Laurence S. Ames and Joy A. Ames v. Commissioner of Internal Revenue

626 F.2d 693 80-2 USTC P 9641 Laurence S. AMES and Joy A. Ames, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 78-2637. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 4, 1980. Decided Aug. 27, 1980. Rehearing Denied Sept. 26, 1980. John J. Burke, Ross, Woodson, Millard, Burke & Woolverton, Pasadena, Cal., for petitioners-appellants. Robert E. Lindsay, Washington, D. C., argued, for respondent-appellee. Appeal from a Decision of the Tax Court of the United States. Before SNEED and PREGERSON, Circuit Judges, and TEMPLAR * , District Judge. SNEED, Circuit Judge: 1 The petitioners-appellants, the Ames, claimed deductions for the depreciation of improvements built to a lessee's specifications, and the respondent-appellee Commissioner disallowed them, asserting that the appellants assumed too brief a useful life for the assets. The Tax Court agreed. On appeal the taxpayers argue that the Tax Court misunderstood the substantive law, imposed too heavy a burden of proof, and erred in its principal finding of fact. This court's jurisdiction rests on 26 U.S.C. § 7482 (a) (1976). We affirm. 2 The Ames, who are husband…

The petitioners-appellants, the Ames, claimed deductions for the depreciation of improvements built to a lessee’s specifications, and the respondent-appellee Commissioner disallowed them, asserting that the appellants assumed too brief a useful life for the assets. The Tax Court agreed. On appeal the taxpayers argue that the Tax Court misunderstood the substantive law, imposed too heavy a burden of proof, and erred in its principal finding of fact. This court’s jurisdiction rests on 26 U.S.C. § 7482 (a) (1976). We affirm.

The Ames, who are husband and wife, claimed the disputed deductions in joint returns filed for the years 1970 and 1971. Mr. Ames is a contractor-developer. In 1966 he became aware of an opportunity to lease specially constructed buildings to the California Department of General Services for use as a social services center. One requirement for the project was that the center be near the people it would serve. Ames looked for and found suitably located property that could accommodate buildings of the required floor area. Since the property was in a residential zone, he sought and obtained a nonconforming use permit; the zoning authority conditioned it, however, on…

(dissenting):

I respectfully dissent. The evidence introduced by taxpayers demonstrates that when they filed their 1970 and 1971 income tax returns, they reasonably could estimate that the useful life of the depreciable improvements would be six years and two months. The buildings were designed and constructed in accordance with the state’s specifications. Their design made the buildings virtually useless for any other tenant. The zoning variance granted the project, which precluded commercial occupancy, was conditioned on continuous occupancy by governmental agencies. During negotiations for the lease, the state’s leasing agent told taxpayers that there was no “probable likelihood” that the state, would exercise its options to purchase the property or to renew the lease for an additional ten years, a forecast which proved to be correct. The taxpayers established that the improvements were suitable for use by a unique tenant, the state, and that taxpayers reasonably expected at the time they filed their returns that this tenant would use the facility for only six years and two months. The Tax Court’s decision upholding the Commissioner’s conclusion that the reasonable useful life…