*106 Decisions will be entered under Rule 50.
*176 The Commissioner determined deficiencies in income tax as follows:
| Year | Hoffman | Hirsch |
| 1957 | $ 15,540.31 | $ 960.77 |
| 1958 | 3,732.76 | 1,550.32 |
The parties, by stipulation, have settled all of the issues raised in the petitions except one. That one is whether contracts purchased by the petitioners partnership for the location of cigarette vending machines are subject to *107 depreciation. The costs and values of those contracts have been stipulated and it has also been stipulated that the amounts of depreciation deducted on the returns are correct if any depreciation is allowable.
FINDINGS OF FACT
David Hoffman filed his returns for the taxable years with the director of internal revenue at Brooklyn, N.Y. He then resided at Plainview, N.Y.
Robert and Jeanne Hirsch, husband and wife, filed their joint returns for the taxable years with the director of internal revenue at Brooklyn, N.Y. They then resided at Syosset, Long Island, N.Y.
David and Robert formed a partnership known as County Cigarette Service on January 1, 1957. The partnership was engaged, during 1957 and 1958, in the business of selling cigarettes through vending machines in the New York metropolitan areas of Nassau and Queens. It had contracts for the various locations in which it placed its vending machines. Most of the contracts were in writing and each was originally for a 3-year period stated in the contract. None contained any provision for renewal. If a machine remained in the same location after the expiration of the contract period it would have to be under a new contract obtained*108 by negotiation between the partnership and the owner of the location for which contract the partnership would have to pay the newly agreed upon purchase price.
*177 A few agreements for locations were oral and were terminal at will by either party.
Hoffman had been engaged in this same business as an individual since April 1947 and Hirsch had been his employee prior to the formation of the partnership. The partnership purchased Hoffman's assets on January 1, 1957, and purchased assets from others on September 19, 1957, August 7, 1958, and October 13, 1958. The costs of the contracts or leases thus acquired are stipulated as follows:
| January 1, 1957 | $ 67,875.03 |
| September 19, 1957 | 24,625.00 |
| August 7, 1958 | 19,435.00 |
| October 13, 1958 | 48,720.36 |
The written agreements thus secured are generally referred to as leases or contracts.
Hoffman and Hirsch, before making each of those purchases for the partnership, considered thoroughly the locations, the contracts for locations and their remaining lives, the sales volumes at each location, the commission rates, the types and conditions of the machines, and other elements entering into the prices to be paid. They considered *109 the price to be paid for contracts to be the most important element involved. They considered the life of oral contracts to be 1 year and their value to be small.
The partnership kept a file showing the expiration date of each contract and as that date approached the partners again reviewed all of the factors affecting the value of the contract before negotiating with the owner of the location for a new contract and the amount to be paid for it, knowing that they would be open to competition in securing a new contract. They then negotiated with the owner of the location for a new lease or contract at a new cost.
All stipulated facts are incorporated herein by this reference.
OPINION
The Commissioner in the deficiency notices stated that amortization under
The unrefuted testimony is that each written contract or lease was for a definite period of years stated in the contract, could be enforced at law by either party for those years but for those years only, *110 and carried no provision for or promise of renewal. Also it is clear that the entire value of each contract expired as those years elapsed and no goodwill was involved. As the term of each contract expired, the partnership could only negotiate for a new contract to replace the old *178 one. It had to agree upon and pay a new consideration for a new contract. In that negotiation the partnership was open to strong competition and the most important consideration was the amount it would offer to pay for a new contract.
Thus it seems clear that these contracts were wasting assets and in order to compute the partnership annual profit from the operation of the machines in their locations during the life of the contracts permitting them to operate in those locations, the proportionate costs of the contracts for the locations for the year, would have to be deducted from the gross sales of the machines for the year.
*112 Decisions will be entered under Rule 50.
Footnotes
1. The costs of the contracts here involved are in addition to and unrelated to any commissions of so much per package of cigarettes sold by a vending machine which are payable to the owner of a location under the contracts now under consideration, and cases relating to such commissions are not in point. Other cases cited by the Commissioner but not mentioned in this opinion involved facts not here present and are clearly not determinative of this case.↩