Court Opinion

ID: 4494673
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:13:57.217521+00
Date Added: 2024-06-11T14:54:11.975924
License: Public Domain

*1074OPINION.
Tkussell
: Peter Coghlin, some time prior to 1916, had been a department sales manager employed in the taxpayer’s business. He had had an understanding that his compensation should consist in part of the percentage of the net profits of the sales of the department over which he had presided. When, in 1917, he was advised of the adjustment made by the taxpayer, he complained that it was unfair to him, and, as a result of such complaint, he and the taxpayer arrived at and agreed upon a new basis for computing the profits of the department upon which he was entitled to a percentage, which resulted in the taxpayer’s then agreeing to pay to him additional compensation in the amount of $1,518.46. This amount was arrived at on a basis of accounting agreed upon in 1917; it was accrued upon the books of the taxpayer in that year; and it was in effect a compromise adjustment made in'the year 1917, and as such is a proper deduction-from gross income for that year.
Sections 239' and 226 of the Revenue Act of 1918 provide that, when a corporation finds it necessary to make an income-tax return for a fraction of a year, “ a separate return shall be made for the period between the close of the last calendar year for which return was made and the date designated as the close of the fiscal year.”
The Board has held in the Appeal of Henry D. Weed, 2 B. T. A. 84, that this provision meant a separate return for such fractional portion of a year entirely unrelated to any prior or future tax return. 'The reasoning in that opinion applies with equal force in the case of a corporation. We are, therefore, of the opinion that in the instant case the taxpayer should make income and profits-tax return reporting the items of gross income for the months of January and February, 1918, and the items of deduction for the same time; that the specific credit allowed by section 236 (c) should be adjusted to two-twelfths of $2,000; and that the invested capital for the period should be computed in accordance with section 326 (d)..
Order of redelermmation will ~be entered on 10 days’ notice, wider Rule SO.