
    Appeal of GUDE BROTHERS, KIEFFER CO.
    Docket No. 3273.
    Submitted July 2, 1925.
    Decided October 27, 1925.
    1. Tbe taxpayer set up certain reserves wbicb it undertook to deduct from tbe taxable income for tbe year in wbicb they were set up. Held, that tbe deduction could not be allowed in sucb year.
    2. The taxpayer purchased certain property in 1917 which it ceased to use during tbe taxable year, sold a portion thereof and charged tbe balance to loss. Held, in tbe absence of proof of cost of tbe portion sold, that tbe transaction was not closed until all tbe property was finally disposed of in a later year and no deduction is allowable in tbe taxable year.
    3. Tbe taxpayer purchased certain property wbicb it appraised during tbe taxable year at less than its cost. Held, that tbe difference could not be charged oíf as a loss.
    4. Tbe taxpayer made certain expenditures. No evidence having been submitted that sucb expenditures were for repairs, held, that tbe determination of the Commissioner that they were for improvements must be approved.
    
      Lee /. Park, Esq., for tbe Commissioner.
    Before James, Littleton, Smith, and Teussell.
    This is an appeal from tbe determination of a deficiency in income and profits tax for tbe fiscal year ended February 28, 1919, in tbe amount of $10,068.43. Tbe deficiency letter sets forth over-assessments for tbe years ended February 29, 1920, and February 28, 1921, in a total amount of $2,133.80, but neither the petition of tbe taxpayer nor tbe answer of. the Commissioner brings these years into issue.
    FINDINGS OF FACT.
    The taxpayer is a New York corporation with its principal office in New York City.
    At the close of the year 1919 the taxpayer set up a reserve of $2,463.12 for a legal fee expected to be paid thereafter in connection with litigation over a contract made with an employee at the beginning of the year for payment of a certain portion of the net profits of the company as additional compensation.
    During the year 1919 the taxpayer expended for concrete flooring $299.12, and for plumbing $652.52.
    In April, 1917, the taxpajrer purchased a creamery at Cedar Grove, Iowa, for $6,500, which ivas operated until some time during the year under consideration, when operations ceased because the creamery had been found to be unprofitable. Part of the equipment was sold at the time for' $1,629.68, and an offer of $1,000 was obtained for the remainder of it. The remaining portion was not sold at that time, however, but was held until 1920 when it was sold for $1,367.92.
    At the close of the fiscal year 1919 an expert appraiser appraised certain wagons and auto trucks belonging to the taxpayer at $6,108.37, less than the value at which they were carried on the books, and this difference was charged to an extraordinary depreciation account.
    DECISION.
    The determination of the Commissioner is approved.
   OPINION.

James:

The taxpayer claims the allowance of a reserve for anticipated legal expenses. Eeserves are not allowable deductions from gross income, except where explicitly so provided by the statute. Appeal of William J. Ostheimer, 1 B. T. A. 18; Appeal of Consolidated Asphalt Co., 1 B. T. A. 79; Appeal of Uvalde Co., 1 B. T. A. 932; Appeal of Morrison-Ricker Mfg. Co., 2 B. T. A. 1008.

The taxpayer claims a deduction on account of certain concrete flooring and plumbing apparently put in its building during the taxable year. The petition contains allegations of fact which if true would seem to indicate that the facilities so placed in the building might be subject to amortization as war facilities. The taxpayer, however, contented itself with stipulating that certain facts set forth in a certain letter of the Bureau of Internal Kevenue should be accepted as the facts in the appeal.' That letter contains no statement concerning the nature of these improvements, and, under the facts of record, the determination of the Commissioner must be approved.

What is stated above with respect to concrete flooring and plumbing applies also to the creamery purchased at Eagle Grove, Iowa, if all the facts alleged in the taxpayer’s petition were in evidence. Under the facts which are in evidence, the position taken by the Commissioner is manifestly correct, namely, that the loss on the transaction was realized only when the property was disposed of.

The above statement is also trae of the last item representing the extraordinary depreciation on horses, wagons, and automobiles.

The taxpayer in this appeal, as to the two principal items of deductions other than the extraordinary depreciation apparently received credit, first for the legal expenses in a later year, and second for the loss on the Eagle Grove Creamery in 1920, in which year the Commissioner’s deficiency letter indicates that an overassessment was credited.  