Case Name: Appeal of THE BUSS CO.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1925-07-10
Citations: 2 B.T.A. 266
Docket Number: Docket No. 2952
Parties: Appeal of THE BUSS CO.
Judges: Before Sternhagen, Lansdon, Green, and Love.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 2
Pages: 266–268

Head Matter:
Appeal of THE BUSS CO.
Docket No. 2952.
Submitted May 29, 1925.
Decided July 10, 1925.
Paul Potter, 'Esq., for the taxpayer.
F. 0. Graves, Esq., for the Commissioner.
Before Sternhagen, Lansdon, Green, and Love.

Opinion:
OPINION.
Lansdon:
The taxpayer since its organization in 1911 has used the method of inventorying its merchandise set forth in the findings of fact. This method is somewhat faulty in that it does not show with mathematical precision the actual cost or the cost or market values,- whichever is lower, of the merchandise, and in that it does not comply strictly with the regulations of the Commissioner. The principal fault is that such inventories are based on estimates. The principal merit of the taxpayer's system is that it has been uniformly and consistently used for twelve years or more. However, we cannot see that the Commissioner has improved the situation. He has used the same estimated values and restored what he considers was the taxpayer's depreciation to obtain market value. At the hearing it developed that the taxpayer had not depreciated the market values but was in fact attempting to reduce market to cost.
The sole purpose of inventory valuation is to reflect income as clearly as possible. The result of the Commissionerjs computation is obviously to distort the true situation, as his figures indicate that during the fiscal year ended January 31, 1920, the net profit equaled 44 per cent of the entire net profit realized in seven years, and that the operations of the following year resulted in a loss of approximately $6,000. An analysis of the cost of goods sold, sales, expenses, and the net income during these same years discloses no such abnormality for the year in question. On- the other hand, it was shown that the taxpayer carried only .staple products sold in a community where the population is fairly constant and that the market, the quantity and the character of merchandise carried in its inventory are also practically constant. However faulty the taxpayer's inventory method was, we believe that greater weight should be given to consistency than to any particular method of inventorying or basis of valuation so long as the method or basis used substantially reflects the income. This rule has been given great weight both by the Commissioner and the Board. Appeal of The Thomas Shoe Co., 1 B. T. A. 124, and Appeal of George C. Peterson Co., 1 B. T. A. 690. As at this time it is impossible to obtain the absolute true inventories other than .by estimates or analysis of the operations of the taxpayer, we are of the opinion that the opening and closing inventories originally reported by the taxpayer more truly reflect the true situation than do the arbitrary adjustments made by the Commissioner, and that the taxpayer's income and resulting tax liability for the fiscal year ended January 31, 1920, should be recomputed accordingly.