Nelson, Albert_ Norman, Irma, Administratrix_ O'Connor, Mildred A.. O'Hara, S. M. R. Oliphant, George W. Orndorff, Harry C., Estate. Overton, Carlton B.. Parker, Francis A.. Parker, John W., et al., Executors Parsons, T. Grenville, and Wife. Philadelphia, Germantown & Norristown Railroad Co. Phoenix State Bank & Trust Co., Executor.. Pioneer Parachute Co.......... Priest, Albert W., Trust for Itola M. Ransom.. Puelicher, Matilda S.. Purvin, William. Putnam, Roger L. Record Realty Co. Reed, Dora Belle.. 473 166 241 764 Reed, Dora Belle, Trust No. 1. 1166 Reed, Dora Belle, Trust No. 2. 1166 Reid, James S., Trust.. 438 Page. Sheldon, Isabella M. Sheldon, Ralph C.... 510 510 Sinclair, Arthur, Estate.. Slover, Samuel L.. Smith, William W., 2nd.. South Side Bank & Trust Co. Standard Tube Co.. Straus, Rose N., Executrix. Strom, Charles, and Wife. Taylor, W. L.. Tarbox Corporation. Thompson, George F. Thornton, Charles H. Thorp, Virginia E.... Timken, Edith K.. Toeller, John J., Estate__ 1080 884 884 255 255 965 1124 140 950 1093 604 621 431 201 35 285 573 1166 483 832 DECISIONS OF THE TAX COURT OF THE UNITED STATES EL PATIO COMPANY, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 4940. Promulgated January 7, 1946. Petitioner, on its income tax returns for 1934-1937, took depreciation of $4,504.77 per year on a building. The depreciation was "allowed" within the meaning of Virginian Hotel Corporation of Lynchburg v. Helvering, 319 U. S. 523, the Commissioner not having denied the deductions claimed. For the years 1938 and 1939, though $4,504.77 depreciation was claimed for each year, settlement was made on a basis of an allowance of $3,618.44 for each year, and in arriving at a residual value for the property at December 31, 1939, the figure $3,618.44 was used for each of the years 1934-1937. Held, that settlement had not been made as to 1934-1937, and in computing depreciation for the years 1940, 1941, and 1942, the basis of the property was properly adjusted by allowing $4,504.77 for each of the . years 1934-1937. Frank C. Callahan, C. P. A., for the petitioner. Donald P. Chechock, Esq., for the respondent. OPINION. DISNEY, Judge: This case involves income taxes for the years 1940, 1941, and 1942, as to which deficiencies of $131.48, $290.38, and $31.63, respectively, were determined by the Commissioner. One issue has been abandoned by the petitioner, so that only a portion of the above amounts are now involved. After such abandonment, the only question remaining is whether the respondent erred in the computation of depreciation upon a building. The parties stipulated all facts, as follows: (1) Petitioner is an Oklahoma Corporation with its principal office at 1530 South St. Louis Avenue, Tulsa, Oklahoma. Its Federal income tax returns for all taxable years since incorporation in 1927 have been filed with the Collector of Internal Revenue for the Oklahoma District at Oklahoma City, Oklahoma. The petitioner is on the accrual basis of accounting. The taxable years involved in this proceeding are the calendar years 1940, 1941, and 1942. (2) In 1927, petitioner erected a store and apartment building costing $112,619.19 on a site owned by it in Tulsa, Oklahoma, and on its first income tax return filed on or about March 15, 1928, computed depreciation on an estimated life of twenty-five years. From 1927 to 1933, inclusive, the petitioner reported taxable income, and for said period claimed an allowed total depreciation of $27,586.26, on an annual depreciation allowance basis of 4%, or $4,504.77. For the calendar years 1934 to 1937, inclusive, petitioner's returns as filed showed a net loss from operations, ranging from $1,489.00 to $2,276.26. For said years, the returns showed a net income, without taking any deduction for depreciation, as follows: 1934_. 1935_ 1936 1937- $2,295. 54 2, 228.51 On each return for said four years, 1934 to 1937, inclusive, the petitioner took depreciation of $4,504.77, computed on the above costs and estimated life of 25 years. (3) For the year 1938 the petitioner reported net income of $849.46, and for the year 1939 net income of $1,382.58. For both years petitioner claimed on its returns as filed depreciation of $4,504.77. (4) As result of an investigation of the 1939 return, the internal revenue agent in his report dated January 30, 1941, recommended that depreciation be computed upon the basis of a remaining life of 181⁄2 years from January 1, 1939, rather than 13 years as shown in the return. A similar recommendation was made in an agent's report dated August 28, 1935 covering the year 1933 but no effect was given thereto. (5) On April 28, 1941, the Internal Revenue Agent in Charge, Oklahoma Division, mailed to the petitioner a letter proposing a deficiency based on the change of the remaining life of the buildings to 181⁄2 years as recommended by the examining agent and further enclosing to the petitioner a copy of the agent's report. (6) The petitioner thereafter filed, under date of May 21, 1941, a protest to the adjustment for depreciation as reflected by the agents' report for the year 1939. The petitioner accepted the revised estimate as to the remaining life of the property but contended that under the decision of the Court of Appeals for the Third Circuit in the case of Pittsburgh Brewing Co. v. Commissioner (C. C. A. 3, 1939), 107 F. (2d) 155, 23 A. F. T. R. 870, the adjustment should have been made as of January 1, 1934, since it had received no tax benefit from the excessive deductions claimed in its returns for the years 1934 to 1937, inclusive. Recomputation of the depreciation allowable on the basis of the petitioner's contention disclosed an annual allowance of $3,618.44 in lieu of the amount of $4,504.77 claimed in each of its net loss returns for the years 1934 to 1937, inclusive. (7) The petitioner's contention was accepted as a basis for settlement of its tax liability for the years 1938 and 1939, and on June 17, 1941, the following letter was sent to the petitioner: Reference is made to your protest dated May 21, 1941, against the proposed adjustment in tax liability as reflected in the report of Revenue Agent Nelson O. Hopkins, dated January 30, 1941, covering his examination of the year 1939, in |