Wahl v. Commissioner

2 B.T.A. 1106, 1925 BTA LEXIS 2149

• Court: United States Board of Tax Appeals
• Decided: October 30, 1925
• Docket: Docket Nos. 2004 and 2292.
• Status: Published

Opinion

These appeals involve determinations of deficiencies in income and profits taxes for the year 1917 in the amounts of $5,109.47 and $5,710.13, respectively. The deficiencies arose from the fact that the Commissioner proposed to assess the profits tax imposed by section 201 of the Revenue Act of 1917 upon the income arising from the business of the’taxpayers, rather than by assessing the tax under the provisions of section 209 of the Revenue Act of 1917.

The petitions allege that the income of the taxpayers arose by virtue of their employment and was compensation for services rendered rather than income arising from a trade or business. It is also alleged that error was made by the Commissioner in disallowing a deduction of $5,000 as to each taxpayer on account of money borrowed during the taxable year.

At the hearing, however, counsel for taxpayers stated that the only question involved was whether the income is subject to the 8 per cent profits tax under section 209 or to profits tax at the rate prescribed in section 201. •

The appeals were consolidated for the purpose of taking testimony, and it was stipulated that the testimony offered should be used in the determination of both.

FINDINGS OF FACT.

The taxpayers were engaged in farming during 1917. They rented approximately 1,000 acres of land from their uncle, J. B. Hulen. They operated the business under the name of Wahl Brothers. The two brothers, also during 1917, rented certain land from their mother on which to carry on a portion of their farming operations. They also borrowed $5,000 from their father.

The plows and other farm implements used belonged to either their father or their uncle. • The horses, mules, and wagons located on that part of the farm belonging to the father of the taxpayers belonged to him and not to the taxpayers.

During 1917 the taxpayers repaid to their father the $5,000 which had been advanced on account of expenses necessary to operate the ranch. Money in excess of this $5,000 was loaned by the father of the two taxpayers for the purpose of financing the purchase of seed in

1916, which was paid back after the harvest of the 1917 crop.

In 1915 a tractor was purchased by the taxpayers at a cost of $4,675, for the purpose of operating the ranch. This tractor was purchased with money borrowed from their uncle, J. B. Hulen, and was paid back to Hulen after the harvest in 1917. On January 1,

1917. the taxpayers each had $588.98 in the bank. In January, 1917, the taxpayers each owed $2,337.50, one-half of the cost’of the tractor which had been purchased.

In carrying on the farming operations during the taxable year, the following expenses were incurred and paid by the taxpayers:

Labor_$7,211.67

Sacks ancl twine- 3,469. 69

Insurance_ 317.44

Threshing_-_ 2, 617.10

Interest___ 517. 50

Total_ 14,233. 30

DECISION.

The deficiencies, if any, should be computed under section 209 of the Bevenue Act of 1917. Final determination will be settled on 15 days’ notice, under Bule 50.