Court Opinion

ID: 4610756
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:47:34.16081+00
Date Added: 2024-06-11T07:54:07.379947
License: Public Domain

J. RADCLIFFE JONES, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  LEVI D. T. NOBLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Jones v. CommissionerDocket Nos. 10234, 10235.United States Board of Tax Appeals12 B.T.A. 471; 1928 BTA LEXIS 3519; June 8, 1928, Promulgated *3519  It appears from the evidence that two accounting periods of a partnership of which petitioners were members ended within the taxable year of petitioners.  Held, section 218(a) of the Revenue Act of 1918 applies and petitioners' shares of the partnership income for both periods should be included in the taxable year.  Edgar T. Fell, Esq., for the petitioners.  Harold Allen, Esq., for the respondent.  LOVE*471  This proceeding results from the determination by respondent of deficiencies in income taxes for the calendar year 1920, amounting as follows: For J. Radcliffe Jones, Jr., $1,415.15; for Levi D. T. Noble, $1,613.81.  Petitioners allege error in that the deficiency was incurred as the direct result of the misrepresentations of a deputy collector of internal revenue.  Further error is assigned in the failure of the respondent to make adjustment for the year 1919 relative to claims for credit in the amounts of $238.08 and $220.19.  The appeals were combined for purposes of hearing and decision.  *472  FINDINGS OF FACT.  Petitioners are citizens of the United States and residents of Cambridge, Md.  J. Radcliffe Jones, Jr. *3520  , and Levi D. T. Noble, of Cambridge, Md., formed a partnership known as the Cambridge Auto Co., and began business on February 1, 1917.  The accounts of the partnership were kept on the accrual basis and a fiscal year ending January 31.  The partnership filed income-tax returns for its fiscal years ended January 31, 1918, and January 31, 1919.  During the month of December, 1919, a deputy collector of internal revenue by the name of Carter visited Cambridge, Md., with reference to income-tax returns to be filed by persons from that vicinity, and he was consulted by the partners relative to their tax returns.  In the course of the conversation Carter advised the partners that they should put the partnership upon a calendar-year basis.  This suggestion was followed, inventory was taken as of December 31, 1919, and the books were closed on the calendar-year basis.  A partnership return was made up for the eleven-month period ended December 31, 1919.  On February 28, 1920, another deputy collector of internal revenue by the name of Perry visited Cambridge, Md., relative to tax matters in that vicinity, and the partners exhibited to him the partnership return they had prepared for the eleven-month*3521  period.  Perry advised the partners that in order to change the basis of the partnership return from the fiscal year to the calendar year it would be necessary for the partnership to obtain the permission of the Commissioner.  Thereupon, under date of February 28, 1920, the partnership wrote to the collector of internal revenue at Baltimore, Md., requesting permission to file a partnership return for the eleven months ended December 31, 1919, and explaining the reason for the request.  The collector replied under date of March 27, 1920, refusing the request on the ground that the provision of article 26 of Regulations 45 requiring at least 30 days' notice prior to the due date of the return had not been complied with.  The partnership wrote again to the collector under date of March 31, 1920, repeating the request and explaining the circumstances of their consultations with the deputies, Carter and Perry.  Under date of April 28, 1920, the deputy commissioner refused permission to file the partnership return for the eleven-month period ended December 31, 1919, directing that a return be filed for the fiscal year ended January 31, 1920.  In the same letter permission was granted to*3522  close the books on December 31, 1920, thus changing the partnership fiscal year to a calendar year.  An amended partnership return was prepared to cover the full fiscal year ended January 31, 1920, and also amended returns for the two partners for the calendar year 1919, and the three amended returns were filed *473  under date of May 11, 1920, together with an affidavit by Noble certifying to the circumstances.  Petitioners filed returns on the calendar year basis for the years 1917, 1918, 1919, and 1920.  For the calendar years 1917, and 1918 petitioners included their distributive shares of the partnership profits for the full fiscal years 1918 and 1919.  The original returns of petitioners for the calendar year 1919 reported their shares of the partnership earnings for the eleven months ended December 31, 1919.  The amended returns of petitioners for the calendar year 1919 reported their shares of the partnership profits for the full fiscal year ended January 31, 1920.  Petitioners' returns for the calendar year 1920 reported their shares of the partnership profits for the eleven months ended December 31, 1920.  Respondent has revised the individual returns of the partners*3523  as follows: calendar year 1917, exclude partnership profits; calendar year 1918 include partnership profits for fiscal year ended January 31, 1918; calendar year 1919 include partnership profits for fiscal year ended January 31, 1919; calendar year 1920 include partnership profits for fiscal year ended January 31, 1920, and also, fiscal period ended December 31, 1920.  OPINION.  LOVE: The facts were all stipulated.  We have no jurisdiction over the year 1919 wherein respondent has determined an overassessment and the protests of petitioners are addressed to a question of refund.  See . For the year 1920 there is but one issue.  It relates to petitioners' shares of the profits of a partnership.  The profits were determined and the books were closed as of December 31, 1919, and also as of December 31, 1920, but in addition the partnership computed its profits as of a fiscal year ending January 31, 1920, and in compliance with the demand of respondent, filed an amended return reporting the computed profits for the fiscal year.  The amounts of the profits according to these several determinations are not in dispute.  The question*3524  is whether the action of respondent was proper in including in the income of petitioners for the taxable calendar year, their shares of the partnership profits for the fiscal year ended January 31, 1920, and also the profits for the period ended December 31, 1920.  The circumstances are detailed in the findings and need not be repeated here; suffice it to say that the partners were apparently actuated by no other motives than to make their returns entirely to the satisfaction of the Government.  They were late in seeking advice but were prompt in acting upon it.  They were too late to secure the approval of the Commissioner to a change of the basis of computing the net income of the partnership from the existing fiscal *474  year to a calendar year as of December 31, 1919, but were granted such approval and did effect the change as of December 31, 1920.  The individual partners were at all times on the basis of the calendar year.  It follows that there were two accounting periods of the partnership which ended within the calendar year 1920, the effective dates being January 31, 1920, and December 31, 1920.  For the year 1920, the individual partners were subject to the provisions*3525  of section 218(a) of the Revenue Act of 1918, reading, so far as material here, as follows: That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity.  There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the partnership is computed, then his distributive share of the net income of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner's net income is computed. (Italics ours.) In view of the plain and unmistakable provision of the statute, which we have underlined, the action of the respondent was proper and is unavoidable.  It is idle to speculate upon procedure which might, in this case, be managed to result more equitably.  The arguments of petitioner are unavailing under the statute.  Respondent is sustained.  Cf. *3526 ; . The deficiencies are determined to amount as follows: for J. Radcliffe Jones, Jr. $1,415.15; for Levi D. T. Noble, $1,613.81.