Geneva Drive in Theatre, Inc. Las Vegas Theatrical Corp. Concord Theatre Co. v. Commissioner of Internal Revenue

The issue in these consolidated cases is whether the taxpayers are entitled under Int.Rev.Code § 167(a) to depreciation deductions in respect of certain improvements erected by the lessee of property acquired by taxpayers subject to the outstanding lease. The Commissioner disallowed the claimed deductions for the years in question. The Tax Court, in an opinion reported at 67 T.C. 764 (1977), agreed with the Commissioner. We affirm the decision of the Tax Court for the reasons set forth in its opinion but with one modification.

I.

In 1950, lessor John Huston owned certain unimproved land. In that year he leased the land to lessee Island Auto Movie. The lease ran until March 2, 1970. Under the lease, the lessee was to build and maintain certain improvements and facilities on the land so that the property could be used as a drive-in movie theater. The lessee was required to keep the improvements in good condition. It was also required to insure the buildings and, if needed, use the proceeds to restore them. On expiration of the lease, all buildings and improvements would vest in the lessor as absolute owner. The facts are set out more fully in the Tax Court’s opinion, 67 T.C. at…