*2004 Loss on sale of property disallowed for insufficiency of evidence to establish the cost thereof.
*1128 This is a proceeding for the redetermination of a deficiency in income tax for the year 1923 in the amount of $2,415.75. The petitioner is also claiming a refund of approximately $1,500.
The only error alleged is that the Commissioner erred in holding that the sale of an office building occurred during the year 1924 and not during the year 1923.
FINDINGS OF FACT.
The petitioner is a corporation organized and existing under the laws of the State of California, with its principal office located at 211 Sun Finance Building, Los Angeles, Calif.
*1129 On October 31, 1923, the petitioner entered into a contract with one Joseph M. Schenck for the sale of certain real estate and all improvements thereon particularly a building known and designated as the "California Building." The contract, after reciting that the seller would sell the property free and clear of all liens, etc., except those set forth including leases, provided:
1. *2005 The seller agrees to execute and deliver to the purchaser on or before January 2nd, 1924, a good and sufficient grant deed conveying said real property to the purchaser, subject only to the liens, encumbrances, conditions, restrictions and reservations, hereinabove set forth or referred to, and the seller further agrees to cause to be issued and delivered to the purchaser, concurrently with the delivery of said deed as aforesaid, a new guarantee of title issued by Title Insurance & Trust Co. of Los Angeles, in its usual form, limited in the sum of Four hundred seventy five thousand dollars ($475,000.00), written for the benefit and protection of the purchaser, showing the record title to said real property, at the time of the delivery of said deed, vested in the purchaser, subject only to the liens, encumbrances, conditions, restrictions and reservations, hereinabove set forth or referred to.
2. The purchase price which the purchaser agrees to pay and which the seller agrees to accept for said property is the sum of Four hundred seventy-five thousand dollars ($475,000.00), said purchase price shall be paid to the seller by the purchaser in the manner following, to-wit:
(a) Twenty-five*2006 thousand dollars ($25,000.00) cash upon the execution of this agreement, the receipt of which said sum is hereby acknowledged by the seller.
(b) Four hundred fifty thousand dollars ($450,000.00) cash upon delivery to the purchaser, as herein provided, of the aforesaid deed and guarantee of title; provided, however, that in no event shall the purchaser be obligated or required to pay said sum of Four hundred fifty thousand dollars ($450,000.00) prior to January 2nd, 1924.
3. Time is of the essence of this agreement and of each and all of the agreements herein contained on the part of each and all of the parties hereto. Should the purchaser fail to make any payment as and when required by the terms hereof, the seller, at its option, may declare this contract null and void, and of no further effect whatsoever, and in such event the purchaser shall have no further right, title or interest either at law or in equity, in or to the property aforesaid, or in or to any payments theretofore made hereunder by the purchaser, and any moneys so paid shall be retained by the seller. Should the seller fail to comply with any or all of its agreements herein contained, in the manner and within*2007 the time herein provided, the purchaser, at his option, and in addition to any and all other rights or remedies herein given or by law provided, may declare this contract terminated, and in such event, the purchaser shall be released from any obligation hereunder and any and all payments theretofore made hereunder by the purchaser shall be returned to him.
4. This contract shall be carried out and consummated by means of an escrow with Title Insurance and Trust Company of Los Angeles, and all documents to be delivered and all payments to be made as herein provided, shall be delivered and paid respectively through said escrow, save and excepting, however, the aforesaid sum of Twenty five thousand dollars ($25,000.00) cash paid to the seller upon the execution of this agreement.
* * *
9. At the time of the delivery of the grant deed required by the provisions of paragraph "1" hereof, the seller agrees to execute and deliver to the purchaser *1130 assignments of all leases hereinbefore mentioned, together with assignments of all fire insurance policies hereinbefore referred to.
On November 1, 1923, the petitioner entered into a further agreement which, after reciting*2008 that the contract of October 31, 1923, had been entered into and that said agreement failed to recite certain encumbrances outstanding against said real estate, provided that the property to be sold should be subject to certain further encumbrances in the nature of easements, rights of way, etc., and that said contract of October 31, 1923, was not modified in any other way.
These two contracts were deposited in escrow with the Title Insurance & Trust Company on November 5, 1923, and passed to the title department of that company on the same date.
The escrow came out of the title department on December 31, 1923, at 3.30 o'clock and passed to the escrow department.
On January 2, 1924, the petitioner wrote to the Title Insurance & Trust Company as follows:
GENTLEMEN:
Referring to Order No. 713111, said order concerning the transfer of the California Building, located at the Southwest corner Second Street and Broadway, this city, by the undersigned to Joseph M. Schenck, this letter is written to state as follows:
"Under the terms of the above order, transfer of said property was to occur as of January 2, 1924, and the said Schenck agreed in the escrow instructions handed*2009 you to complete all demands made on him by January 2, 1924. The undersigned hereby requests and agrees that the escrow instructions are amended so as to give an additional period of ten days to complete same, that is to say, we agree that the escrow, under the above order number, may be extended and in full force up to and including January 12, 1924."
On January 4, 1924, the Title Insurance & Trust Company wrote a letter to the petitioner stating that the preliminary examination of the title disclosed that the corporate powers of the petitioner had been forfeited on March 3, 1917, for nonpayment of the State license tax and that it would be necessary for the petitioner to obtain a certificate of revivor and file it in the proper office. It also stated that it would be necessary for the petitioner to pay certain bonds to which the title was subject or to authorize their payment through the escrow and that the petitioner should deposit its copies of the leases to which the property was subject, together with proper assignments of the leases. It was further stated therein:
If the escrow is not closed by January 14, 1924, you will be asked to extend the time limit of the escrows.
*2010 On January 11, 1924, the parties entered into a further agreement which, after reciting that they had entered into the agreement of October 31, 1923, but that since the execution of said agreement they *1131 had ascertained that a portion of the building projected over and beyond the boundary of the tract, provided:
* * *
Notwithstanding the facts above set forth the parties hereto are desirous of consummating the transaction provided for in said former agreements, dated October 31st, 1923 and November 1st, 1923, respectively, upon the terms hereinafter set forth.
FOR AND IN CONSIDERATION of the facts above set forth and of the agreements hereinafter contained and to be performed by the respective parties hereto, the parties above named hereby contract as follows:
1. The purchaser agrees to accept a conveyance of said real property, including the said California Building, as provided in said former agreements, notwithstanding that a portion of said building encroaches upon the aforesaid adjoining property.
2. The seller agrees to convey title to the purchaser, as provided in said former agreements, upon receipt of a cash payment of Four hundred forty-four thousand*2011 dollars ($444,000.00) instead of the payment of Four hundred fifty thousand dollars ($450,000.00), otherwise required to be made under subdivision B of paragraph 2 of said agreement of October 31st, 1923; and hereby instracts Title Insurance and Trust Company, in connection with the escrow provided for in said former agreements, to deliver all deeds and other instruments which the purchaser is entitled to receive upon payment of said sum of Four Hundred forty-four thousand dollars ($444,000.00) instead of said sum of Four hundred fifty thousand dollars ($450,000.00) at any time on or before February 10, 1924, the time for the payment of said sum by the purchaser being hereby expressly extended to and including February 10, 1924.
3. At the time of the payment of said sum of Four hundred forty-four thousand dollars ($444,000.00) by the purchaser into said escrow the purchaser shall pay into escrow at Citizens Trust and Savings Bank of Los Angeles, California, the sum of Six thousand dollars ($6,000.00), to be held and paid out by said Citizens Trust and Savings Bank as hereinafter provided. * * *
The contract made further provisions for the payment of the said $6,000 by the purchaser*2012 to the seller in the event that the seller should obtain and deliver a conveyance of that portion of the property upon which the building encroached. The contract also provided:
7. Except as expressly provided herein neither said agreement of October 31, 1923, nor said agreement of November 1st, 1923, shall be deemed to be modified in any way whatsoever by the execution of this present agreement.
A deed was executed by the petitioner dated January 30, 1924. On February 11, 1924, at 8 o'clock, title was finally approved by the title company. The deed was filed on that same date at 3 o'clock and was delivered into the recorder's office. The first cash received in escrow was $144,000 on February 6, 1924.
The books of the petitioner, which were kept in the office of Metcalf & Ryan, its agent, showed that rents were collected from the property by Metcalf & Ryan for the petitioner up to February 13, 1924. They also show that on February 13 an amount of $3,649.40 was paid to Metcalf & Ryan as "net collections to Schenck."
*1132 The revivor receipt showing that the corporate powers of the petitioner had been restored was dated March 20, 1917, and recorded January 10, 1924. *2013 A journal entry in petitioner's books of account as of February 11, 1924, is as follows:
| California Fireproof Building Trust Account credited by check of Joseph M. Schenck re purchase of building | $25,000 |
The debit entry is to the Citizens National Bank - cash deposited.
Another entry of the same date is as follows:
| California Fireproof Building Trust Account by cash from Title Insurance & Trust Company, re sale of building to J. M. Schenck, credit | $432,006.61 |
The debit entry is to the Citizens National Bank, cash deposited, $432,006.61.
The Commissioner, in his deficiency letter, held that the sale of the property took place during the year 1924.
OPINION.
MCMAHON: The only error set forth in the petition is that the respondent determined that the sale of the property in the instant proceeding took place in 1924 instead of 1923. From the petition itself it is impossible to understand just what the petitioner is claiming. However, from the opening statement of counsel and from the deficiency letter, we gather that the petitioner is claiming a loss in the year 1923 upon the sale in question. Nowhere in the entire record, either*2014 in the petition, in the evidence, or in the brief, is there any statement as to the amount claimed as a loss, as to the cost of the property, as to when the building thereon was built, or its useful life. Since the petitioner has thus failed to show the basis for the determination of whatever loss may have been sustained by him upon the transaction, no deduction is allowable, and it is unnecessary to determine when the sale took place.
Judgment will be entered for the respondent.