GRAVES, COX AND COMPANY, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 63015. Promulgated January 31, 1933. W. A. Hifner, Jr., C. P. A., for the petitioner. OPINION. ARUNDELL: The deficiency for redetermination in this proceeding is in income tax in the amount of $102.46 for 1929. The facts were stipulated. At various times in 1919 the petitioner, a Kentucky corporation engaged in the general retail clothing business in Lexington of that State, purchased some furniture and fixtures and charged the costs thereof to its furniture and fixtures account. For the years 1919 to 1928, inclusive, it claimed and was allowed depreciation on the assets so acquired at the rate of 10 per cent per annum. In its return for 1929, the petitioner claimed depreciation at the rate of 5 per cent on the additions made to the account in 1919. The respondent disallowed the claimed deduction, which action the petitioner alleges to be error. The petitioner contends that the basis for depreciation in 1919 should have been one-half of the cost of the assets, in view of the fact that the property was purchased at various times during the year. In addition to contending that the petitioner has received all of the depreciation to which it is entitled, the respondent pleads estoppel. The petitioner admits that it has fully recovered the cost of the assets through depreciation allowances. What it seeks to do is to obtain an allowance for depreciation in excess of the basis therefor because of an alleged error committed by the respondent in 1919, a year for which no liability exists for additional taxes on account of the running of the statute of limitations. "The amount of the allowance for depreciation is the sum which should be set aside for the taxable year, in order that, at the end of the useful life of the plant in the business, the aggregate of the sums set aside will (with the salvage value) suffice to provide an amount equal to the original cost." United States v. Ludey, 274 U. S. 295. In determining whether a taxpayer is entitled to depreciation, allowances made in prior years for exhaustion of the 27 B. T. A. same assets must be considered. Lake Charles Naval Stores, 25 B. T. A. 173; Alpin J. Cameron, 8 B. T. A. 120. Here we find that the petitioner has already recovered the cost of the assets by deductions allowed for years prior to 1929. Any further allowance would result in a double deduction for the same capital assets, which the statute does not authorize. Cameron v. Commissioner, 56 Fed. (2d) 1021, affirming 20 B. T. A. 305; Lake Charles Naval Stores, supra. In addition to the reason given for the conclusion announced, we are of the opinion that at a time when the respondent is precluded by the statute from making an additional assessment for 1919 the petitioner ought not to be heard to say that the allowance made for depreciation in that year, based upon its own claim, was excessive so as to enable it to get the benefit of a double deduction in a later year. See Alpin J. Cameron, supra. The respondent's refusal to allow the deduction is sustained. The other issue relates to the deductibility of a loss alleged to have been sustained on an old truck in connection with the acquisition of a new one. In 1927 the petitioner purchased an automobile truck at a cost of $1,043.77. In the acquisition of a new truck in 1929, an allowance of $187.55 was made for the old truck. The parties valued the new truck at $788.35. The difference of $600.80 between the value placed on the new truck and the allowance made for the old one was paid in cash. The depreciation sustained on the old truck was allowed as a deduction for income tax purposes down to the date of exchange, leaving an undepreciated balance of $326.14. In its return for 1929 the petitioner claimed the sum of $138.59 as a loss sustained on the old truck. The respondent disallowed the deduction and added the amount of the alleged loss to the cost of the new truck. The alleged loss is being claimed as a deduction on the ground that there was a sale of the old truck. The respondent held, and still maintains, that the transaction was not a sale, but an exchange which did not give rise to a deductible loss. We have only the stipulation of the parties. This recites that "In 1929 the petitioner exchanged the truck purchased in 1927 for a new automobile truck" and that "In this exchange an allowance was made for the old truck * * We can not say from the meager facts of record that the respondent erred in treating the transaction as an exchange. Sec. 112 (b) (1) (e), Revenue Act of 1928; cf. W. H. Hartman Co., 20 B. T. A. 302. Decision will be entered for the respondent. 27 B. T. A. WISHNICK-TUMPEER, INC., PETITIONER, v. CommissionER OF INTERNAL REVENUE, RESPONDENT. Docket No. 59892. Promulgated January 31, 1933. Petitioner, the parent corporation of an affiliated group, changed its accounting period from a calendar to a fiscal year ended June 30, and the affiliated group thereafter filed a consolidated return for the taxable year 1929. Held, such consolidated return was limited under article 14, Regulations 75 to the period January 1, 1929, to June 30, 1929, and petitioner's subsidiary whose fiscal year ended October 30, 1928, was required to file a return for the period November 1, 1928, to December 31, 1928, which period constituted its "third taxable year" in the application of a net loss sustained by it in 1927. J. R. Little, Esq., for the petitioner. W. H. Payne, Esq., for the respondent. This proceeding arises on account of the determination by the Commissioner of a deficiency in petitioner's income tax for the period January 1 to June 30, 1929, in the amount of $1,231.04. It is alleged that the Commissioner erred in refusing to allow as a deduction a part of the net loss sustained by its subsidiary corporation, The Pioneer Asphalt Company, in 1927. FINDINGS OF FACT. The petitioner is an Illinois corporation, having its principal office at 365 East Illinois Street, Chicago, Illinois. The facts are stipulated as follows: Prior to October 31, 1928, the petitioner owned 99%% of the capital stock of the Pioneer Asphalt Company, but prior to the return filed for the period ending June 30, 1929, no consolidated return was filed, the Pioneer Asphalt Company having filed a separate return for the fiscal year ended October 31, 1928, and the petitioner having filed a separate return for the calendar year ending December 31, 1928. Upon the request of the petitioner, dated May 28, 1929, permission was granted by the respondent for the said petitioner to change its taxable year from the calendar year to the fiscal year ended June 30, and the permission so granted by the respondent contained the provision that in order to effect the change the petitioner would be required to file a return on or before Sept. 15, 1929, covering the period Jan. 1, 1929 to June 30, 1929. For the period ending June 30, 1929, the petitioner; Wishnick-Tumpeer, Inc., New York; and the Pioneer Asphalt Company filed a consolidated return, which return included net income of the petitioner for the six months period January 1 to June 30, 1929 of $30,462.01; net income of Wishnick-Tumpeer, Inc., New York, for the period January 1 to June 30, 1929 of $20,433.10; and income of the Pioneer Asphalt Company for the eight months period November 1, 1928 to June 30, 1929, $4,285.86, the said $4,285.86 being arrived at by deducting from income of the Pioneer Asphalt Company for said period of $20,636.20, a statutory net loss for the fiscal year ended October 31, 1927 of $16,350.34, no part of which statutory net loss had been used to offset the income for the fiscal year ended October 31, 1928, the net income for the said fiscal year ended October 31, 1928 having been completely offset by a statutory net loss sustained during the fiscal year ended October 31, 1926. In computing the taxable net income of the Pioneer Asphalt Company included in the consolidated net income of the affiliated group upon which the deficiency has been determined the income for the two months November 1 to December 31, 1928, has been determined to be one-fourth of the income for the eight months period November 1, 1928 to June 30, 1929, and the amount so determined, $5,159.05, has been offset by an equal amount of the statutory net loss sustained in 1927. The remainder of the net income of the Pioneer Asphalt Company, $15,477.15, has been included by the respondent in the income of the consolidated group for the period January 1, 1929 to June 30, 1929, and no portion of the net loss for the year ended October 31, 1927 has been allowed as a deduction from the said income. The effect of the above adjustment is to disallow the sum of $11,191.09, the remainder of the statutory net loss for 1927 as a deduction in computing the net income of the Pioneer Asphalt Company and of the consolidated group for the period ended June 30, 1929. OPINION. GOODRICH: The sole question presented for our decision is whether the Pioneer Asphalt Company is entitled to deduct from its income for the period November 1, 1928, to June 30, 1929, a net loss sustained by it in 1927. In computing the taxable net income of the consolidated group for the taxable year 1929 the respondent has included therein the net income of the Pioneer Asphalt Company for the period January 1 to June 30, 1929, and has refused to deduct from its income for such period any part of the net loss sustained by it in 1927, on the ground that a return was required of the Pioneer Asphalt Company for the period November 1 to December 31, 1928, which period constituted the "third taxable year" in the application of the net loss sustained in 1927. We agree with this action. Under section 141 (a) of the Revenue Act of 1928 the petitioner and its subsidiaries had the right to file a consolidated return and the filing of such return constituted an election and a consent to comply with the regulations of the Commissioner under section 141 (b). The petitioner here is the parent corporation, and before filing its return for the year 1929, it asked for and obtained permission to change its accounting period from a calendar year to a fiscal year ending June 30. This permission dated June 11, 1929, contained the provision that in order to effect the change the petitioner would be required to file a return covering the period January 1, 1929, to June 30, 1929. Thereafter, on September 16, 1929, the Pioneer Asphalt Company authorized and consented to the filing of a consolidated return on its behalf for the taxable year 1929. In this consent it specifically agreed "to be bound by the provisions of regulations 75 prescribed prior to the making of this return." It is, therefore, apparent that at the time of filing a consolidated return for itself and subsidiaries for 1929 the petitioner knew that its return for the taxable year 1929 was limited to the period January 1 to June 30, 1929. It also knew that in electing to file a consolidated return both it and its subsidiaries consented to be bound by the Commissioner's Regulations 75, prescribed prior to the making of such return. Article 14 of Regulations 75 was so prescribed. It provides as follows: The taxable year of the parent corporation shall be considered as the taxable year of an affiliated group which makes a consolidated return, and the consolidated net income must be computed on the basis of the taxable year of the parent corporation. We think the consolidated return of petitioner and its affiliated corporations was limited to the period January 1 to June 30, 1929. There was, therefore, a return required of the Pioneer Asphalt Company for the period November 1, 1928, to December 31, 1928. This period constituted the "third taxable year" in the application of the net loss sustained by that company in 1927. Cf. Weissberger Moving & Storage Co., 26 B. T. A. 1375; Joseph & Feiss Co., 26 B. T. A. 1424; Arnold Constable Corp., 26 B. T. A. 1427. The determination of the respondent is sustained. Judgment will be entered for the respondent. GUARANTY TRUST COMPANY OF NEW YORK, BECKIE FLORENCE BLOCH, LINDA B. HILLER AND LUDWIG SCHOLEM, AS EXECUTORS OF THE ESTATE OF ARTHUR BLOCH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 45500. Promulgated January 31, 1933. Where by will a remainder was left to certain charities after the death of a daughter without issue, and prior to the death of the decedent an operation had been performed upon the daughter which rendered her incapable of childbearing, the law nevertheless assumes that she may bear children and thus defeat the charitable remainder; therefore the Commissioner did not err in denying a deduction under section 303 (a) (3) of the Revenue Act of 1926. Harry A. Yerkes, Jr., Esq., for the petitioners. O. J. Tall, Esq., and W. Frank Gibbs, Esq., for the respondent. OPINION. MURDOCK: The Commissioner determined a deficiency of $1,050.11 in estate tax. The errors assigned are (a) the failure of the Commis |