Sharp v. United States

199 F.Supp. 743, affirmed 303 F.2d 783 (3rd Cir. 1962)

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Nature of the Case

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Facts

Hugh Sharp (P) and Bayard Sharp (P1) were equal partners in a partnership that purchased a Beechcraft airplane at a cost of $45,875. From 1948 to 1953 additional capital expenditures were made with respect to the airplane that cost $8,398.50. Title was held by the partnership. During the ownership period, the partnership used the plane 73.654% of the time for personal use and 26.346% of the time for business usage. The partnership was only allowed $14,298.90 depreciation of the total airplane cost; that was 26.346% of the total cost of $54,273.50. The plane was sold for $35,380 in 1954. The issue under dispute was the amount of the gain or loss realized on the sale of the airplane. Ps contend that they suffered a loss and certainly realized no gain on the sale. As they only depreciated $13,777.92 their adjusted basis was $40,495.58. Ps contend they lost $5,115.58 on the sale of the plane on its adjusted basis. Ps did not seek to deduct any part of the loss; their only claim on appeal is that there was no gain realized. The IRS contends that the business and personal allocation should be continued to determine a gain or loss on the sale with an adjusted business basis of $520.98 after subtracting depreciation. The IRS then allocated the $35,380 sale proceeds between business and personal and after getting $9,321.21 for business and $26,058.79 for personal use with the $520.98 subtracted from the business for a realized gain of $8,800.23 with that gain split in half between each taxpayer.