*4185 RESTORATION OF DEPRECIABLE ASSETS TO CAPITAL ACCOUNT. - Petitioner was a member of a copartnership which had prior to 1921 consistently charged all capital items to expense account on date of acquisition. Held, that the copartnership's capital items of equipment, machinery, furniture and fixtures in use during 1921 should be restored to its capital account and depreciation allowed thereon. Held, further, that the allowance of said depreciation as a deduction from the copartnership's gross income reduces this petitioner's distributive share of its net profits.
*110 Respondent has determined a deficiency in the amount of $1,153.87 in the income-tax liability of this petitioner for the calendar year 1921. Petitioner disputes the entire amount of the said deficiency and alleges that respondent erred by including in petitioner's net *111 income for 1921 the sum of $30,506.78 as his distributive share of the net earnings of a copartnership, W. H. Edgar & Son, Detroit, Mich. Petitioner further alleges that respondent in his determination*4186 of the net profit of the said copartnership for 1921, has failed to allow adequate depreciation of property owned and used by said copartnership in the conduct of its business, resulting in an overstatement of its net earnings.
FINDINGS OF FACT.
Petitioner is an individual residing in Detroit, Mich. During the year 1921 and for many years prior thereto, petitioner was a member of the copartnership of W. H. Edgar & Son, hereinafter referred to as the partnership, which was engaged in conducting a wholesale sugar business in the City of Detroit.
The partnership had been in business for eighteen years or more and its predecessor partnership had existed since about 1860. In conducting its business, the partnership owned and used delivery equipment, office furniture and fixtures, and machinery, installed in warehouses leased for an indefinite period, for the purpose of handling and packing sugar and also for converting granulated sugar into powdered sugar. The partnership consistently charged all capital items of equipment, machinery, furniture, etc., to its expense account and in the years prior to 1921 the respondent allowed as deductions from its gross income such charges*4187 to expense. The two partners, petitioner and Mary G. Edgar, agreed that the latter should receive as her distributive share a fixed sum in the amount of $13,500 annually, and that petitioner should receive the remainder of the partnership's net profits.
On January 1, 1921, the partnership owned and continued to use during that year the following capital items purchased prior thereto and charged to expense:
| Items | Acquired | Cost |
| Automotive equipment | ||
| 4 trucks | 1917 | $8,550.00 |
| 1 truck | 1918 | 2,252.61 |
| 2 trucks and car | 1919 | 3,717.94 |
| 5 trucks, 3 cars, spare motor, and truck body | 1920 | 25,313.58 |
| Total | 39,834.13 | |
| Machinery | ||
| 3 sugar mills | 1913 | $2,160.00 |
| Electric hoist | 1915 | 800.00 |
| Package sealing, sewing, and other machinery | 1917 to 1920 | 9,658.15 |
| Total | 12,618.15 | |
| Furniture and fixtures | 1917 to 1920 | 1,996.20 |
| Other office equipment | 4,000.00 | |
| Value on Jan. 1, 1921. | ||
| Total | 5,996.20 | |
| Grand total | 58,448.48 |
*112 The partnership also owned on January 1, 1921, and used during that year other capital items but the same could not be definitely identified as to cost or date of acquisition.
During the year 1921 the partnership*4188 acquired certain delivery equipment, machinery, fixtures and furniture which it charged to expense account. In auditing the partnership return, the respondent disallowed the deduction of these items, required them to be charged to capital account, and allowed depreciation thereon. The respondent has refused to restore to the partnership's capital account and allow depreciation on capital items acquired prior to 1921 and in use during 1921.
Counsel for the parties hereto have stipulated and agreed that the partnership purchased a Cadillac car in 1920 at a cost of $5,030.14; that in his computation for the year 1921, the respondent has included that car at a value of $2,031.14 among depreciable assets for 1921 and that he has allowed depreciation thereon at the rate of 25 per cent amouting to $507.54. The said Cadillac car is included in the above list of capital items, automotive equipment acquired in 1920, at a cost of $5,030.14, but there is not included in said list any other items upon which the Commissioner has allowed depreciation for 1921. The Commissioner has allowed depreciation at a rate of 25 per cent on automotive equipment acquired during 1921.
OPINION.
TRUSSELL: *4189 The issue presented for determination is the amount of this petitioner's distributive share of the net profits of the copartnership, W. H. Edgar & Son. The only issue raised as to the correct amount of such net profits, is whether the partnership should be allowed to restore to its capital account for purposes of depreciation in 1921, capital items purchased prior to 1921, and charged to expense account when acquired and in use during 1921.
The Board has heretofore held that capital assets acquired and charged to expense account in years prior to the taxable year in question, should be restored to capital account and properly depreciated for the taxable year in question. ; . The capital assets listed in the findings of fact should be restored to the partnership's capital account and depreciation allowed thereon at the following rates: automotive equipment 25 per cent, machinery 10 per cent, and furniture and fixtures 10 per cent. The depreciation in the amount of $407.54 allowed by the Commissioner on the Cadillac car for 1921 should be eliminated for the proper amount of depreciation*4190 will be taken care of in the recomputation after restoration of the capital assets set out in the findings of fact.
*113 Under the partnership agreement the allowance of the depreciation above set forth affects only petitioner's distributive share of the partnership's net profits and accordingly petitioner's distributive share should be reduced by the amount of said depreciation.
Judgment will be entered upon 15 days' notice, pursuant to Rule 50.