Opinion ID: 1563910
Heading Depth: 1
Heading Rank: 2

Heading: Materials and Supplies.

Text: On December 31, 1917, the taxpayer turned over to the Director General certain materials and supplies carried on its books at a value of $1,170,102.92. On March 1, 1920, the Director General turned back to the taxpayer similar materials and supplies, equal in quantity, quality, and usefulness, which were carried on its books at March 1, 1920, values, which exceeded the values of the materials and supplies originally turned over by the taxpayer. The materials and supplies so received from the Director General were used up by the taxpayer in 1920, and charged to expenses and betterments at the March 1, 1920, values. The Commissioner held that the cost of such supplies and materials so used up by the taxpayer in 1920 was the book value as of December 31, 1917, and disallowed deductions to the extent of the difference between the 1917 and the 1920 values, which is conceded to be $250,968.75. The Board sustained the Commissioner. We are satisfied that the 1917 inventory value of the materials and supplies which were restored in kind on the termination of federal control determined the deduction the petitioner was entitled to take for the expenditure of the substituted items. The substitution was of things, and not of value. The using up of a $2 1920 government shovel, which had been substituted for a $1 1917 railway shovel, caused a deductible loss to the taxpayer of $1, not $2. On this point, see Terminal Railroad Association of St. Louis v. Commissioner, 17 B. T. A. 1135; Missouri Pac. R. R. Co. v. Commissioner, 22 B. T. A. 267; Norfolk Southern R. R. Co. v. Commissioner, 22 B. T. A. 302; Baltimore & Ohio Railroad Co. v. Commissioner, 30 B. T. A. 194.