Law School Case Brief
Mayerson v. Commissioner - 47 T.C. 340 (1966)
The essential purpose of a deficiency notice is to provide a formal notification that a deficiency in taxes has been determined. Deductions may be disallowed by the Commissioner of Internal Revenue without assigning any reason or theory for his action and if he assigns a reason or advances a theory in his deficiency notice, though it be erroneous, he is not restricted thereto in his defense of an appeal to the Tax Board asserting such disallowances as error.
Petitioner taxpayers, husband and wife, sought review of the findings of respondent, the Commissioner of Internal Revenue, which determined deficiencies in their joint income taxes related to an investment in real estate by taxpayer husband. The Commissioner argued that the taxpayer's real estate purchase was not a bona fide sale, but that the $10,000 paid down on the property was the cost of obtaining a 99-year lease, thus qualifying for amortization over that term. The taxpayer argued that it was a valid sale for which he was entitled to depreciation under I.R.C. § 167(g) (1954).
Did substantial evidence support respondent Commissioner's determination that the real estate investment of the taxpayers was actually a long-term lease for taxation purposes?
The court held that the intent of the parties was clearly to transfer ownership and that the purchase agreement and mortgage note were structured at arms length to permit him to take title so as to determine the property's highest and best use, make improvements, and obtain conventional financing to pay the purchase price as soon as possible. The lower purchase prices in the first three years represented pre-payment discounts, not inconsistencies in the price.
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