*46 Decision will be entered for respondent.
Petitioner purchased two partly abutting properties in the city of Chicago, one in 1920 and the other in 1926. One of the properties was improved by a five-story brick building and the other by a three-story brick building, each adapted and devoted to commercial uses. There was no interconnection between the buildings except a common heating plant. The properties were carried on petitioner's books separately for depreciation purposes, and depreciation was taken and allowed thereon accordingly. The property last purchased was acquired as a precaution against the contingency of construction of a new building thereon by another which might result in damage to the building on the property first purchased and also to enable petitioner, if he so wished, to replace both buildings with one new building. Both properties were sold in one transaction in the taxable year by petitioner to a corporation controlled by him for a price which exactly equaled the combined undepreciated bases thereof. Petitioner treated the transaction as a sale of one property and accordingly reported no gain or loss thereon. Respondent determined that the sale embraced*47 two properties and determined a deficiency in income tax on the basis of capital gain realized in respect of one of the properties. Held, respondent's determination should be sustained.
*862 Respondent determined a deficiency in petitioner's income tax for 1943 in the amount of $ 3,526.54. The question is whether the sale of certain real estate by petitioner constituted the sale of one property or of two properties. The return was filed with the collector of internal revenue for the first district of Illinois.
The facts have been stipulated and are hereby adopted.
*863 FINDINGS OF FACT.
Petitioner owns 93.2 per cent of the outstanding stock of the Krahl Construction Co., hereinafter referred to as the company. On July 1, 1943, petitioner sold the company, under a single deed, certain real estate in Chicago. The real estate so sold consisted of land improved by two buildings known, respectively, as 109 W. Hubbard Street and 420 N. Clark Street. Petitioner had acquired 109 W. Hubbard on January 22, 1920. This*48 property is improved by a 5-story brick building having a 20-foot frontage on W. Hubbard and a depth south from Hubbard Street of 100 feet. Following its acquisition petitioner made certain improvements. When petitioner acquired this property and made the improvements, he intended the building to be used ultimately as the office of the company. This has not been done because John R. Thompson Co., a principal customer of the company, has requested the company to continue its offices in the Thompson Building.
Petitioner purchased 420 N. Clark Street in 1926. This property is a 3-story brick building having a frontage of 25 feet on N. Clark Street and a depth of 80 feet, which also sides on W. Hubbard Street. The rear 25-foot width of 420 N. Clark is contiguous with the side of 109 W. Hubbard. The two buildings thus flank the corner made by Clark and Hubbard Streets. Until 1940 the ground floor at 420 N. Clark, when in use, was used as a store and the upper floors were used for lodginghouse purposes. From 1940 to 1945 the upper floors were vacant. In 1945 the second floor was altered for loft purposes.
The reason the petitioner purchased 420 N. Clark was principally to protect*49 the 109 W. Hubbard property. If a new building had been erected at 420 N. Clark by some third party, it might have become necessary to shore up the wall of 109 W. Hubbard and deepen its foundation which would have been an expensive operation. By purchasing 420 N. Clark, petitioner foreclosed this possibility. Furthermore, if petitioner should wish, he could remove both buildings and replace them with one corner building with frontage on both streets. For these reasons the aggregate sale value of the two properties would probably be greater if sold as a unit than if sold separately.
There are no connecting doorways between the two buildings. By city regulation each is required to have a separate fire escape. Each has separate gas, electricity, and water meters. There are no water or gas pipes or electrical connections between the two buildings, but 420 N. Clark, since 1936, has been heated by and connected to the heating plant at 109 W. Hubbard. The buildings are treated separately for local tax purposes. For 1943 and prior years the income from and expenses of operating these buildings were reported separately. The values of the lots and buildings were separately entered*50 on the books of the company for computing future depreciation deductions.
*864 In June 1943, at petitioner's request, the properties were appraised as follows:
| Lot | Building | Total | |
| 420 N. Clark St | $ 10,000 | $ 4,400 | $ 14,400 |
| 109 W. Hubbard St | 4,000 | 22,800 | 26,800 |
| Total | 41,200 |
Petitioner sold the properties to the company on July 1, 1943, for $ 40,937.29, which corresponds exactly to their then combined adjusted bases of $ 12,522.96 for 109 W. Hubbard and $ 28,414.33 for 420 N. Clark. Petitioner reported no gain or loss from the transaction.
Based on the relative values found by the above appraisal, respondent allocated the sale price of $ 40,937.29 as $ 26,629.11 to 109 W. Hubbard and $ 14,308.18 to 420 N. Clark. Since 109 W. Hubbard's basis was $ 12,522.96, respondent determined that there was a long term capital gain of $ 14,106.15, as to it. Since 420 N. Clark's basis was $ 28,414.33, the Commissioner determined a long term loss, as to it, but disallowed the loss by virtue of section 24 (b) (1) (B), Internal Revenue Code.
OPINION.
We have concluded that petitioner sold two properties and not one property. Petitioner acquired each of the buildings*51 at different times. Each had a separate cost basis and depreciation schedule. Each was accounted for on petitioner's books separately. The income and expenses of each were reported and deducted separately. They were each separate units for local tax and utility metering purposes. Although both were sold by petitioner under one deed, the purchasing company carried each separately on its books. Furthermore, the buildings differ in their adaptability and actual use.
Petitioner argues that, despite the above circumstances, the properties supplemented each other and must be considered as an economic unit. It is true that the subsequent acquisition of 420 N. Clark by petitioner was to protect and enhance the value and ultimate usefulness of 109 W. Hubbard as a potential office space for the company. But we do not think this factor is sufficient under the circumstances of this case to justify considering the sale of the two buildings as a sale of one property. We are not satisfied that petitioner actually welded the two properties into a single unit or that any other sufficiently significant correlating factor exists to justify a merging of cost bases. Lakeside Irrigation Co. v. Commissioner, 128 Fed. (2d) 418;*52 certiorari denied, 317 U.S. 666">317 U.S. 666; Reddington Co. v. Commissioner, 131 Fed. (2d) 1014; Morris Investment Corporation v. Commissioner, 156 Fed. (2d) 748; *865 certiorari denied, 329 U.S. 788">329 U.S. 788. As was said in Lakeside Irrigation, supra:
* * * We are of opinion that in ascertaining gain and loss by sales or exchanges of property previously purchased, in general each purchase is a separate unit as to which cost and sale price are to be compared. * * *
The above quoted rule appears properly applicable to the instant case, in the absence of any more substantial integration than is shown here. To constitute an exception to the general rule that each purchase is a separate unit, we consider it sound to insist on such a sufficiently thoroughgoing unification of separately purchased properties as naturally recommends a consolidation of their bases. The instant case, in our opinion, falls short of this. The cases cited involved securities, but the reasoning supports our present conclusion. We hold, therefore, that petitioner's sale was*53 the sale of two properties. It follows that respondent's determination must be sustained.
Decision will be entered for respondent.