*2569 No gain arises to a lessor of property destroyed by fire where the proceeds of insurance are expended by the lessee in similar property.
*498 These are proceedings, duly consolidated for hearing and decision, for the redetermination of the following deficiencies:
| Petitioner | Year | Deficiency |
| William P. Adams | 1922 | $5,125.33 |
| 1923 | 1,800.44 | |
| Robert B. Adams | 1923 | 257.67 |
| John Q. Adams | 1923 | 104.90 |
The only issue remaining for decision after the stipulation of the parties relates to the respondent's addition to income of a partnership in 1922 because of the replacement of assets destroyed by fire. The facts were stipulated.
FINDINGS OF FACT.
The petitioners are individuals with their principal office in care of William W. Thompson, 176 West Adams Street, Chicago, Ill. The taxes in controversy are as follows:
| Petitioner | Docket No. | Year | Deficiency |
| William P. Adams | 24341 | 1922 | $5,125.33 |
| William P. Adams | 24341 | 1923 | 1,800.44 |
| Robert B. Adams | 24342 | 1923 | 257.67 |
| John Q. Adams | 24343 | 1923 | 104.90 |
*2570 During the calendar years 1922 and 1923, the petitioners were all the members of a copartnership trading as W. P. Adams & Co., engaged in the business of real estate and real estate speculation, farming, operating a plantation, and general speculation.
The correct income of the partnership of W. P. Adams & Co. for the calendar year 1922 is as follows:
| Income from trade or business | $90,244.60 |
| Dividends on stock of domestic corporations | 5,114.00 |
| Total | 95,358.60 |
The correct income of the partnership of W. P. Adams & Co. for the calendar year 1923 is as follows:
| Income from trade or business | $ 106,731.83 |
| Dividends on stock of domestic corporations | 3,205.75 |
| Total | 109,937.58 |
The distributive share of the partnership income of the petitioner, William P. Adams, for the calendar years 1922 and 1923 is as follows:
| Dividends | Other income | |
| 1922 | $3,579.80 | $63,171.22 |
| 1923 | 2,244.03 | 74,712.28 |
*499 Robert B. Adams' distributive share of the partnership income for the calendar year 1923 is as follows: 1923:
| Dividends | $480.86 |
| Other income | 16,009.78 |
John Q. Adams' distributive share of the partnership*2571 income for the calendar year 1923 is as follows: 1923:
| Dividends | $480.86 |
| Other income | 16,009.77 |
The petitioner, William P. Adams, individually owned farm property in Iowa, which he leased to the partnership of W. P. Adams & Co. under an agreement which provided that the partnership was to maintain said property at all times, including all buildings and other improvements, all work and other livestock and equipment, in as good condition as when received, ordinary wear and tear excepted, which latter would be taken care of by the petitioner William P. Adams' right as owner to recover through depreciation deductions.
The partnership as such took out insurance on the property to protect itself. The partnership paid the premiums and was the beneficiary under the policies.
The very large barn on the Iowa farm burned during December, 1922, together with its contents of work mules and equipment, and also crops that were stored in the barn, consisting of hay and grain, raised by the partnership.
The partnership collected from the insurance companies in 1922 a fire loss of $61,499.70, covering the barn and work mules, and $13,366.55 covering the crops, and immediately*2572 after the fire started reconstructing the barn from the same plans that the burned building was constructed with, and the reconstructed barn was an exact duplicate of the barn. The mules were replaced by the purchase of others. The cost of replacing the destroyed property, exclusive of crops, was:
| 1922 | $58,535.74 |
| 1923 | 8,180.00 |
| Total | 66,715.74 |
The expenditure in 1922 was for the construction of corn cribs in the barn.
*500 The cost to the petitioner, William P. Adams, of the property destroyed by the fire was $66,715.74, and the amount of depreciation thereon that had accrued and been allowed by the Internal Revenue Bureau to the petitioner, William P. Adams, at the date of the fire was $18,640.21.
The respondent has included in the taxable income of the petitioner, William P. Adams, for the calendar year 1922 the amount of $18,640.21, representing in part the excess of the cost to the partnership of replacing the destroyed property over the depreciated cost of the property to the petitioner, William P. Adams, at the date of the fire. The respondent has not included any income in the taxable income of the petitioner, William P. Adams, for the calendar*2573 year 1923 arising from the transaction involving the replacement of the destroyed property by the partnership.
The petitioner, William P. Adams, and the partnership of W. P. Adams & Co., have always kept their accounts on the cash receipts and disbursements basis, and the petitioner, William P. Adams, filed his income-tax returns for the calendar years 1922 and 1923 on the cash receipts and disbursements basis.
OPINION.
SIEFKIN: The respondent added $18,640.21 to William P. Adams' income for 1922 on account of depreciation sustained and allowed on the property which was burned in 1922 and replaced in 1922 and 1923. The petitioners say the addition was in error and base their contention upon section 202(d)(2) of the Revenue Act of 1921 and the Board's decisions in ; affd.; , and ; while the respondent justifies his action under our decision in . The last cited case, however, does not involve an involuntary conversion, but deals with the question of income to a lessor by the*2574 erection of buildings on the leased land. Both the cases cited by the petitioner do, however, deal with the question of gain from involuntary conversion. In the decision of the Circuit Court of Appeals, above referred to, the court said:
* * * Manifestly Congress considered an excess of insurance over original cost as a gain and in case of reinvestment a portion of this gain, which otherwise would be taxable as such, is offset by the authorized deduction. In the instant case the entire amount of the insurance collected was reinvested and hence the Commissioner taxed no gain against the appellant.
*501 In that case the taxpayer was claiming a loss because it rebuilt its plant after a fire at a much larger cost than the insurance money received. In computing the loss the taxpayer deducted from the total cost of the new factory the accrued depreciation on the old plant, the salvage and the insurance received. The Commissioner of Internal Revenue required the taxpayer to capitalize the difference between the cost of the new mill and the amount of the insurance. This Board approved that determination and the Board's decision was affirmed by the Circuit Court of Appeals.
*2575 The facts of this proceeding are that William P. Adams, the owner of the property, leased it to the partnership, the terms of the lease being that the partnership would return the property at the end of the lease in the same condition as at the beginning. The lease made the partnership liable for the replacement of the buildings. They insured the buildings, a fire occurred, insurance was collected and reinvested in new buildings. If we consider that the purpose of Congress was to withdraw property used to replace involuntarily converted property from the scope of the Revenue Act, making it not subject to gain or loss, where, as here, the entire amount received was reinvested, we must hold that William P. Adams did not realize a gain in the amount of depreciation allowed on the building which was burned. We do consider that to have been the purpose of Congress and we so hold.
Judgment will be entered under Rule 50.