
    Appeal of Estate of R. H. LOCKWOOD, CHARLESTON SECURITY CO., Executor.
    Docket No. 3843.
    Decided September 30, 1926.
    
      G. W. Saussy, Esq., for the petitioner.
    
      R. P. Smith, Esq., for the Commissioner.
   Trammell:

This appeal is from the determination by the Commissioner of a deficiency in income tax for the years 1919, 1920 and 1921, in the amount of $2,356.36. The only question involved is the rate to be used in computing the allowance for exhaustion, wear and tear of a certain tugboat owned by E. H. Lockwood and his wife.

FINDINGS OF FACT.

The taxpayer is the estate of E. H. Lockwood who, during the years 1919, 1920 and 1921, was a resident of Charleston, S. Car.

During the years 1919, 1920 and 1921, E. H. Lockwood and his wife were the joint, owners of the tugboat Cecelia, which was built in the year 1881. The Cecelia is of iron construction and it is, and has been for many years, operated in towing large vessels into, out of and about the harbor at Charleston, S. Car., and in salvage work on the high seas. A new boat of the same construction as the Cecelia, engaged in the same kind of work and operated in the same waters, will last for approximately 20 years, with ordinary repairs and maintenance. However, at the end of 20 years it is necessary to recondition the boat, and thereafter it is necessary to recondition it every 10 years. Eeconditioning means to tear the-boat down to the hull and, after making such repairs on the hull as are necessary, by way of replacing worn-out ribs and plates, to put in new engines and boilers, and practically to rebuild the entire boat. This reconditioning is different and distinct from the ordinary and necessary repairs which are made from time to time to keep the boat in operation.

On March 1,1913, the fair market value of the Cecelia was $65,000. In the j^ear 1913 or 1914, $10,000 was spent on repairs to the boat, and in the year 1923 it was reconditioned at a cost of about $28,000.

An amount computed at the rate of 6 per cent on a valuation of $65,000 is a reasonable allowance for the exhaustion, wear and tear of the tugboat Cecelia in each of the years 1919,1920 and 1921.

In his return for the years 1919, 1920 and 1921, the taxpayer deducted from gross income an allowance for exhaustion, wear and tear of the Cecelia, computed at the rate of 10 per cent on a value of $65,000. The Commissioner disallowed so much of each deduction as is in excess of an amount,computed at the rate of 5 per cent on a value of $65,000, and determined that there is a deficiency in tax for each of the years 1919, 1920 and 1921. Both the taxpayer and the Commissioner agree that the allowances for exhaustion, wear and tear of the tugboat in question for the years involved should be computed on a valuation of $65,000.

Order of redetermination will he entered on 15 days’ notice, under Rule 50.  