Case Name: Appeal of FRANC FURNITURE CO.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1925-01-29
Citations: 1 B.T.A. 420
Docket Number: Docket No. 266
Parties: Appeal of FRANC FURNITURE CO.
Judges: Before James, SterNhageN, and Trammell.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 1
Pages: 420–424

Head Matter:
Appeal of FRANC FURNITURE CO.
Docket No. 266.
Submitted December 30, 1924;
decided January 29, 1925.
George M. Morris, Esq., for the taxpayer.
Robert A. Littleton, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.
Before James, SterNhageN, and Trammell.

Opinion:
OPINION.
James :
We are asked here to determine one issue of fact, namely, whether the taxpayer originally kept its books and reported its income upon installment sales basis or upon the accrual basis. The above findings of fact sufficiently indicate the answer to this question.
The entire controversy appears to have arisen because the taxpayer in its original returns deducted only a portion of its expenses corresponding to the proportion of its accrued income, which, under the installment plan, it was reporting in each year as gross income. Such a reduction of its actual expense was not warranted in law or regulations, however proper it may have been in theory, as a means of showing its true net income on a theoretically correct application of the installment theory. Being advised of its right to deduct expenses when incurred regardless of the manner of reporting income, the taxpayer submitted amended returns which the Commissioner seems to have regarded as changing the taxpayer's basis of reporting income and therefore not acceptable under his decisions. I. T. 1190, 1-1 C. B. 49.
That these amended returns did not change the taxpayer's method of reporting income as compared with its original returns but merely claimed additional expense deductions is patent upon their face. A comparison of the original and the first and second amended returns for the year 1917 follows:
The controversy arose over the original and first amended returns. The second amended return was filed March 29, 1924, and differs from the first only in the manner of reporting gross sales less cost of goods sold and in minor respects with reference to deductions, the taxpayer desiring to eliminate minor differences with the report of an examining revenue agent. The fact that all these returns were on a like basis of reporting income and differ only as to deductions is made clear by treating cost of goods sold as a deduction from gross sales in all three returns.
The taxpayer has proven from its general ledger and other evidence that its books were kept upon the installment sales basis during this period and that the returns for all years were prepared from such books. But the important fact is that the Commissioner at all times was in a position to make the comparison we have made above and demonstrate for his own purposes that the taxpayer in all three returns was reporting income upon substantially the same basis. Such being the case, there was no reason to reject the amended returns upon the ground-that they offered a new basis for reporting income. From their face and by comparison of schedules, it was readily determinable that all were made on the installment sales basis.
There is no evidence before the Board from which it can certainly determine the gross income, deductions, net income, or invested capital of the taxpayer for the years in question, and in consequence the correct computation of tax due for each year and the amount of the deficiency, if any, must be left to the parties, or if they are unable to agree, to a subsequent determination of the Board, for which purpose a further hearing will be granted, if necessary. For the purpose of such computations, the returns of the taxpayer shall be accepted as. correct in principle as returns of income on the installment sales basis, subject to verification by the Commissioner or by the Board as to the correctness of the figures therein set forth.
Final order determining the net deficiency, if any, in tax due and the deficiency for each year will be deferred and will be entered as set forth in the decision.