1935 BTA LEXIS 695">*695 1. Certain syndicates held not to be associations but to be joint ventures, the members of which are taxable as individuals and, being so taxable, have the right each year to deduct their proportionate share of the operating losses of such syndicates.
2. The demolition of buildings held not to constitute a deductible loss where such demolition enhanced the value of the property.
33 B.T.A. 830">*831 The respondent has determined deficiencies in income tax for the years and in the amounts as follows:
| Year | |||||
| Petitioner | Docket No. | 1927 | 1928 | 1929 | 1930 |
| Mark L. Gerstle | 62854 | $551.26 | $910.60 | $1,065.54 | |
| Wells Fargo Bank, etc | 61367 | 2,632.33 | |||
| Do | 65380 | 7,482.35 | |||
| Hilda H. Gerstle | 62855 | 513.51 | 1,447.64 | 1,805.11 | |
| Wm. L. Gerstle | 62856 | 1,055.58 | 4,729.36 | ||
| A. B. C. Dohrmann | 62911 | 192.33 | 1,691.24 | ||
| Do | 63669 | 2,614.77 | |||
| Hattie Hecht Sloss | 64835 | 566.18 | |||
| Marcus C. Sloss | 64836 | 1,298.55 | |||
| Wm. Fries | 54379 | 2,016.71 | |||
| Do | 64421 | 3,409.56 | |||
| Do | 67554 | $478.64 | |||
| Joel W. Kaufmann | 62946 | 1,249.56 | |||
| Do | 65592 | 4,039.45 | |||
| Do | 70623 | 2,720.57 | |||
| Hans Lisser | 62944 | 1,026.98 | |||
| Do | 62945 | 658.72 | |||
| Do | 68221 | 248.01 | |||
| Sadie D. Patek | 54216 | 195.12 | |||
| Do | 62947 | 199.40 | |||
1935 BTA LEXIS 695">*696 The principal issue in each case concerns the respondent's refusal to allow deductions in each of the years for each petitioner's share of the total operating losses of certain real estate ventures, and whether such losses include a loss arising from the demolition of certain buildings in 1929.
The parties have entered into a stipulation of facts which, together with the exhibits thereto, is made a part of this report. The petitioners also introduced oral evidence. From the above sources we make the following findings of fact:
FINDINGS OF FACT.
For many years prior to 1927 the several members of the syndicates herein involved had been directors of the Emporium, a corporation owning and operating one of the large department stores in the city of San Francisco. In 1906, when the Emporium located temporarily on Van Ness Avenue following the destruction of its original store premises in the earthquake and fire of April 18, property in the vicinity of its temporary location immediately rose in value and large profits were realized in the purchase and resale thereof. When the Emporium rebuilt on Market Street later on, the same result obtained and those who held property to1935 BTA LEXIS 695">*697 the north and south of the location of the Emporium profited greatly by reason of their proximity to the site of the Emporium.
In the intervening years, the Emporium Capwell Corporation was organized and operated a department store in Oakland. The members of the syndicates here involved were likewise directors of the 33 B.T.A. 830">*832 Emporium Capwell Corporation, and when the Emporium Capwell Corporation decided early in 1927 to build a new store at Twentieth and Broadway, some blocks north of the then business district in Oakland, the directors, having in mind the experience of the past as set out above, conceived the idea of purchasing properties in the immediate vicinity of the proposed new construction and realizing for themselves the profits that would arise through an increase in the market value which they felt would occur as a result of the construction of the new store and the decided boom in realty values which existed in Oakland. The members of the first syndicate, in their capacity as individuals and not as directors of the Emporium Capwell Corporation, decided to contribute to a pool, using the aggregate amount for the purposes of purchasing the properties thereafter acquired. 1935 BTA LEXIS 695">*698 At the outset it was their purpose and intention to purchase certain properties which they believed could be quickly resold at a profit and distribute the profits proportionately among the members. It was not then the purpose or intention of the members of this syndicate to improve any of the properties acquired. The management of the properties and the collection of rents and payment of taxes, interest, etc., was intended to be such only as would be necessarily incident to the ownership in the interim between purchase and expected sale.
Accordingly, on the 31st day of January 1927 a written agreement was entered into in which three of the members were designated as managers and to which the members affixed their signatures and the amount which they would severally contribute to the venture. It reads as follows:
THIS AGREEMENT made this January 31, 1927, by and between A. B. C. DOHRMANN, MILTON H. ESBERG AND MARK L. GERSTLE, hereinafter called Syndicate Managers, and those who shall affix their signatures hereto as Syndicate Members, hereinafter called Syndicate Members;
WITNESSETH:
THAT WHEREAS, the Syndicate Members are desirous of acting jointly in the purchase, management1935 BTA LEXIS 695">*699 and sale of real properties in Oakland, California, and for that purpose have requested the Syndicate Managers to act as their Agents and Trustees;
NOW, THEREFORE, in consideration of the premises and of the mutual promises hereinafter contained, the parties hereto do agree as follows:
1. The Syndicate Managers shall purchase, manage and sell real properties in Oakland, California, for the account of the Syndicate Members. They shall have complete discretion in the selection of the properties to be purchased, the amount of the purchase price, the details of management, the terms of sale and of mortgage, and of all other matters related to the Syndicate operations. The properties purchased may be taken in any name or names that the Syndicate Managers may determine.
2. Each Syndicate Member on executing this Agreement shall set down after his name the amount which he will contribute to the Syndicate operations, and 33 B.T.A. 830">*833 his interest in the properties, profits, obligations, debts and losses of the Syndicate shall be that proportion thereof which the amount set after his signature bears to the total of the amounts set after the signatures of all the Syndicate Members. 1935 BTA LEXIS 695">*700 The funds required for the operations of the Syndicate shall be provided by the Syndicate Members, who shall from time to time pay to the Syndicate Managers, upon call, their respective proportion of the total sum called for, provided that no Syndicate Member shall be called upon, prior to the termination of the Syndicate, to pay a greater aggregate amount than that set after his signature hereto.
3. The Syndicate Managers may borrow money in their own names or in the names of others for the benefit of the Syndicate, and the Syndicate Members shall be liable for the repayment thereof in proportion to their respective interest in the Syndicate. The Syndicate Managers may mortgage the Syndicate properties and may exercise all powers with respect thereto that they would possess if they were the absolute owners thereof.
4. The Syndicate Managers may act by a majority. They accept the position of Syndicate Managers hereunder upon the express understanding that they shall not be responsible for any act performed in good faith nor for anything save for wilful misconduct or gross negligence, and upon the promise of the Syndicate Members hereby expressed, to indemnify and hold harmless1935 BTA LEXIS 695">*701 less the Syndicate Managers from any loss or liability that they may be subjected to on account of any acts or thing hereunder. In the event of any vacancy among the Syndicate Managers a successor may be appointed by Syndicate Members holding in the aggregate at least two-thirds of the beneficial interest hereunder. Should the Syndicate Managers, in the conduct of the operations of the Syndicate, be required to expend substantial time and effort, they shall be entitled to receive such compensation, to be paid out of the Syndicate property, as may be fixed by Syndicate Members holding at least two-thirds of the beneficial interest hereunder, exclusive of that held by the Syndicate Managers.
5. The Syndicate may be terminated by the Syndicate Managers, or by Syndicate Members holding at least two-thirds of the beneficial interest hereunder. Upon such termination, the Syndicate property shall be delivered and transferred to the Syndicate Members in their proper proportions, or should there be a loss, each Syndicate Member shall forthwith pay his proper proportion thereof to the Syndicate Managers.
6. No assignment by a Syndicate Member of his interest hereunder shall be effective1935 BTA LEXIS 695">*702 until written notice thereof has been delivered to the Syndicate Managers, nor shall any assignment release the Syndicate Member so assigning from liability hereunder unless the Syndicate Managers shall so agree in writing. In the event of the death of a Syndicate Member, his executor or administrator may exercise his power and authority hereunder.
7. This agreement may be executed in any number of counterparts, all of which shall constitute a single agreement.
IN WITNESS WHEREOF, the Syndicate Managers have hereunto affixed their signatures, and the Syndicate Members have hereunto affixed their signatures and set down the amounts which they will respectively contribute to the Syndicate operations.
This agreement was signed by the managers and the several members, with the amount subscribed by each member set opposite his name.
33 B.T.A. 830">*834 At the time when the syndicate idea first suggested itself, the intention was to acquire properties only in the immediate vicinity of the proposed new construction of the Emporium Capwell store. As a result of the discussion which followed among those who eventually became members, some of those interested in the original syndicate, 1935 BTA LEXIS 695">*703 designated hereafter as Syndicate No. 1, conceived the idea of purchasing other properties in the city of Oakland, believing that as a result of the constantly increasing value of all property in that city, additional profits could be realized quickly on a resale of such parcels as might be obtained. On the same day on which the agreement for Syndicate No. 1 was executed, an agreement identical in form and substance, and differing only in the properties, membership ship and the proportionate amounts involved, was executed, this agreement being hereafter designated as Syndicate No. 2. The purpose of this syndicate was the purchase and resale of the so-called St. Mary's College property.
On the 14th day of February 1927 yet another syndicate agreement was executed, this agreement likewise being the same in form and substance as the agreement for Syndicate No. 1, and differing only in the properties, membership and the proportionate amounts contributed. The purpose of this syndicate was the purchase of several pieces of property in the city of Oakland and a sale thereof at a profit as soon as the same could be effected.
On the 24th day of March 1927 the final syndicate agreement1935 BTA LEXIS 695">*704 entered into between those interested was executed and it, like the others, is identical in form and substance with the original syndicate agreement and is designed hereinafter as Syndicate No. 4. It differed only in the properties, membership and the proportionate amounts contributed by the several members. This syndicate was for the purchase and resale of what has been since known as the Gross property, a five-story brick apartment and store building.
All four of the syndicates had some of the same members. The membership of each and the amounts subscribed by each member are stipulated.
The facts with respect to the purpose and intention of the members of the three syndicates last spoken of are the same as set forth with respect to Syndicate No. 1.
After the syndicates were launched on their several ventures and had acquired their various properties, it appeared that the peak of value had been reached in the real estate market in the city of Oakland. The expected increase in value failed to materialize. On the contrary, the market suffered a decided decline, which continued throughout the years in question and later. By reason of these circumstances the expected prompt1935 BTA LEXIS 695">*705 profitable resale of the properties became impossible.
33 B.T.A. 830">*835 The syndicate managers were compelled on account of such circumstances to operate the Ray office building and the Kenwood Apartments and to rent the remaining improved properties until their sale could be effected. The unimproved properties were temporarily appropriated for a variety of purposes, such as gas service stations, parking lots, "pee-wee" gold courses, rent space for revival meetings and second-hand auto sales lots, etc.
A detailed statement of the various properties, together with the improvements thereon, acquired by the several syndicates is hereinafter set forth.
An arrangement was perfected with the American Trust Co., a bank in San Francisco, hereinafter referred to as the bank, whereby the bank advanced the funds originally required for the purchase of the several properties. These funds were advanced on the notes of the syndicate managers. The properties purchased were selected on the recommendation of the bank and Maiden Rittigstein & Co., the latter being licensed real estate brokers in the city of Oakland. Believing that a disclosure of the identities of the real parties in interest1935 BTA LEXIS 695">*706 would result in an immediate increase in the price at which the properties could be obtained, the utmost precautions were taken to conceal the identity of the members of the syndicates. Accordingly, title to all properties was taken in the name either of the Oakland Title Insurance & Guaranty Co., a corporation, or the Oakland Title Investment Co., a corporation. No checks were issued in closing any of these transactions, such funds as were required being in each instance furnished by the bank in currency and delivered by a messenger for the bank to Maiden Rittigstein & Co. in Oakland.
The syndicates, as such, had no name; no office, except in so far as the office of the American Trust Co., as fiscal agent of the syndicates, could be so considered; no officers, save in so far as the syndicate managers could be so considered; no stationery; and no bylaws or other regulatory rules, save as the same may be contained in the several syndicate agreements. No stated meetings were provided for or held; no books of record of any kind were kept by the syndicates as such, except those kept for their account by the fiscal agent; no issue of capital stock or other similar evidence of beneficial1935 BTA LEXIS 695">*707 interest was provided for or ever issued. The agreements provided the sole evidence of the interest of the several members, and each member received an executed counterpart thereof. Except for the agreements, there was no formal organization. All the members of the syndicates were experienced in corporate organization and management. The affairs of the syndicate were discussed informally by the members. On the occasional meetings of the directorate of 33 B.T.A. 830">*836 the Emporium or the Emporium Capwell Corporation and on such other occasions as they happened to meet, the several members of the syndicates consulted with each other concerning the policies to by pursued at any given time. While the agreements gave to the syndicate managers broad and exclusive powers, the practice was to decide all questions of importance only after the views of all concerned had been obtained. These views were obtained either on the occasions of the meetings of the members in their capacity as directors referred to, or by telephonic communication between the various members of the syndicates referred to, or on any other occasion when they happened to meet, either in a business or social way. From1935 BTA LEXIS 695">*708 time to time the syndicate members were called upon to supply funds to the fiscal agent proportionate to their several subscriptions. These funds were used by the fiscal agent to pay for the properties. and to meet the expenses incident to the carrying of the properties. The fiscal agent in every instance advanced the money necessary to pay for the properties and carry them.
The syndicate managers, as such, did not organize in any form or manner, had no office, elected no officers, and had no stationery. No bylaws or other regulatory rules were adopted or existed save as they may be contained in the syndicate agreements. No stated meetings were provided for or held; and no books of record were kept by them, although books for the syndicates were kept by the American Trust Co.
In acting as the fiscal agent for the syndicates the American Trust Co. kept all records pertaining to the affairs of the syndicates; it rented the improved properties, collected the rents therefrom, and paid all expenses incurred in connection with the same. Both Maiden Rittigstein & Co. and the bank were compensated for the services rendered by them; the former was given commissions for purchases1935 BTA LEXIS 695">*709 and sales of property, while the latter was paid for handling the financial affairs. When shortly after the syndicates were formed it became apparent that the properties could not be resold, the bank continued to keep the records and, together with Maiden Rittigstein & Co., handled all the details of the properties that had been acquired, such as the collection of rents, payment of interest and taxes, etc. From time to time the bank advanced funds, for both the acquisition and subsequent maintenance of the properties, to the several syndicates on the notes of the syndicate managersAnd from time to time prepared and issued calls which were sent direct to the individual members of the syndicates and set forth the total amount of the call and the proportionate amount required from each individual members. The members in turn paid the amount called for to the bank directly, and the bank issued its receipt in each instance 33 B.T.A. 830">*837 to the individual members. Upon the payment of each call the notes theretofore given by the managers to the bank were canceled. As security for the repayment of advances, the bank held declarations of trust covering the syndicate assets executed by the1935 BTA LEXIS 695">*710 Oakland Title Investment Co. and/or Oakland Title Insurance & Guaranty Co., the holders of the record title of the properties of the syndicates, which declarations of trust were executed with the consent of the syndicate managers.
On April 1, 1930, by unanimous agreement of the members, Mark L. Gerstle was appointed sole manager. On the same day a written agreement was executed by Gerstle and the bank, whereby the bank was appointed fiscal agent for the syndicates.
On April 1, 1930, an agreement guaranteeing the bank against loss on all future advancements was executed by the members of the syndicate; the liability of the members was limited to $15,000.
All properties acquired by each of the syndicates were listed for resale immediately with Maiden Rittigstein & Co., the brokers through whom the properties had been purchased. No properties other than those originally purchased were ever acquired.
The several syndicates were incorporated in the year 1930, Syndicates Nos. 1, 3, and 4 on the 6th day of October, and Syndicate No. 2 on the 20th day of March.
Large operating losses were sustained by each of the syndicates during each year and Syndicate No. 1 sustained a1935 BTA LEXIS 695">*711 loss on the sale of part of its assets in 1929. The gross income, deductions, and losses of each syndicate are set out in exhibits attached to the stipulation. The members herein deducted on their individual returns for the years involved their respective proportions of such losses. These deductions were disallowed by the commissioner.
Syndicate No. 1 acquired six parcels of real estate; Syndicate No. 2 acquired one parcel; Syndicate No. 3 acquired two parcels; Syndicate No. 4 acquired one parcel.
Syndicate No. 1 sustained a demolition loss of $2,451.62 when the building on one of its properties, known as the Caro property, was wrecked in 1929.
The one property acquired by Syndicate No. 2 was that known as the St. Mary's College property, acquired on May 7, 1927, at a total cost of $848,652.37. Improvements consisted of the main college building of brick construction, 48 years old; a gymnasium building of frame construction, 20 years old; an athletic office, 10 years old; a garage, 7 years old; and 2 dwellings, each of frame construction and 15 years old. The portion of the total cost allocated by the syndicate to the buildings was $224,350. From this amount the syndicate1935 BTA LEXIS 695">*712 computed depreciation for the years 1927 and 1928 33 B.T.A. 830">*838 and the period January 1 to February 28, 1929, in the total amount of $26,280.82. In its profit and loss statement the syndicate carried the following item: "Depreciated Cost of the Demolished Buildings, $196,089.18." The college had acquired a new site and construction on this site was in progress. Due to this fact the property in question was on the market at the time of its purchase by the syndicate.
When this property was acquired by the syndicate the purpose was to resell the same in its then condition as soon as such a sale could be made at a profit. When acquired by the syndicate, a corner of the property was under lease to and in use by the Shell Oil Co. as a service station, the lease not expiring until December 10, 1927; from then on, the same corner was leased to the same company on a month to month tenancy. Contemporaneously with its purchase by the syndicate, the property was leased to St. Mary's College for a term of 19 months at a total rental of $11,875, payable at the monthly rate of $625. The lease was terminable by the college on 90 days' written notice. While the members did not intend to demolish1935 BTA LEXIS 695">*713 the buildings or subdivide the property themselves, they did contemplate reselling the property as a unit, and, believing that one of the elements which would enhance the value was the fact that the property by reason of its size and location was suited for subdivision and sale in smaller parcels, contemplated that such subdivision would entail a demolition of the existing structures. However, it was believed that the property might be bought and resold several times as a unit before it would be so subdivided. At the time of acquisition there were auto salesrooms and repair and accessory shops in the vicinity.
No opportunity for sale presenting itself and, it appearing to the syndicate members that because of the depression then existing no such sale could reasonably be expected, the buildings were demolished on February 28, 1929, the members at that time believing that they could dispose of the holding more readily if they were in a position to sell the land either as a unit or in parcels carved therefrom.
Sadie D. Patek is a sister of Monte A. Dernham, who was a member of each of the syndicates. An agreement was entered into between Dernham and his sister on the 4th day1935 BTA LEXIS 695">*714 of February 1927, by which Sadie D. Patek acquired and undivided one-half beneficial interest in and to all the rights and assumed a like proportion of the obligation of Dernham under the agreement for Syndicate No. 1. Similar agreements existed between these taxpayers as to each of the syndicates involved.
Hilda H. Gerstle and Wm. L. Gerstle are wife and brother, respectively, of Mark L. Gerstle, who was a member of each of the syndicates in question.
33 B.T.A. 830">*839 No written agreement between these parties was ever executed. By the terms of an oral agreement, the interest and obligation of Mark L. Gerstle in Syndicate No. 1 was divided between them on the basis of 25 percent to Mark L. Gerstle, 25 percent to Hilda H. Gerstle, 40 percent to Wm. L. Gerstle, and the remaining 10 percent to one not a party hereto.
As to the remaining syndicates, the division was on the basis of 25 percent each to Mark L. Gerstle and Hilda H. Gerstle, the remaining 50 percent to Wm. L. Gerstle.
Hattie Hecht Sloss is the wife of Marcus L. Sloss. By the terms of an oral agreement, the interest of this member was divided, 50 percent being retained by him, 20 percent to Hattie Hecht Sloss, and1935 BTA LEXIS 695">*715 the remaining 30 percent to Lloyd S. Ackerman.
In each of the above cases the syndicate subscribers were reimbursed, at or about the time they made their payments, by the individuals with whom they had the agreements as set forth above.
No other transfer of any kind of the interest of any member, either in whole or in part, was ever effected. Those named above as acquiring a proportionate share of the interest of certain members were never consulted in any way and no calls were ever sent to them. Their relations were entirely with the member with whom they originally dealt and from whom they acquired their respective interests.
Aside from the syndicate agreements, no formal organization was effected. None of the syndicates, as such, had a bank account.
OPINION.
ARUNDELL: In these proceedings the respondent determined that the syndicates of which the petitioners were members were taxable as associations, and on that theory he disallowed claimed losses growing out of the operation of the syndicate properties and on the demolition of buildings.
The several syndicates, in our opinion, were not taxable associations. An association that is taxable as a corporation has1935 BTA LEXIS 695">*716 "the general form and mode of procedure of a corporation." . At the outset it is to be noted that the syndicate agreements provide that the members "are desirous of acting jointly", which is directly opposed to the corporate theory. While some of the provisions of the syndicate agreements vest in the managers substantial powers similar to those of corporate directors, the stipulations disclose that the practice was to decide all questions of importance only after the views of all concerned had been obtained. The syndicates as such had no name, no office, no officers, no stationery, no bylaws or other regulatory rules, no books of record, and no certificates of stock or similar evidence of beneficial interest. 33 B.T.A. 830">*840 The only persons who might be said to stand in the position of officers or directors were the managers, and, as above set out, they did not act as such. The only books of record were those kept by the bank that acted as fiscal agent for the syndicates. The syndicate managers did not organize; they elected no officers, had no office, no stationery, no bylaws; they held no stated meetings and kept no books of record. 1935 BTA LEXIS 695">*717 Neither the managers nor any member held title to any of the syndicate real estate; title was held by two title companies. The fiscal affairs were not handled by the managers or any member, but by a bank.
The syndicate members did not initially invest funds to get the enterprises going. The money to purchase and carry the properties was advanced by the bank on the temporary security of notes of the managers and it was reimbursed by the members upon call by it.
From the above outline of the form and mode of procedure of these syndicates the distinctions between them and corporations are obvious. Moreover, they were not organized with the idea of remaining in existence for any substantial length of time or of actively operating any business, as is generally the case when corporations are created. It is stipulated that the intent was to purchase properties which it was believed could be quickly resold at a profit. It was not intended to improve any properties, and such management and operation as were necessary were to be only those incident to ownership in the interim between purchase and expected sale. Two of the syndicates acquired one property each, one of them acquired1935 BTA LEXIS 695">*718 two parcels, and the other acquired six. The operation of these properties was entirely fortuitous and outside the purpose for which the syndicates were organized. Unfortunately for the hopes of the participants the acquisitions were made at peak prices, necessitating the holding of the properties for a time during which the management and operation of the properties was necessary but nevertheless incidental to the main purpose. We conclude that the syndicates were not associations taxable as corporations. See .
The syndicates here involved meet the tests of the definition of joint ventures. A joint venture is "a special combination of two or more persons, where, in some specific venture, a profit is jointly sought, without actual partnership or corporate designation." ; . Property acquired by participants in a joint venture for the purposes of the venture is the property of the participants, 1935 BTA LEXIS 695">*719 ; as tenants in common, . Such being the status of the participants, any income realized upon the venture would be their income. , and any statutory decuctions would be 33 B.T.A. 830">*841 available to them. See , allowing deductions for depletion to a tenant in common. In addition to the general propositions thus far discussed, it is to be noted that in these cases the petitioners were actually out of pocket as the result of the losses sustained in operating the several properties. The funds to maintain and operate the properties were advanced by the fiscal agent, a bank, on notes of the managers and then assessments from time to time were made on the participants by the bank and paid by them. The payments so made were not capital expenditures, but were expenses or operating losses in connection with property owned by the participants as tanants in common. We accordingly hold that the operating losses are allowable deductions to the petitioners in proportion to their interests in the syndicates.
1935 BTA LEXIS 695">*720 The case of , is distinguishable from these. There the court had the narrow question of whether the enterprise "was either a partnership, stricti juris, or such a joint venture as interposed no fiduciary to insulate the owners from direct taxation." It was held that the enterprise was not a partnership, and, further, without giving a name to the arrangement, it was found that there was an entity between the participants and the enterprise sufficiently substantial to insulate them from direct liability. The question there was that of the liability of a participant for taxes on undistributed income which the Commissioner treated as partnership income. We reached the same conclusion in . In the present cases we have no question of income of the several ventures, distributed or undistributed, for there was no net income. The recent cases of and are also distinguishable. Those cases involved income or loss to syndicate participants in the year of dissolution of the syndicates. 1935 BTA LEXIS 695">*721 Both cases proceeded on the fact of an independent control of syndicate assets vested in the manager. In the Gordon case it is said, "* * * it is immaterial whether we call such an entity an association or a trust, it has a reality of its own apart from its contributors." In those cases, and the Wild case, the syndicates were stock pools organized for trading purposes, with substantial powers in the managers. In these cases each syndicate was organized for the limited purpose of buying and selling specific parcels of realty. While the literal words of the syndicate agreements in these cases gave the managers extensive powers, they did not operate in that way. No matter of any importance was undertaken without consultation with all the participants.
We have held that the operating losses of the syndicate properties are allowable to the petitioners. A part of the loss claimed by members of Syndicate No. 2 for 1929 arises from the demolition of buildings 33 B.T.A. 830">*842 on the St. Mary's College property. Included in the stipulation filed in these proceedings is the following:
* * * While the members did not intend to demolish the buildings or subdivide the property themselves, 1935 BTA LEXIS 695">*722 they did contemplate reselling the property as a unit, and believing that one of the elements which would enhance the value was the fact that the property by reason of its size and location was suited for sub-division and sale in smaller parcels, contemplated that such sub-division would entail a demolition of the existing structures. However, it was believed that the property might be bought and resold several times as a unit before it would be so sub-divided. [Italics supplied.]
From this stipulation it would appear that the demolition of the buildings was intended to enhance the value of the property. If so, no loss was sustained and no deduction is allowable. Cf. .
Furthermore, the evidence does not establish the cost attributable to the buildings demolished. Apparently no separate sum was paid for the buildings when the property was purchased in 1927. Where land and buildings are purchased for a lump sum it is proper in order to find the basis of each, to allocate the total cost between the two kinds of property based on fair market value. See 1935 BTA LEXIS 695">*723 ; Belle Isle .creamery . Cf. . Petitioner's evidence in this case consisted of the testimony of an appraiser who appraised the buildings in 1927 for the purpose of determining their insurable values. We have no means of knowing how such values compared with the market values of the buildings. In many cases the insurable value is lower than market; in this case it may well be, in the light of the anticipated demolition of the buildings, the insurable value was higher than market. The petitioners offered no evidence as to the value of the land. In this state of the record we must hold that petitioners have failed to establish the amount allocable as cost of the buildings, and the respondent is sustained in the disallowance of a demolition loss.
An issue in the cases of Joel W. Kaufmann, Docket Nos. 65592 and 70623, concerning income from community property for the years 1929 and 1930, is conceded by counsel for respondent in his brief.
The case of Hattie Hecht Sloss, Docket No. 64835, presents issues as to earned income1935 BTA LEXIS 695">*724 credit for 1929 and the proper treatment of dividends which the respondent has taxed as income in both 1928 and 1929. Petitioner's husband was a member of a law partnership, the earnings of which consisted entirely of fees for legal services rendered by the partners. Petitioner filed a separate return for 33 B.T.A. 830">*843 1929 and reported therein $27,793.23 as her community one half of her husband's share of partnership income. During the year 1929 petitioner's husband received $600 for services rendered as a director of the Emporium-Capwell Corporation, and the petitioner reported one half thereof as her community share. The respondent computed the earned income credit to which petitioner was entitled in the amount of $5,000. We sustain the respondent on this issue on authority of .
On the issue concerning the dividends, it appears that the petitioner included in her 1929 return dividends received in 1928 from the Hecht Broadway Corporation in the amount of $1,503. Upon examination of her return for 1928 by a revenue agent this item was transferred to 1928 income and she paid a tax thereon. The item should not again be included1935 BTA LEXIS 695">*725 in 1929 income and we hold for the petitioner on this issue.
Reviewed by the Board.
Decision will be entered in each proceeding under Rule 50.
TURNER dissents.
LEECH, concurring, I concur in the result reached in the majority opinion on the second point, upon the ground, only, that the present record does not establish any basis for the building demolished.
TRAMMELL concurs in the above.
Footnotes
1. The following cases were submitted on the same stipulation of facts and are decided in this report: Wells Fargo Bank and Union Trust Company, a Corporation, and Marguerite Molly Steines, as Executor and Executrix, respectively, of the Last Will and Testament of C. W. Steines, Deceased; Hilda H. Gerstle; William L. Gerstle; A. B. C. Dohrmann; Hattie Hecht Sloss; Marcus C. Sloss; William Fries; Joel W. Kaufmann; Hans Lisser; and Sadie D. Patek. ↩