1, 1913, of the peach trees located on petitioner's ranch was $400 and of the plum trees $450.

Judgment will be entered under Rule 50.