Case Name: Appeal of ASHTABULA BOW SOCKET CO.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1925-07-11
Citations: 2 B.T.A. 306
Docket Number: Docket No. 2553
Parties: Appeal of ASHTABULA BOW SOCKET CO.
Judges: Before Sternhagen, Lansdon, Green, and Love.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 2
Pages: 306–308

Head Matter:
Appeal of ASHTABULA BOW SOCKET CO.
Docket No. 2553.
Submitted May 25, 1925.
Decided July 11, 1925.
Franklin D. Sohurs, G. P. A., and J. G. Sohurs, O. P. A., for taxpayer.
Briggs G. Simpich, Esq., for the Commissioner.
Before Sternhagen, Lansdon, Green, and Love.

Opinion:
OPINION.
Sternhagen:
The taxpayer points to a statement made in a revenue's agent report to the effect that he found that the taxpayer's inventories, which were alleged to be priced at cost, did not represent true cost, and that he was adjusting them to true cost in accordance with the regulations. The said report does not, however, disclose what computations were made by the revenue agent in making his adjustment, only the values of the total inventories being shown in the report. These figures were not adopted entirely by the Commissioner, and the deficiency letter shows a different adjustment from that recommended by the agent. From this the taxpayer appeals, alleging as error the " incorrect pricing of the inventory of sheet steel at the close of the taxable year 1917 in that the Commissioner rules that the goods most recently jmrchased should be those contained in the inventory."
In support of its appeal the taxpayer proved only the average cost of its 23% and 24 gauge sheet steel on hand at the beginning of the year, computed as outlined in the findings; the amounts and costs of such additions during the year as went through its storage house, omitting such as went directly from car to plant, and the amount on hand at the end of the year, which it had priced at the average cost of $4.65 per cwt. This latter figure appears to be unsupported by the evidence. It is the sum of an erroneous direct cost figure of $4.25 and an unsupported miscellaneous and transportation cost figure of 40^.
We need not go further in stating why we must approve the deficiency, but it may be added that the record does not disclose any facts as to the inventory as a whole, but is confined entirely to the methods and figures as to this one class of material. Whether the average cost method, so called, was used for the remainder of the inventory we do not know; and surely we cannot say that the deficiency is improperly determined because the Commissioner has found a different total inventory figure from that of the taxpayer. The taxpayer's average cost method may or may not be deserving of recognition. If so, since it is not in accordance with that officially approved by the Commissioner, it must be clearly substantiated in its application to the goods of the taxpayer as a whole, and its propriety in respect of a particular class of its materials is not determinative.
Another aspect of the appeal should be mentioned. The Commissioner determined the taxes for three years, and the taxpayer appeals from only one. The effect of this must be apparent. The closing inventory of one year is the opening inventory of the next, and an adjustment must therefore have its effect upon both years.