*4240 Certain deductions claimed by the petitioner in his individual return for repairs and for losses in the business of a partnership of which he was a member are disallowed.
*1387 This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1920 in the amount of $649.27. The petitioner alleges that the Commissioner erred in refusing to allow as deductions in the petitioner's individual return an alleged loss of $3,145.17, sustained during the taxable year in farming operations conducted as a partnership and certain individual expenditures alleged to be ordinary and necessary expenses for the year.
FINDINGS OF FACT.
The petitioner is by profession an attorney at law, practicing in the City of Indianapolis, Ind. In 1919 he purchased a tract of land of 235 acres situated north of the city and known as Lacoma Farms, title to a portion of the property being taken in the name of the petitioner's wife, and title to the remainder in the name of the petitioner himself. He went into possession in the spring of 1920 and formed a*4241 general partnership with one Robert F. Johnson, for the purpose of operating a stock farm with Johnson in charge. During the year 1920 the latter bought horses, hogs, and other livestock, and also sold stock at public sales on the farm. Very meager records were kept, but Johnson, who had charge of the funds of the partnership, kept a bank book and certain check books.
During the year 1920, Johnson gave several notes which he signed for the partnership - Lacoma Farms. Some of these in the amount of about $5,000, were not known to the petitioner during the year and were not discovered by him until the summer of 1921, after Johnson had retired from the partnership. The petitioner personally paid off partnership notes in the amount of $22,000 in years subsequent to 1920, the payments being completed by March of 1927. Some time after 1920 the petitioner sold all of the stock on the farm for an amount less than $5,000.
In order that it might be operated as a stock farm, the petitioner had certain work done upon the fences to make them serviceable for turning stock. The cost of this work included installation of some new poles, new wires, new posts and new gates, and the labor*4242 necessary for rebuilding the fences, and for cleaning out brush and bushes surrounding the old fence.
In his return the petitioner claimed a loss of $3,415.17 from the operation of the farm, and a deduction of $1,950 representing the approximate cost of rebuilding the farm fences.
There was attached to the petitioner's income-tax return and also to that of Lacoma Farms, the following statement:
LACOMA FARMS
A co-partnership composed of Lewis A. Coleman & Robert D. Johnson.
Farm of 144 acres located in Clay Township, Hamilton County, Indiana, owned by Mr. Coleman and operated by Mr. Johnson.
*1388 STATEMENT IN LIEU OF SCHEDULES ATTACHED TO AND FORMING PART OF INCOME
TAX RETURN OF CO-PARTNERSHIP FOR THE YEAR 1920.
Did not have a balance sheet December 30, 1919, as operation of farm did not commence until March 2, 1920.
| ASSETS DECEMBER 30, 1920. | ||
| Livestock: | ||
| Hogs | $2,000 | |
| Horses | 1,250 | |
| 4 Colts | 200 | |
| 16 Cows $200 | 3,200 | |
| 7 h Calves | 700 | |
| 1 Bull | 300 | |
| 15 Calves | 300 | |
| $7,950.00 | ||
| Farming implements and machinery, wagons and tools | 1,600.00 | |
| Feed: | ||
| 25 tons hay | $500 | |
| 7 tons straw | 100 | |
| 500 bu. corn | 300 | |
| 900.00 | ||
| Miscellaneous: Harness, Silo, etc | 1,000.00 | |
| Accounts receivable - Good | 200.00 | |
| Total | 11,650.00 | |
| Loss in operation | 6,830.35 | |
| 18,480.35 | ||
| LIABILITIES DECEMBER 30, 1920 | ||
| Notes Payable | $16,742.30 | |
| Accounts Payable | 1,738.05 | |
| $18,480.35 | ||
| Loss to each of partners | 3,415.17 |
*4243 In addition to the foregoing loss Mr. Coleman expended $1,950.00 in rebuilding fences on the farm.
LACOMA FARMS
STATEMENT IN LIEU OF SCHEDULES - CONCLUDED
Mr. Johnson, on behalf of the partnership, was in active charge of farm operations as manager and lived on farm, and had exclusive charge of the actual and financial management during the period of this return; outside of check books and bank books little if any book keeping was kept.
From these this return has been prepared. As near as I can ascertain the gross sales of live stock, poultry, milk, apples and other farm produce, aggregated $31,438.55.
While I am not able with the information available to state the sales of each, practically the entire item - at least $29,000 was from the sale of live stock.
Disbursements during the period covered appear as follows:
| DISBURSEMENTS | |
| Feed | $4,891.11 |
| Labor | 996.62 |
| Live Stock | 14,319.86 |
| Machinery | 1,609.39 |
| Seed | 663.64 |
| Interest | 333.40 |
| Repay borrowed money | 6,184.60 |
| Veterinary | 147.05 |
| Insurance | 25.00 |
| Johnson living exp | 1,471.26 |
| Coleman repairs | 562.44 |
| Supplies | 404.40 |
| Selling exp | 1,142.34 |
| Misc-dray-gas-tel | 811.59 |
| Total | 33,562.70 |
*4244 *1389 As I am not a book keeper or accountant and this return has been made by me without the assistance of either, and as I expect to have the books audited at a later date, I reserve the right to file an Amended Return herein and also in my personal return.
I am claiming at this time a deduction in my personal return of $3,415.17 on account of loss in said partnership, and $1,950 on account of fences rebuilt.
I am quite sure my loss has been considerably in excess of that shown herein.
Indianapolis, Indiana, March 12, 1920.
1541 Lemcke Annez.
LEWIS A. COLEMAN,
Member of said partnership.
The Commissioner accepted the approximate statement of gross sales as set forth above, but disallowed from the above disbursements the amount of $1,609.39 representing machinery, and the amount of $562.44 representing disbursements by Coleman for repairs; He allowed, in addition, depreciation on machinery in the amount of $241.41, and depreciation of miscellaneous items, silo, etc., in the amount of $150, leaving a net distributable loss on the Lacoma Farms business of $343.75, one-half of which, or $171.87, was allowed the petitioner as a loss on his farming operations. *4245 On the item of $1,950 representing the cost of rebuilding farm fences, the Commissioner allowed a deduction of $750 as repairs and depreciation of 15 per cent on the balance, making a total deduction of $930.
The petitioner has always made his returns on the cash receipts and disbursements basis.
OPINION.
MURDOCK: The petitioner contends that the Commissioner erred (1) in refusing to allow a deduction of $3,145.17, being 50 per cent of the alleged loss sustained in the operation of Lacoma Farms, a partnership of which the petitioner was a partner, and (2) in allowing the petitioner a deduction of only $750 as an ordinary and necessary expense and depreciation of 15 per cent on the balance of an item of $1,950 alleged to be the amount of an expenditure for the repair *1390 of fences upon the farm of which the petitioner was one of the owners.
A statement in lieu of schedules for the taxable year 1920 is set forth in the findings of fact. The partnership return shows an excess of deductions over and above gross income in the amount of $2,124.15 and a loss on sales of capital assets in the amount of $6,830.35. From the ambiguous and imperfect nature of the return, *4246 we are unable to determine whether it was made upon an accrual or a cash receipts and disbursements basis. The statement of gross income and deductions would seem to indicate a cash basis and it was this basis that the Commissioner evidently accepted. If this method be adopted, there has been presented no evidence to indicate that the Commissioner was in error in disallowing as deductions the amounts of $1,609.39, representing machinery purchased, and $562.44 representing expenditures by the taxpayer, and we can not see that the Commissioner's determination of a net loss to the petitioner from the farming operations in the amount of $171.87 was incorrect.
The statement of assets and liabilities as of December 30, 1920, may or may not constitute an authentic picture of the partnership business as the end of the year. But, in either event, we are unable to determine from it the amount of the partnership loss on the year's business, since the evidence fails to show that the partnership income should be computed on any other basis than that of cash receipts and disbursements. There is no reason to allow a loss to the petitioner who did not pay the notes until a later year.
In*4247 regard to the claimed deduction for repair of fences, we can not find that the Commissioner was in error in not allowing a larger portion of the alleged total expenditure as a deduction for repairs. From the evidence we would not be justified in requiring the allowance of any amount as a deduction.
Judgment will be entered for the respondent.