*2406 A reasonable allowance for exhaustion, wear and tear, including a reasonable allowance for obsolescence, determined with reference to two office buildings in the business district of Chicago.
*430 Before IVINS, MORRIS, and LOVE.
These seven appeals were heard together upon eight depositions taken in Chicago, exhibits and argument. The Commissioner disallowed depreciation as taken upon the return of the trustee for an estate in which the several taxpayers were entitled to distributive shares and increased their respective incomes, with determinations of deficiencies in taxes as follows:
| Robert H. McCormick | $343.24 |
| L. Hamilton McCormick | 5,022.74 |
| Henrietta McCormick Williams | 179.52 |
| Elizabeth D. McCormick | 208.38 |
| Phoebe McCormick Ayer | 207.07 |
| Henrietta McCormick-Goodhart | 5,035.01 |
| Mildred D. McCormick | 201.20 |
From the evidence submitted the Board makes the following
FINDINGS OF FACT.
The taxpayers are individuals who in the year 1919 were beneficiaries of the income under a trust for 20 years created pursuant to the will of Leander*2407 J. McCormick, who died February 20, 1900.
The McCormick Building and the Lumber Exchange Building, both situated in Chicago, were constructed by the trustees of the estate and were owned in fee by them in 1919.
The McCormick Building, located on the northwest corner of Michigan Avenue and Van Buren Street, was constructed in 1910-1911 at a cost of $3,272,818.92. It is a store and office building, built *431 on caisson foundations, of steel and concrete, with granite and brick facings. It is 20 stories high, running to a total height of 260 feet, which was the building limit by city ordinance at the time of erection. Present ordinances permit a greater height through set-backs and tower construction. The ground floor is occupied by retail stores. The ceiling of that story is 20 feet high, of the second story 13 feet, and all stories above that 10 feet 6 inches high. The first story is excessively high and has been reduced 4 feet by the present tenants to meet their needs. Modern construction would permit 21 stores instead of 20 within the same height limit. All of the offices on the Michigan Avenue side are 40 feet deep, which is wasteful of space, being much deeper*2408 than in more modern structures. The building is fireproof. There are 11 elevators. Its original design of the floors above the first was for occupancy by tenants requiring extensive office space. Some of such tenants have recently vacated to take space in other buildings. One occupied two entire floors and the space has not been filled. On account of the lack of demand for space of that character the rental basis per square foot has been dropped from $3.75 to slightly under $3. The land on which the building stands extends 192 feet on Michigan Avenue and 171 feet on Van Buren Street. The building is located in the southern extremity of the business or loop district of Chicago. The natural development of Chicago is toward the north.
The net rentals of the McCormick Building (without deduction for depreciation) have been:
| 1913 | $376,162.85 |
| 1914 | 400,263.21 |
| 1915 | 432,140.39 |
| 1916 | 410,432.74 |
| 1917 | 474,184.26 |
| 1918 | 475,019.88 |
| 1919 | $455,236.08 |
| 1920 | 440,178.44 |
| 1921 | 547,485.89 |
| 1922 | 688,382.36 |
| 1923 | 792,208.46 |
The Lumber Exchange Building, located on the southeast corner of La Salle and Madison Streets, was completed in 1915 at a cost of $1,392,772.59. *2409 In 1919 it was 200 feet in height and had 16 stories. Five additional stories were added in 1924, making the height at present 260 feet. It is built on caisson foundations, of steel and con crete superstructure, and has an outside finish of brick and terra cotta. It is an office building in the business or loop district. There are few unrented offices. It is 135 feet on La Salle Street and 100 feet on Madison Street. The net rentals (without deduction for depreciation) have been:
| 1916 | $93,767.60 |
| 1917 | 147,696.41 |
| 1918 | 156,213.76 |
| 1919 | 147,173.05 |
| 1920 | $153,831.04 |
| 1921 | 165,942.11 |
| 1922 | 221,952.69 |
| 1923 | 248,148.44 |
*432 During the Chicago fire of 1871 the entire business district was destroyed. Since that time many buildings in the district have been torn down to make way for more modern structures, even though the buildings were making a return upon the original investment. In many instances a third building now stands on land which was swept by the fire. The general tendency has been for newly constructed buildings to cover more land than that occupied by the demolished structure. Consolidation of ownership and larger and higher buildings*2410 with resulting economies in operation and increased rental space have occurred in many instances of new construction. Within the district bounded by Lake Street on the north, Wells Street on the west, Michigan Avenue on the east, and Van Buren Street on the south (including south of Van Buren Street and north of Congress Street between State Street and Michigan Avenue), 877 buildings existing in 1891 were reduced to 793 buildings in 1904. In 1922 there were 639 buildings, and in 1925 596 buildings, a total decrease of 271 buildings between 1891 and 1925, or a 32.36 per cent decrease. The building history of Chicago in this business district has shown few buildings remaining after 35 years from construction and that buildings that had not reached the final condition of physical depreciation or exhaustion had become obsolete from an economic standpoint and were replaced by larger, higher, and more modern structures.
From the competent testimony of eight credible witnesses produced by the taxpayer, and with no conflicting or rebutting evidence introduced by the Commissioner, we find the probable useful economic life of both of the buildings here involved to be 40 years from the*2411 respective dates of their construction, and that a reasonable allowance for exhaustion, wear and tear, including a reasonable allowance for obsolescence, is 2 1/2 per cent upon their respective costs. The determinations of deficiencies by the Commissioner were based upon an allowance at the rate of 1 1/2 per cent. From those determinations the taxpayers duly appealed to this Board.
DECISION.
The deficiencies determined by the Commissioner are disallowed.
ARUNDELL not participating.
Footnotes
1. The following were heard with the above-named appeal and are decided herewith: Appeals of L. Hamilton McCormick, No. 1606; Henrietta McCormick Williams, No. 1607; Elizabeth D. McCormick, No. 1608; Phoebe McCormick Ayer, No. 1609; Henrietta McCormick-Goodhart, No. 1610; and Mildred D. McCormick, No. 1611. ↩