Millinery Center Building Corporation v. Commissioner of Internal Revenue

PETITIONER: Millinery Center Building Corporation
RESPONDENT: Commissioner of Internal Revenue

DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the Second Circuit

ARGUED: Mar 01, 1956
DECIDED: Mar 26, 1956

Hilbert P. Zarky - for the respondent

Facts of the case


Media for Millinery Center Building Corporation v. Commissioner of Internal Revenue

Audio Transcription for Oral Argument - March 01, 1956 (Part 1) in Millinery Center Building Corporation v. Commissioner of Internal Revenue

Audio Transcription for Oral Argument - March 01, 1956 (Part 2) in Millinery Center Building Corporation v. Commissioner of Internal Revenue

Earl Warren:

Mr. Weiss, you may proceed.

Bernard Weiss:

The Tax Court in its decision determined that the petitioner in acquiring the fee to the land and paying $2,100,000 therefore did so in order to obtain a release in the obligations of a lease.

That language to me can only mean one thing and with due deference to the court below, this taxpayer cannot be treated in the same manner as a third party and the basis of the decision of the court below is to treat this taxpayer as if he were a person who would have no connection whatsoever with the property.

And in the case of such a person who has no rights in the property at all, the basis of cause would have been if you are acquiring land with a lease on it that you would have to take your cost and allocate the value of your cost between the land and the value of the lease.

Obviously, the landlord couldn't sell that which he did not own.

He did not own the building.

The building was owned by the lessee and he did not have to purchase this building again.

He had all the rights of ownership.

He had, throughout the time of the lease, he had the right to receive all of the rents.

He had the -- he had the use of the property.

What did he acquire over here except to be relieved of the payment of $118,840 for the next 21 years.

He did acquire a capital asset, yes, land.

It was only worth $660,000.

And in view of that, that is the reason why we claimed in -- in the ordinary business parlance, you'll always make an investment to save money.

We are increasing the income of this taxpayer by this expenditure.

How were you doing it?

Not by increasing the gross income which they already have and which will not be disturbed by this purchase, but by eliminating a deduction, an expense that is a recurring expense for the next 21 years.

And this amount of money is being paid now and it's just the opposite of what took place in the Hort case when the tenant paid Hort to as the landlord an amount of money to get out of burdensome lease -- lease.

Hort tried to claim that this amount was not taxable or should be treated first out of -- he treated -- he sought to treat all together as a reduction of his cost of his property, but the -- but this Court properly held that all that was happening there was that this taxpayer was receiving currently the rent that would have been received over a period of years.

And by taxing him in this year, what happens is that in the subsequent years, he wouldn't have to pay.

He'll have that much less income.

In other words, the rental payments would have been -- would not have been received by Hort and that is what we're doing.

We're just doing just as the opposite.

We are a tenant.

We are caught in a dilemma.

And as a result of this dilemma, we are required to make this unconscionable expenditure.

Now, we claim if it is -- it is possible that in determining the value of the land, there was something said by the court below, that you must take into consideration the fact that this land has got an improvement on it which cost $3 million.

This value of $660,000 means $6600 of front foot is only a little piece of land, 100 by 200.

It takes into consideration the fact that an adequate improvement is going to be put on that land.

And in fact that is on that land, then that's what that $660,000 represents.