*2871 Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the rental. The lessee paid the Federal tax upon the net income returned by petitioner for each year subsequent to the lease. Held, the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.
*510 The Commissioner determined a deficiency in income and profits tax of $58,605.63 for the fiscal period beginning January 1, 1919, and ending November 30, 1919, of which amount $5,400 is in controversy.
The issue involved is whether the payment, under the terms of a lease, of the lessor's income tax by the lessee constitutes additional income to the lessor.
FINDINGS OF FACT.
During the taxable period the petitioner was a New Hampshire corporation with principal office at Concord. It was the owner of a railroad which it had leased*2872 to the Boston & Maine Railroad under a lease which provided, inter alia, that the lessee would pay the Federal income tax of the lessor. The income tax of the lessor for each year was payable and was paid by the lessee in the following year.
The Commissioner computed a Federal income tax of $53,277.84 upon petitioner's income for the period January 1 to November 30, 1919, as revised by him, and added the said amount of $53,277.84 to petitioner's taxable income for that period.
The income-tax return of petitioner for the year 1918 showed a tax liability of $69,475.83 computed upon the income of the petitioner for that year without the inclusion therein of any amount on account of tax paid by petitioner's lessee. This tax of $69,475.83 was paid by petitioner's lessee during the calendar year 1919. Petitioner kept its books and rendered its returns on an accrual basis.
OPINION.
LITTLETON: In , the Board held that the amount of tax upon the income of the lessor and paid by the lessee, under the terms of a lease such as we have here, constituted additional taxable income to such lessor in the*2873 year in which such tax was paid by the lessee. On the authority of that decision petitioner's tax for 1919 should be recomputed by including therein the amount of $69,475.83, representing the tax upon petitioner's income for 1918 and paid by the lessee in 1919.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.