Case Name: L. S. Weeks Co., Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1927-02-24
Citations: 6 B.T.A. 300
Docket Number: Docket No. 2604
Parties: L. S. Weeks Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 6
Pages: 300–303

Head Matter:
L. S. Weeks Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 2604.
Promulgated February 24, 1927.
T. J. Riordan, Esq., and P. G. Sheehy, Esq., for the petitioner.
George E. Adams, Esq., for the respondent.

Opinion:
OPINION.
Lansdon:
The petitioner, relying upon the provisions of sections 212(d) and 1208 of the Revenue Act of 1926, contends that the income from sales of automobiles under conditional sales contracts, for the accounting periods under consideration, should be determined on the installment sales basis. The respondent has refused to compute the income upon the basis contended for by the petitioner and denies that the petitioner is entitled to have its income computed upon such basis, because the books of account were not maintained upon that basis. The respondent, in defense of his action, relies upon the provisions of section 212(b) of the Revenue Act of 1918, and the same section of the Revenue Act of 1926, which provide that "the net income shall be computed in accordance with the method of accounting regularly employed in keeping the books." Section 212(d) of the Revenue Act of 1926, so far as pertinent to the matter under consideration, provides as follows:
Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price.
B37 the provisions of section 1208 of the Revenue Act of 1926, the above provisions of section 212(d) are to be retroactively applied in computing the net income under the Revenue Act of 1918. This method of reporting income from installment sales is commonly referred to as the " installment sales method." The right to return income from installment sales in accordance with this method is extended to any person " who regularly sells or otherwise disposes of personal property on the installment plan." Nothing is found in the provisions of section 212(d) which can be construed as limiting them, in their application, to persons who employed the installment sales method in keeping the books of account. Had Congress intended so to limit these provisions of the statute, it could have expressly made their application subject to the provisions of subdivision (b) of the same section. The fact that Congress did not do so indicates quite clearly to our minds that the provisions of subdivision (d) were intended as an exception to the hard and fast rule laid down in subdivision (b) that the net income is to be computed in accordance with the method of accounting regularly employed in keeping the books of account.
Under the authority conferred upon him by the above provisions of section 212(d) to prescribe regulations for the proper enforcement thereof, the respondent, in his Regulations 69, has laid down the rules for the reporting of income upon the installment sales basis. In article 42 of those Regulations, it is provided:
The provisions of tbis article shall be retroactively applied in computing income from the sale of personal property under the Revenue Acts of 1916, 1917, 1918, 1921, and 1924, or any such Acts as amended. (See section 1208.) Any dealer in personal property on the installment plan whose boohs of account contain adequate information and were tept so that income can he accurately computed on the installment basis in accordance with the provisions of this article may file amended returns accordingly, and the excess of the amount of any tax previously paid over tlie tax as computed on tlie installment basis as herein provided shall, subject to the statutory period of limitations properly applicable thereto, be credited or refunded as provided in section 284 and articles 1301-1806.
Thus it will be noted that the attitude which the respondent has assumed toward the rights of the petitioner in the case at bar is distinctly in contravention of the policy enunciated in his regulations. We think the above quoted provisions of the regulations correctly construe the statute; and are applicable to the facts in the case at bar. During the fiscal periods and year under consideration, the petitioner was regularly engaged in the sale of personal property on the installment plan; its books of account were so kept that adequate data is available therefrom upon which to predicate an accurate computation of income from installment sales; and it has elected to exercise the right to report its income from installment sales upon the installment sales basis. Nothing further is required by the statute.
The evidence is insufficient to enable us to determine whether the petitioner's computations of income from installment sales are accurate or not. What the record contains in that respect is not entirely clear. It would appear that the petitioner is attempting to exclude from the income of each of the accounting periods, a pro rata part of the profits as unrealized, without including the same in the income of the next succeeding year when the deferred payments were completed. For these reasons, we are unable to approve the petitioner's computations of income. It is entitled, however, to have its income from sales of automobiles on the conditional sales plan determined in accordance with the provisions of section 212(d) of the Revenue Act of 1926.
Judgment will be entered on 15 days' notice, umder Rude 50.