*3912 1. Where the petitioner incurred expense incident to the installation and equipment of a saw mill and electric motor in the year 1919, but continued to use same during 1919 and part of the year 1920, and then abandoned and discontinued its use, such expenditure can not be deducted as a loss from 1919 income.
2. Loss resulting from the destruction by fire in 1920 of a warehouse not allowed as a deduction for lack of evidence.
3. Premiums on life insurance of its president paid by petitioner, while the policies were assigned to a creditor as collateral security for a loan, are not deductible as an ordinary and necessary business expense.
*1259 These proceedings, which were consolidated for hearing and decision, result from the determination by respondent of deficiencies for the years 1919, 1920, 1923, 1924 and 1925, in the respective amounts of $1,140.92, $1,120.37, $661.15, $3,022.26 and $1,600.22.
It was stipulated at the hearing of this cause that the net income of $30,213.17 for the year 1923 should be reduced by the amount of $20,111.53.
*3913 Error is claimed concerning the year 1919 in that the respondent refused to allow as a deduction for said year the sum of $1,200.86, representing the cost of a saw mill and motor purchased in the year and discharded as useless in the year of purchase.
Error is claimed concerning the year 1920 in that the respondent refused to allow as a deduction for said year the sum of $2,605.68, representing a loss resulting from the destruction by fire of a warehouse and the reconstruction of a new warehouse.
Error is claimed concerning the years 1923, 1924 and 1925 in that the respondent refused to allow as a deduction for said years the respective sums of $4,765.82, $4,950.92 and $5,023.99, paid by petitioner as premiums on life insurance policies covering the life of the president of petitioner.
FINDINGS OF FACT.
The petitioner is a Maryland corporation with its principal office in Baltimore, and is engaged in the lumber business. During the World War it had contracts with the United States Government for the manufacture of walnut gunstocks, and when these contracts were *1260 canceled by the Government soon after the signing of the Armistice, November 11, 1918, it had*3914 left on hand a large quantity of unused walnut timber.
This unused walnut timber was not suitable for the petitioner's regular business demands, and in order to prepare and market it the petitioner installed a saw mill and electric motor for the special purpose of sawing up this walnut timber into marketable shapes and forms. This saw mill and motor were installed soon after the signing of the Armistice, November 11, 1918, and used for eighteen months or two years thereafter in sawing the walnut lumber. When this was completed the use of the mill and motor was discontinued and they were left standing on the petitioner's property, but were never scrapped, dismantled, or sold. There is no evidence of the cost of either the saw mill or motor.
In the conduct of its business the petitioner had a warehouse at High Point, N.C., which was built on the right of way of the High Point, Thomasville and Denton Railroad. It was the mere tenant at will of the railroad company and in the lease it was provided that the lease could be terminated by the lessor on ninety days' notice and requiring the removal of the warehouse. The original warehouse was destroyed by fire in 1920 and was replaced*3915 by one identical with the original building, which was used by petitioner until November, 1927, when the railroad company terminated the tenancy and required the removal of the warehouse. There is no evidence as to the cost of the original building, the amount of fire insurance thereon, or of the cost of the new or reconstructed building.
In order to secure bank credit for loans made to petitioner certain policies of insurance upon the life of petitioner's president, Dwight W. Williamson, were assigned to the bank and pledged as collateral security for the loans. The policies named the insured's wife as the beneficiary, but upon her death the insured's estate was substituted as beneficiary. For this use of these policies, the petitioner paid the premiums thereon as follows: 1923, $4,765.82; 1924, $4,950.92; and 1925, $5,023.99.
OPINION.
MILLIKEN: There is no proof as to the cost of the saw mill and electric motor which petitioner seeks to have deducted as a loss from 1919 income, and, in addition thereto, it sufficiently appears from the evidence that both were used during the year 1919 and a great portion of the year 1920. The machinery was never junked, dismantled, nor*3916 sold, but was left standing on petitioner's yard. So far as the record shows it may be yet useful and valuable. The mere fact that its use was discontinued is not conclusive proof that it is useless *1261 or without value. Under these facts the action of the respondent was correct and is approved.
The cost of the warehouse built upon the right of way of the railroad company can not be allowed as a loss deduction from 1920 income, as there is no proof of the cost of the building or the amount of loss sustained. We also do not know the year in which the warehouse was erected. Based upon the opening statement of the representative of the petitioner, it appears a loss is claimed represented by the difference between the cost of the warehouse when erected less the sum received by way of insurance, with the resultant figure to be further increased by the cost of erecting a new warehouse to take the place of the one destroyed by fire. Even assuming we were supplied with the necessary facts upon which to base an opinion, it is sufficient to state the latter contention is without merit.
The remaining claim of petitioner is relative to the deduction for life insurance premiums*3917 paid by it on the life of its president. The facts upon which a decision must be based are very meager and if adequate might justify a more extensive consideration of the question at issue. The petitioner was very much in need of a bank loan and in order to secure same secured from its president and his wife certain life insurance policies which were assigned and pledged to the bank as security, the petitioner paying the premiums pending payment of the loan.
The Revenue Acts of 1921 and 1924 both provide in section 215(a)(4) that no deduction shall be allowed in respect of -
Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy.
The insurance involved here was upon the life of petitioner's president and in our opinion the petitioner was indirectly a beneficiary during the time the policies were being used as collateral to its loan. It was because of this assignment and pledge to the bank that petitioner was enabled to obtain credit and funds for the operation of its business, *3918 which it sorely needed. The respondent did not err in refusing the deductions claimed for the years in question. Compare , , , , and , affirmed by the .
Judgment will be entered on 15 days' notice, under Rule 50.