20 T.C. 455">*455 1953 U.S. Tax Ct. LEXIS 143">*144 The respondent determined deficiencies in income tax for 1944 and 1946 in the respective amounts of $ 4,336.78 and $ 407.16. The question for decision is whether expenditures which were accrued in 1946 in the total amount of $ 10,653.76, or any part thereof, are deductible as ordinary and necessary business expenses under section 23 (a)(1)(A) of the Code. In 1946, petitioner installed a new cement floor in the building in which it conducts its business. The respondent has determined that all of the expenses involved must be capitalized. He disallowed expense deduction and allowed depreciation of capital. As a result of respondent's adjustments for 1946, petitioner realized net income rather than loss for the year. The decision of the question presented in 1946 will determine whether there is a net operating loss for 1946 and whether there is an unused net operating loss which can be carried back to 1944.

FINDINGS OF FACT.

Petitioner is a Kansas corporation, which is engaged in the conduct of business in Wichita, Kansas. Petitioner keeps its books on an accrual basis. It filed its returns for the taxable years with the collector for the district of Kansas.

Petitioner's business1953 U.S. Tax Ct. LEXIS 143">*145 is the selling of industrial supplies, plumbing supplies, welding shop supplies, heavy contractors' equipment, in general, and contractors' supplies. Petitioner sells about everything used by a general contractor, such as pipe, pipe fittings, welding rod, electric welders, wire and nails, hammers, and other tools. Petitioner sells heavy equipment, such as big concrete mixers and heavy air compressors. Most of the goods and supplies which the petitioner sells are made of either steel or iron, and they are heavy. In the back of petitioner's building is a railroad siding which goes to a landing platform. Goods are purchased, at times, in carload lots weighing as 20 T.C. 455">*456 much as 40,000 pounds. Wire and nails are purchased in amounts which have a concentrated weight. During 1945, the petitioner moved over 1 million pounds of welding rod through its building. Petitioner stores its inventories of goods in its building on the first floor. Pipes are stored in an area in the rear of the first floor. Certain materials such as bolts, nuts, and heavy iron are kept in wooden bins which are about 12 feet long, 2 feet wide, and 7 feet high. Some of the equipment which the petitioner 1953 U.S. Tax Ct. LEXIS 143">*146 sells is displayed in a showroom in its building. In 1946, petitioner enlarged its lines of merchandise. After 1946, the petitioner, again, enlarged its lines of merchandise to include abrasives, such as grinding wheels. Sales of heavy equipment, such as concrete mixers, are made from the petitioner's showroom and such equipment has to be moved in and out of the building.

Petitioner has been in business since 1916. It has occupied continuously a 2-story building. The building was constructed in 1900. It is located 4 blocks from the center of the town of Wichita, and, also, it is about 100 yards from the bank of the Arkansas River. The building is not located in a flood area. Petitioner rented the building in question during the years 1916 to 1920; it purchased the land and building in 1920 for $ 22,621.02, of which amount $ 14,621.02 was allocated to the building. All of the cost of the building was recovered through depreciation by December 31, 1945.

Petitioner's building is constructed of brick and has a gravel roof and a cement floor. It does not have a basement; the floor rests on sand. The inside floor area is 98 feet wide by 120 feet long. The original cement or concrete1953 U.S. Tax Ct. LEXIS 143">*147 floor of the building remained in place until 1946, when it was taken out and replaced, except for an area of 225 square feet which was taken out and replaced in about 1943. When a new floor was installed in 1946, the area of 225 square feet was not taken up but remained. The old concrete floor was not reinforced; it was 3 inches thick. The area of 225 square feet of new floor is 5 inches thick. The new concrete floor installed in 1946 is 5 inches thick and is reinforced. The building code of Wichita requires that cement floors shall be 5 inches in thickness.

At all times material, before and after the new concrete floor was installed in 1946, the first floor of petitioner's building was utilized in the following way: There were 2 lavatories and washrooms, 3 offices, a showroom, and facilities for storing and keeping inventories. Iron pipes were stored in the area of 225 square feet where the piece of new concrete floor was installed in 1943. About 50 per cent of all of the floor area was devoted to storage bins where nuts, bolts, iron wares, tools, and general inventories were kept. The storage bins were made of wood; they rested on the floor; and they were, in size, 12 feet1953 U.S. Tax Ct. LEXIS 143">*148 long, 2 feet wide, and 7 feet high. The storage bins were separated by aisles. They were lighted by electric bulbs on hanging cords. Electric light 20 T.C. 455">*457 cords rested on top of the bins. Water pipes running to the lavatories were located overhead, not in the floor. About 50 feet from the front of the building is a partition of lath and plaster which runs two-thirds across the building. The offices are enclosed by wood and glass partitions which are 7 feet high and are fastened to the floor, and the office floors were covered with asphalt tile glued to the concrete floor.

When the new concrete floor was installed in 1946, all of the above -- the lavatories, offices, partitions, bins, and stocks of goods -- were moved. Petitioner carried on its business throughout the period when the new floor was installed. The new floor was laid in sections of 16 square feet, and all the work of moving equipment, taking out sections of the old floor, and putting in two sections was done in piecemeal fashion, so that the work was done progressively. The only new installation was the floor. Partitions, bins, and lavatories were merely moved and relocated as the new floor was laid, except1953 U.S. Tax Ct. LEXIS 143">*149 that new tile was required to cover the floor area of the offices, and the plastered partition was, in part, recovered with plaster board. Some amount of painting was done when the work was finished. New electric light fixtures were installed at a cost of $ 233.39, which amount is not involved under the issue presented because petitioner has agreed that such expense must be capitalized.

The entire work involved in putting in the new floor was done during the period from March 15 to September 4; the concrete work was finished by May 22. The work was done by a general contractor on a cost-plus basis, and he subcontracted part of the work.

In years prior to 1946, the original cement floor in petitioner's building settled. Also, the sand under the floor settled so that in some places the floor did not rest on the sand, and in some places the floor caved in. The floor in the front of the building settled about 7 inches below grade level, and at one place in the back of the building, the floor had settled over 9 inches below grade level. Although the floor had settled, there were no cracks in the wall of the building. During 4 or 5 years before 1946, the cement floor also developed1953 U.S. Tax Ct. LEXIS 143">*150 cracks. Prior to 1946, the floor was patched in various places. Also, from time to time, water ran in from the ground level onto the cement floor and in order to drain off the water, holes were drilled in the cement floor with a Star drill, and rods were run through the holes to drain the water out of the building.

Petitioner followed the practice of drilling holes in the original cement floor during 3 or 4 years before 1946. Rather than to continue patching the floor, the petitioner decided in 1946 to put in a new cement floor throughout the first floor, except for the 225 square feet which had been replaced a few years earlier. From 1920 until about 1940, the petitioner did not have any trouble with the original cement floor. The petitioner had never put very much weight on the floor, but in 20 T.C. 455">*458 about 1940 the petitioner commenced to put heavy amounts of weight on the floor.

From 1941 through 1945, the petitioner did not have any repair expenses. Its repair expenses from 1947 through 1951, were as follows: $ 100.77 for 1947; $ 1,146.04 for 1948; $ 638.23 for 1949; $ 62.39 for 1950; and $ 404.53 for 1951.

The general contractor who did the work in question insisted upon1953 U.S. Tax Ct. LEXIS 143">*151 a cost-plus contract because the labor cost in moving the storage bins and partitions was something which could not be estimated in advance.

The total cost of all of the work in question was $ 10,887.15. Included in the foregoing amount is $ 233.39, the cost of electric fixtures, which petitioner concedes is a capital expenditure. The balance, $ 10,653.76, was the cost of installing the new concrete floor and of moving and reinstalling lavatories, partitions, and bins, and of materials and labor.

The respondent allowed petitioner a deduction in 1946 of $ 1,082.25 for repairs, which amount is not at issue.

Respondent determined that $ 10,653.76, the cost of installing the new floor and moving and reinstalling that which rested on the floor, represented a capital expenditure consisting of "costs of replacements and betterments," and he disallowed the deduction taken in petitioner's 1946 return. Petitioner reported in its return for 1946, loss in the amount of $ 8,774.91. The respondent's adjustments for 1946, some of which are not contested, resulted in a computation of net income of $ 1,938.84.

The installation of the new floor in 1946 represented a replacement. The new floor 1953 U.S. Tax Ct. LEXIS 143">*152 had a useful life of more than one year. It was necessary to install a new floor because the old floor, after 46 years of use, had caved in at certain places, had worn out, and had gradually deteriorated so that further repairs were not practical. The installation of the new floor made the building more valuable for the use of the petitioner and prolonged the useful life of the building.

The moving and reinstalling of the bins, partitions, and fixtures which rested on the floor was a necessary part of the work of removing the old floor and installing the new floor, which work could not have been done without such moving and reinstalling of the fixtures which rested on the floor. The cost thereof was incidental to the cost of installing a new floor.

The entire expense in the amount of $ 10,653.76 was a capital expenditure.

OPINION.

Petitioner contends that all of the expense of installing a new floor in its building in 1946, and of moving and reinstalling the fixtures and partitions which rested on the floor, were expenses of keeping its building in efficient, operating condition, and that 20 T.C. 455">*459 the entire expense is deductible under section 23 (a) (1) (A) of the Code. In the1953 U.S. Tax Ct. LEXIS 143">*153 alternative, the petitioner contends that the expense of moving and reinstalling the fixtures and partitions is deductible. The respondent has determined that the entire expense is a capital expenditure.

The issue presents questions of fact. One of the questions of fact to be decided is whether the new floor was installed because of the occurrence of an external, physical phenomenon which caused the floor of petitioner's building to suddenly cave in or crack, or which accelerated its deterioration. The petitioner advances a theory that there was an external condition which caused damage to its floor and that this condition made it necessary to put in a new floor in order to permit it to continue the use of its building in its business. In support of its claim that the expense in question is deductible, petitioner relies on the following cases: American Bemberg Corporation, 10 T.C. 361, affd. 177 F.2d 200; Midland Empire Packing Co., 14 T.C. 635; and Farmers Creamery Co. of Fredericksburg, Virginia, 14 T.C. 879.

The petitioner has failed to establish that 1953 U.S. Tax Ct. LEXIS 143">*154 there was an accelerated deterioration of the original floor caused by an external condition. The facts of the above-cited cases are clearly distinguishable and they do not control the issue presented. For example, in the case of Farmers Creamery Co., supra, at p. 880, it was found that "The repairs never replaced as much as one-half of any wall, ceiling, or floor * * *." The petitioner attempted to establish that the settling of sand under its building had caused the level of the floor to change and the surface of the floor to crack and cave in at various places. The evidence did not develop this picture of an alleged situation and condition.

The evidence on the whole shows that the old floor wore out; that it had been patched and repaired to such an extent that further patching was not practical; and that the business of petitioner had expanded to include the handling of heavy goods and equipment which the old floor could not support without the effects of the heavier wear entailed. The floor which was replaced was the original floor of the building, and it was 46 years old. Furthermore, the cost or basis of petitioner's building had been fully1953 U.S. Tax Ct. LEXIS 143">*155 recovered through depreciation allowances before January 1, 1946, so that the old floor had been completely depreciated.

Section 24 (a) (3) of the Code prohibits deduction for "Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance for depreciation is or has been made"; and section 29.24-2 of Regulations 111 provides that amounts paid for making good the depreciation (for which a deduction has been made) of property are capital expenditures and are not deductible. This statutory prohibition defeats petitioner's claim for deduction of the expenditures in question.

20 T.C. 455">*460 The old floor of petitioner's building was thin and was not reinforced. It was worn out, and, also, it was not strong enough to support the weight of the heavy materials petitioner, before 1946, had introduced into its line of goods. The new floor installed in 1946 was of reinforced concrete; it was thicker than the old floor; it was made for heavy wear. There was replacement of the entire floor, excepting 225 square feet in the rear of the building which had been put in prior to 1946, in about 1943. The evidence shows, clearly, that the new floor represented1953 U.S. Tax Ct. LEXIS 143">*156 a replacement and an improvement; and that it was not merely a repair which kept the building in ordinarily efficient, operating condition. See Illinois Merchants Trust Co., Executor, 4 B. T. A. 103; and Regs. 111, sec. 29.23(a)-4. The installation of the new floor was an extensive job, and for practical purposes it amounted to putting in an entire floor, because the 225 square feet of new floor in the rear of the building represented only a small and minor part of the entire floor area. The removal of the old floor and the installation of the new floor was a substantial, structural work. Cf. Buckland v. United States, 66 F. Supp. 681">66 F. Supp. 681, 66 F. Supp. 681">683. The new floor made the building more valuable for the use of the petitioner in its business, particularly because it accommodated the storing, handling, and moving of heavy equipment and inventories. Black Hardware Co. v. Commissioner, 39 F.2d 460, certiorari denied 282 U.S. 841">282 U.S. 841; Amsterdam Theatres Corporation, 24 B. T. A. 1161.

It is held that the expense of installing the new floor1953 U.S. Tax Ct. LEXIS 143">*157 was a capital expenditure.

The petitioner's alternative contention is that the cost of moving and reinstalling the fixtures which rest on the floor is deductible and is not capital expenditure. Petitioner allocates $ 6,615.77 to this expense.

The contractor did not allocate the total expense between the cost of the installation of the floor and the cost of moving the fixtures, but even though this could be done, the allocation is immaterial. Assuming that the allocation can be made, the expense of moving the fixtures cannot be treated differently than the expense of installing the new floor. This is not a case where repairs were made which were unrelated to the installation of a capital item as was true in Marble & Shattuck Chair Co., 13 B. T. A. 657, affd. 39 F.2d 393. On the contrary, the moving and the relocating of the partitions, bins, and fixtures were incidental to and a necessary part of removing the old floor and installing the new floor, and the expense thereof was a capital expenditure. The new floor could not have been installed without moving and relocating the fixtures resting upon the floor. I. M. Cowell, 18 B. T. A. 997;1953 U.S. Tax Ct. LEXIS 143">*158 Home News Publishing Co., 18 B. T. A. 1008; Ethyl M. Cox, 17 T.C. 1287.

It is held that the entire expense of $ 10,653.76 was a capital expenditure.

Decision will be entered for the respondent.