Petition for review of Decision of United States Board of Tax Appeals.
Before SPARKS, MAJOR, and KERNER, Circuit Judges.
These are appeals from orders of redetermination entered by the Board of Tax Appeals declaring that the petitioner the Oak Woods Cemetery Association in appeal No. 6891 is liable for deficiencies in income taxes for the years 1931 and 1932 in the respective amounts of $5,439.12 and $4,668.02, and that the petitioner Evergreen Cemetery Association in appeal No. 7008 is liable for deficiencies in income taxes for the years 1927 and 1928 in the respective amounts of $4,168.84 and $3,274.82.
The cases were submitted together and involve but a single question. The cemetery lots sold in 1927, 1928, 1931, and 1932 had been acquired prior to 1913 at a cost less than the fair market value thereof on March 1, 1913, and the controversy here is concerning the proper value of the unadjusted basis to be used in determining the recognized gain in the respective years in which the lots were sold.
The Oak Woods Cometery Association, in its income tax returns for the sale of burial space in 1931 and 1932, computed gain therefrom by using values on March 1, 1913, of $1.50, $1,60, $2 and $3 per square foot. The Evergreen Cemetery Association, in its income tax returns for the sale of burial space in 1927 and 1928, computed gains therefrom by using values on March 1, 1913 of 56.33 cents per square foot.
The Commissioner of Internal Revenue*fn1 in appeal No. 6891, Oak Woods, fixed the value at 23 cents per square foot, and in appeal No. 7008, Evergreen, at 16.8 cents per square foot. Oak Woods and Evergreen appealed to the Board of Tax Appeals, which determined the value at 42 cents per square foot in the Oak Woods case and 16.8 cents per square foot in the Evergreen case.
The Oak Woods Cemetery Association. This taxpayer, an Illinois corporation, was created in 1853 to acquire land for a cemetery and to sell and to convey space suitable for the burial of the dead, and its property was exempt from taxation. In 1853 it purchased 180 acres of land in the city of Chicago, which was prepared for cemetery purposes. Prior to March 1, 1913, the surrounding territory had been built up with high class residences and was thickly populated. At about that time the neighborhood began to decline and has since become a negro section.
On March 1, 1913, the physical condition of the cemetery was about the same as it was in 1937. All the sections had been laid out and were improved with sewers, drains and water systems; the roads were hard surfaced; it had been landscaped, well kept; had a substantial clientele and the reputation as being one of the best cemeteries in that part of the country.It was non-sectarian and not restricted as to nationality or color. Mausoleums, monuments, tombstones and other markers having a value of about $3,000,000 had been erected in the cemetery.
There were twelve other cemeteries within the city limits of Chicago, all of them being located on the north side of Chicago. There were thirty-nine cemeteries in the chicago area with approximately 121,000,000 square feet of unsold burial space, and from 1914 to 1929 nineteen new cemeteries were created with a total of 69,000,000 square feet.
Prior to March 1, 1913 Oak Woods had sold in excess of 3,250,000 square feet of burial space and on March 1, 1913, it had available for sale about two and one-half million square feet. It had never conducted a sales campaign for the sale of burial space, and sales were made only to such persons as would come to the office. Its policy was to increase prices gradually as the available cemetery land in Chicago decreased. The increase in the average square foot selling price from 1865 to 1913, and from 1913 to 1932, was equivalent to an interest rate of about 4 1/2 per centum on the sales price in 1865, compunded annually.
Oak Woods sold space by lots, select graves and by graves, and purchasers were given a deed which provided that Oak Woods granted the space sold as a place of interment forever. It also sold perpetual care separately from the lots and graves. The cemetery was divided in seventy-four sections and subsections, of which forty-nine were open for sale prior to 1913. During the taxable years involved sales were made in fifty-one sections and subsections. Prior to March 1, 1913, sales had been made in all but eleven of the fifty-one sections. On March 1, 1913, it had for sale subdivided sections and subsections containing in excess of 816,000 square feet, partly subdivided sections and subsections containing in excess of 40,000 square feet, and undivided sections and subsections in excess of 1,596,000 square feet, all of which was salable. It could not, however, on March 1, 1913, have determined with exactness what unsubdivided sections would be devoted to particular classes of burial space.
From 29 interments in 1866 the number per year increased to 3,929 in 1892, after which year the number declined gradually to 1737 in 1913. In 1931 and 1933, 1,209 and 1,198 interments respectively were made. On March 1, 1913, the interments totaled 88,000 and by the end of 1932 they numbered 118,603. Chicago's population increased from 200,000 in 1866 to 2,185,283 in 1910 and to 2,523,000 in 1932. The number of deaths increased from 6,524 in 1866 to over 35,000 in 1913, and in 1932 to slightly in excess of 34,000. The percentage of deaths per 1,000 population decreased from 3.2% in 1866 to 1.5% in 1913 and .9% in 1932.
Prior to March 1, 1913, sales of space had been made at wholesale prices from a low of six cents per square foot to a high of 89 cents, in excess of 68,000 square feet. In 1912 a proposal had been mde to construct a large community mausoleum on a $100,000 plot of ground, in which crypts would be sold to the public, Oak Woods to share in the profits. It was rejected mainly for the reason that Oak Woods was unable to take steps to maintain perpetually a building of that size and it considered that the maintenance of the building might prove burdensome. Other ...