Sharp v. United States

Brief Fact Summary. Plaintiffs were equal partners in a partnership that bought a Beechcraft airplane. During the ownership of the plane, it was used 26% of the time for business purposes and the remaining was for personal use. The partnership sold the plane in 1954 for $35,380.

Synopsis of Rule of Law. The loss recognized on the sale of property is the excess of the adjusted basis over the amount realized from the sale of the property.

Facts. Plaintiffs, Hugh Sharp and Bayard Sharp, were equal partners in a partnership. They purchased a Beechcraft airplane at a cost of $45,875. Additional capital expenditures were made on the plane from 1948 to 1953 in the amount of $8,398.50. The airplane was used 73% of the time for personal use and 26% for business purposes. The partnership was allowed depreciation on the basis of only 26% or $14,298. In 1954 the airplane sold for $35,380. Taxpayers claim that no gain was realized on the sale. The government contends that the proceeds from the sale should be allocated according the percentage of business use, and concludes that Plaintiffs realized a gain of $8,800.23 on the sale.

Issue. Should Plaintiffs be taxed on the gain from the sale?

Held. District Judge Layton issued the opinion for the United States District Court in holding against the Plaintiffs and finding that the Plaintiffs did realize taxable gain.

Discussion. The District Court found that allocating the proceeds from the sale in accordance with the percentage of business and personal use was “practical and fair.” The Commissioner’s rule was fair and would provide uniformity in tax treatment.