Sunday, May 12, 2013

New Capital Hotel, Inc. v. Commissioner case brief

New Capital Hotel, Inc. v. Commissioner case brief
28 T.C. 706, 1957 U.S. Tax Ct.

CASE SYNOPSIS: Petitioner lessor sought review of a decision of respondent Commissioner of Internal Revenue (commissioner), who determined a deficiency in the lessor's income tax.

FACTS: The lessor owned property which it leased to another company to run a hotel. The agreement required rent of $ 30,000 per year paid in monthly installments, with the final year's rent paid in advance. The agreement provided that the advance payment would apply toward the last year's rent, and would be refunded in the event of a fire destroying the property. The lessor had unfettered control and unrestricted use of the $ 30,000. The lessor did not reflect the money as income, but rather in a liability account entitled "deposit on lease contract." The lessor was on an accrual tax basis and contended that the income should be reflected in the final year of the lease, while the commissioner determined that it was income when received. The court held that the advance payment was actually rent and that it was therefore includable in gross income in the year received even though it was not to be applied for ten years. The court held that it was immaterial whether the lessor was on a cash basis or accrual method of accounting.

CONCLUSION: The court ruled in favor of the commissioner in the lessor's action challenging the commissioner's determination of a deficiency in income tax.

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