Court Opinion

ID: 4597311
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:18:55.571312+00
Date Added: 2024-06-11T07:51:46.035508
License: Public Domain

J. W. VAUGHAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Vaughan v. CommissionerDocket No. 21782.United States Board of Tax Appeals19 B.T.A. 478; 1930 BTA LEXIS 2387; April 3, 1930, Promulgated *2387  ACCOUNTING - CALENDAR OR FISCAL YEAR BASIS. - Petitioner was a member of a partnership which regularly filed returns of income as for a calendar year, but in each instance computed such income over a period ending subsequent to the calendar year, closing its books for the computation of income sometimes on one date and sometimes another.  Petitioner, making his return on the basis of a calendar year, regularly included his proportionate share of the partnership earnings as reported by the partnership for such calendar year.  Held that the partnership income for 1920 should be computed on the basis of a calendar year and that petitioner's income for that period should be computed by inclusion of his proportionate share of the partnership income as so determined.  F. O. Graves, Esq., for the petitioner.  T. M. Mather, Esq., for the respondent.  TRUSSELL *478  This appeal is from a deficiency in income tax of $1,228.56 for the year 1920.  Petitioner assigns as error respondent's action in including in income for 1920 an amount representing his proportionate share of the earnings of a partnership computed for a period ending January 15, 1920. *2388  FINDINGS OF FACT.  The petitioner is an individual and throughout the years 1919 and 1920, was a member of a partnership known as J. W. Vaughan & Co., of Cartersville, Ga., hereinafter referred to as the partnership, owning a 79.87 per cent interest in said partnership.  The petitioner's books of account were kept on a calendar year basis and he duly filed his income-tax returns for the calendar years 1919 and 1920.  The books of account of the partnership were closed on January 31, 1919, and January 15, 1920.  The partnership filed a return on a calendar year 1919 form, reporting thereon income earned during the period from February 1, 1919, to January 15, 1920.  In his individual return for the calendar year 1919, the petitioner reported $8,286.31, representing what he determined to be his proportionate share of the partnership's profits for the period from February 1, 1919, to January 15, 1920.  The respondent determined that the petitioner's share of net income of the partnership for the period from February 1, 1919, to January 15, 1920, was $10,697.68, and has included this amount in computing petitioner's net income for the calendar year 1920.  The partnership prior to*2389  and including the period in question always *479  reported its income on calendar year returns, but did not reduce its income to a calendar year basis, nor did petitioner reduce his proportionate share to a calendar year basis.  The partnership did not receive permission to change its basis of filing returns from a calendar year to a fiscal year.  The partnership of J. W. Vaughan & Co. had no regularly adopted fiscal year for its accounting.  OPINION.  TRUSSELL: The agreed facts in this proceeding show that the firm of J. W. Vaughan & Co. was in existence prior to the calendar year 1919 and that it had always reported its income as for a calendar year, but in no instance did the income returned represent that earned for a period ending with the last day of the calendar year.  It is not shown on what date it first closed its books after beginning business, but on January 31, 1919, it closed its books and computed its income to that date from some prior date not disclosed and returned it as income for the calendar year 1918.  Whether the income so returned was for a period of 12 months or whether for a shorter or longer period is not shown.  On January 15, 1920, it again*2390  closed its books and reported the income for the prior 11 1/2 months as income for the calendar year 1919.  In determining the deficiency here involved, respondent included in petitioner's income for the calendar year 1920 his proportionate share of the income of the partnership determined for the period January 31, 1919, to January 15, 1920, upon the ground that the partnership had a regularly adopted fiscal year basis of accounting and that his proportionate share of the income for the period in question, which petitioner had included in his return for the calendar year 1919, was in fact income for 1920.  Upon the facts disclosed by the record we can not see that this partnership had, as contended by respondent, a regularly adopted basis for computing income on a fiscal year ending January 31.  It appears to have considered itself as on a calendar year basis and to have proceeded each year shortly after the close of the calendar year, but as of no set date, to determine its income, and in each instance to have merely closed its books and computed income up to the date at which it happened to undertake the task of computation.  These facts fail to show a fiscal year regularly*2391  adopted by the partnership for its accounting.  The more reasonable conclusion is that it had either adopted a calendar year and through oversight computed its income erroneously or else it had no regularly adopted period of accounting.  In either event, its income should properly *480  be computed on the basis of a calendar year under section 212(b) of the Revenue Act of 1918, the pertinent portion of which provides: * * * If the taxpayer's annual accounting period is other than a fiscal year as defined in section 200 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.  We accordingly hold that the income of the partnership should be recomputed on the basis of a calendar year, the parties hereto agreeing that such recomputation is possible, and that the income of the petitioner for the calendar year 1920, should be redetermined by the inclusion of his proportionate share of the partnership earnings as so recomputed for that year.  Judgment will be entered pursuant to Rule 50.