
    Appeal of H. B. Wagoner.
    Docket No. 2466.
    Promulgated November 29, 1926.
    
      W. IV. Spalding, Esq., for the petitioner.
    
      A. Oalder Maclcay, Esq., for the Commissioner.
   Marquette:

This appeal is from the determination of a deficiency in income tax for the year 1919 in the amount of $810.57.

FINDINGS OP PACT.

The petitioner was, during the year 1919, a married man residing with his wife at Livermore, Calif. All the property held by him had been acquired by the joint efforts of himself and his wife subsequent to their marriage. In his income-tax return for the year 1919, he reported only one-half of the income from the marital community for that year, claiming that the other one-half of his income should be reported by his wife in a separate return. The Commissioner denied the petitioner’s claim and taxed the entire income of the community to him.

For many years prior to March 1, 1913, and thereafter until some time in the year 1918, the petitioner was engaged in the wine-making business at Livermore, Calif. The wine was made from grapes, almost all of which came from two vineyards owned by the petitioner, one known as the Livermore Vineyard, and the other as the Manteca Vineyard. The former consisted of 180 acres and the latter of 225 acres. The fair market value of these vineyards, exclusive of the land, was $98,250 on March 1, 1913.

In the year 1918, the petitioner, believing that national prohibition was imminent, sold his winery. Under conditions as they then existed and had theretofore existed, the grapes grown in the petitioner’s vineyards were used solely for the purpose of making wine, and at that time no other use had been discovered to which they could be put. The petitioner, therefore, did not cultivate his vineyards during the year 1919, except to run a disc through the Manteca vineyard to keep down grass and weeds. The result was that the amount of grapes produced in the year 1919 was only about 50 per cent or 60 per cent of the amounts produced in prior years. In the year 1920 a new demand for grapes arose and cultivation of the petitioner’s vineyards was resumed, but full production was not again reached until about the year 1922. However, the price of grapes increased so materially in the year 1920 and subsequent years that the value of the grapes produced by the petitioner’s vineyards in each of the years 1920 and 1921 was greater than in any prior year when production was normal. During the year 1919 there was practically no market for vineyards in the district in which the petitioner’s vineyards were located and only a few sales were made. The value of vineyards at that time had decreased so materially that some vineyards were sold at the value of the bare land.

In the year 1916 the Manteca vineyard produced about 1,000 tons of grapes of the value of $15,000; in 1917, 800 tons of the value of from $12,000 to $15,000; in 1918, 800 tons of the value of about $28,-000; in 1919, 600 tons of the value of $12,000; in 1920, 600 tons of the value of from $20,000 to $25,000, and in 1921, 800 tons of the value of about $35,000. In the year 1922, 1,350 tons of grapes were produced by the Manteca vineyard. The value of these grapes per ton is not shown. The evidence does not disclose the amount or the value of the grapes produced by the Livermore vineyard during the years 1916 to 1921, but does show that conditions as to production and values there were substantially the same as those which obtained in those years in regard to the Manteca vineyards.

The petitioner, in his income-tax' return for the year 1919, deducted the amount of $27,066.07 on account of obsolescence of his vineyards claimed by him to have occurred in that year. The Commissioner disallowed the deduction.

The deficiency for the year 1919 is $810.57. Order will be entered accordingly.  