The Internal Revenue Service disagreed with the taxpayer's reasoning, and disallowed his claim for a larger depreciation deduction.
[1] Initially, a disagreement also arose out of the fact that the Commissioner amortized the original cost of the franchise over the period beginning on the date the franchise was granted, while the taxpayer amortized it over the period beginning on the date the railway began operating.
[1] The court found that both Strawberry Bridge and the 10-year exchange had a value and the contract between the taxpayer and the City of Philadelphia had the proper amount of consideration.
Thus, the court found that in order to maintain harmonization between the different sections of the tax code, it was necessary that the cost basis of the property received be equal to its fair market value at the time of the exchange.
[3] Though the court acknowledged that it was possible that a piece of property's value was not quantifiable (citing Helvering v. Tex-Penn Oil., 200 U.S. 481, 499; Gould Securities Co. v. United States, 96 F.2d 780) it believed that those circumstances were rare.