University Properties, Inc. v. Commissioner of Internal Revenue

Petitioner seeks review of a decision of the Tax Court holding that certain payments made by it as lessee of realty cannot be deducted from current income as rentals or other business expense. 45 T.C. 416 (1966).

In 1953 the University of Washington leased to petitioner a tract of land in downtown Seattle for a term of 35 years, commencing November 1, 1954. Fixed rent payments were established for the first four years; thereafter the rent was to be a percentage of the gross rentals received by petitioner from subten ants of buildings and offices in the tract. A fixed minimum rental was specified, to be abated pro rata when any part of the tract became temporarily untenantable.

In January, 1958, the University purchased from the United States a part of a tract adjoining the tract described above, on which was located the U.S. Post Office. The University agreed to demolish the old Post Office and to erect a new one on the land retained by the United States. On February 5, 1958, the University and petitioner entered into a supplemental lease agreement, which added the University’s new land to the tract covered by the old lease. It was agreed that petitioner would assume the…