Court Opinion

ID: 4632146
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:11:11.272788+00
Date Added: 2024-06-11T07:57:50.813270
License: Public Domain

EDWIN M. JOHNSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  RUSSELL V. LOVELAND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Johnson v. CommissionerDocket Nos. 1415, 1926.United States Board of Tax Appeals10 B.T.A. 95; 1928 BTA LEXIS 4197; January 21, 1928, Promulgated *4197  1.  The evidence does not establish that the Commissioner erred in his determination of the closing inventory for the taxable year of the partnership of which petitioners were members.  2.  Loss from fire determined.  L. E. Mallonee, Esq., for the petitioners.  John D. Foley, Esq., for the respondent.  LITTLETON*95  The Commissioner determined a deficiency of $1,548.22 in respect of the tax of each of the petitioners for 1919.  They claim, first, that the Commissioner overstated the closing inventory of the Audubon Canning Co., a partnership of which they were members, in the amount of $18,000, representing canned corn of that value which petitioners claim belonged to another from whom the partnership had borrowed $18,000; and, secondly, that the Commissioner erred in determining that a profit of $9,112.35 was realized by the partnership from the receipt in the taxable year of $12,303.49 under a certain fire insurance policy.  FINDINGS OF FACTS.  During the taxable year petitioners were members of the partnership known as the Audubon Canning Co., of Audubon, Iowa, engaged in canning corn.  They shared the profits and losses equally.  The*4198  partnership took its inventory at cost.  In the taxable year the partnership borrowed $18,000 from E. S. VanGorder with which to carry on its business.  It was agreed and understood between the partnership and VanGorder at the time of the loan that as the partnership thereafter canned corn, the same to the extent of the loan was to constitute a surety to VanGorder for the loan and when sold by the partnership, the proceeds were to be paid by the partnership to VanGorder in satisfaction of the loan of $18,000.  The canning season was from July or August to October.  In determining the closing inventory for the taxable year the partnership excluded therefrom corn canned during the year of the value of $18,000 and on hand at the close of the year, upon the ground that this amount of its corn belonged to and was the property of VanGorder.  The Commissioner determined that corn of the value of $18,000 was the property of the petitioners and should be included in its inventory.  He therefore increased the closing inventory accordingly.  *96  On December 9, 1919, a fire occurred in the plant of the partnership.  The nature and cost of property totally or partially destroyed and the*4199  cost of repairing machinery follows: Labels totally destroyed$ 1,175.00Seed corn totally destroyed1,350.00Cases totally destroyed1,880.00Canned corn totally destroyed3,934.75Building acquired in 1918, partially destroyed17,653.41Cost of repairing damages to machinery116.84Total26,110.00The actual loss sustained by the partnership as the result of the fire, less $12,303.49 insurance received, was $1,147.39, computed as follows: Labels, seed corn, cases, canned corn$8,339.75Damage to building4,994.29Damage to machinery116.84Total13,450.88Less insurance received12,303.49Loss1,147.39OPINION.  LITTLETON: The evidence submitted does not establish the claim that the 1919 closing inventory of the partnership as determined by the Commissioner should be reduced in the amount of $18,000.  Although it is claimed by the petitioners that at the time of the $18,000 loan, corn thereafter canned by the partnership to the extent of the loan was to become the property of VanGorder, the testimony does not go beyond showing that the corn canned after the making of the loan by VanGorder was to be set aside to insure*4200  repayment of the loan out of the proceeds from the sale thereof by the partnership on its own account and not as agent for VanGorder.  The corn was not to be delivered to VanGorder, nor has it been shown that the partnership held it or was to sell it as his agent.  So far as the evidence shows, the loan of $18,000 from VanGorder was to be repaid in full by the partnership notwithstanding it had canned corn having a market value of that amount, if such corn when sold should bring less than the amount of the loan, or if the corn should be destroyed prior to sale by the partnership.  Under the petitioners' theory, the $18,000 would constitute an advance payment by VanGorder for corn purchased by him and should be included in the partnership's gross income.  There is nothing to show that this amount was included in gross income.  The Board is of the opinion that corn on hand and unsold at the end of the taxable year which the partnership seeks to exclude *97  from its inventory, was the property of the partnership and was properly included by the Commissioner in its closing inventory.  The Commissioner's computation of the tax liability resulting in the deficiencies asserted*4201  by him is not in the record.  Petitioners claim that the Commissioner determined that the partnership realized a profit of $9,112.35 from the receipt of fire insurance in the amount of $12,303.49.  The evidence establishes that the partnership, instead of realizing a profit, sustained a loss as a result of the fire of $1,147.39.  Judgment will be entered on 20 days' notice, under Rule 50.