Before JAMES, STERNHAGEN, TRAMMELL, and TRUSSELL.
This is an appeal from the determination of a deficiency in income and profits tax for the year 1919 in the amount of $2,611.05. The only issue presented for the consideration of the Board is whether the taxpayer, a lessor under a 99-year lease, should be allowed to add the cost of a building constructed by the lessee to the lessor's paid-in surplus and have the same treated as a part of the lessor's invested capital.
FINDINGS OF FACT.
The taxpayer is a corporation organized under the laws of Missouri, with its principal place of business at St. Louis.
On or about the 30th day of June, 1905, the taxpayer entered into a lease with the Department Store Investment Co., by the terms of which the taxpayer (as lessor) leased a certain parcel of land in St. Louis for a term of 99 years, at a rental of $76,000 for the first five years and $100,000 per annum for the remainder of the term of the lease. The lessee convenanted to erect a building on the premises, within 15 years, to cost at least $800,000, and to pay all taxes1926 BTA LEXIS 2705">*2706 and assessments that may accrue against the property. The lease provided that the lessor become the owner of the building or buildings as erected, and the usual forfeiture clauses.
In pursuance of the terms of said lease, the lessee erected a building in the year 1912, costing $2,777,733. During the year 1919 the lease was in full force and effect and the lessee was in possession of and using the premises under the terms of the lease.
The said sum of $2,777,733 was entered upon the books of the taxpayer as an addition to surplus at the time the building was completed, and is now claimed as part of invested capital for the year 1919. The Commissioner refused to allow any part of the cost of said building for the purpose of computing invested capital, and, in a deficiency letter mailed December 4, 1924, asserted a deficiency of $2,611.05 for the year 1919.
DECISION.
The determination of the Commissioner is approved.