Pike County Coal Corp. v. Commissioner

4 B.T.A. 625, 1926 BTA LEXIS 2232

• Court: United States Board of Tax Appeals
• Decided: July 31, 1926
• Docket: Docket No. 7189.
• Status: Published

Opinion

OPINION.

Littleton

: Dpon the evidence, which shows that the coal underlying the land covered by the leases and options acquired for stock was of a high quality and amounted to at least 9,0.00 tons an acre, and that the petitioner’s stock at the time of the incorporation sold at par for cash, and a short time thereafter at $240 a share, we are convinced that the actual cash value of the leases was $40,000 as claimed. The petitioner is, therefore, entitled to a deduction of $4,000 for 1919, representing the exhaustion of thé cost of the leases over the life of the mine of ten years.

Section 234 (a) (4) of the Revenue Act of 1918 provides that, in computing the net income, there shall be allowed as deductions losses sustained during the taxable , year and not compensated by insurance or otherwise. After the fire on October 8, 1918, the petitioner found that certain of its machinéiy had been damaged. To what extent, it did not know. It had no way of ascertaining the amount of the damage, except by returning the machinery to the manufacturer and having it repaired. Most of the machinery consisted of electrical apparatus and the evidence shows that the petitioner was not in a position during 1918 to judge with any' degree of accuracy, or to establish from any information in its possession, the amount of the damage caused to it.

The statute contemplates that a deduction shall be allowed when a loss has in fact and in truth been sustained, and the establishment of the loss is a question of fact in each case and. may not always depend upon the happening' of any particular event. In order to have been in a position to claim a deduction in 1918, the taxpayer would have been required to justify, with at least some degree of accuracy, the amount of the loss; otherwise the deduction from gross income for 1918 would have represented a mere guess, in all probability, unjust either to the Government or to itself. It is evident, therefore, that whatever amount the petitioner might have computed, with no more information than it had, would have been conjectural, because it was not in possession of information necessary to enable it to make such computation.

The petitioner, believing that the machinery would not be a total loss, proceeded in good faith to determine the loss which it had actually sustained by returning it to those who were in a position best to judge the extent of the damage. By so doing, it determined, during 1919, that the actual loss sustained oh account of damage to the machinery was $14,872.49.

The facts in this proceeding distinguish it from the issue involved in the Appeal of Producers Fuel Co., 1 B. T. A., 202, in that the Pror., ducers Fuel Co. was in possession of information which enabled it to determine, at least approximately, the amount of its loss, and it made such a determination.

From the facts presented in this proceeding, we are of the opinion that the loss of $14,872.49 was sustained in the year 1919 and constituted a proper deduction from gross income in that year.

Order of redetermination will be entered on 15 days' notice, under Rule 50.