Court Opinion

ID: 4604132
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:33:32.514276+00
Date Added: 2024-06-11T07:52:57.918536
License: Public Domain

FARMERS CO-OPERATIVE ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Farmers Coop. Ass'n v. CommissionerDocket No. 654.United States Board of Tax Appeals7 B.T.A. 657; 1927 BTA LEXIS 3136; July 13, 1927, Promulgated *3136  Net income determined from the evidence.  Isidor Zeigler, Esq., M. J. Holland, Esq., and F. W. McReynolds, Esq., for the petitioner.  L. C. Mitchell, Esq., for the respondent.  GREEN *657  In this proceeding the petitioner seeks a redetermination of its income and profits-tax liability for the calendar year 1918, for which the Commissioner has determined a deficiency in the sum of $1,651.43.  The issue involved is whether the Commissioner overstated the petitioner's net income for 1918 in arriving at the deficiency.  FINDINGS OF FACT.  The petitioner is a corporation engaged in the cooperative business of buying and selling lumber, flour and feed, grain, coal, and live stock at Boyden, Iowa.  It kept books of account on the accrual basis.  During the calendar year 1918 it made the following purchases and sales: CommodityPurchasesSalesCorn$78,736.35$79,646.59Oats94,607.17115,998.49Barley14,007.4014,892.86Wheat5,410.202,074.38Coal and freight17,965.1715,889.70Lumber and freight79,408.5588,101.89Flour and feed$19,627.06$17,111.01Twine4,929.575,041.35Hogs312,994.43321,158.63Cattle68,863.7571,238.14Total696,549.65731,153.04*3137 *658  The inventories of the above mentioned commodities at the beginning and end of the calendar year 1918 were as follows: CommodityDec. 31, 1917Dec. 31, 1918Corn$2,536.80$1,038.75Oats17,233.201,769.58Barley728.00766.40Wheat3,340.20Coal3,500.00Lumber17,482.9617,627.00Flour and feed$1,736.63$1,714.86Twine545.00560.00Hogs2,494.64Cattle144.20150.00Total42,901.4330,466.79In addition to the profits derived from the aforegoing purchases and sales the petitioner also received income during 1918 from the following sources: Discounts$1,267.29Interest557.73Miscellaneous100.451,925.47In connection with its business for the year 1918, it incurred the following expenses: Livestock expense$2,522.99Supplies535.31General expense1,110.08Repairs97.80Drayage718.65Telephone119.54Labor and salaries7,537.56Bonuses (additional compensation)200.00Light and power$82.11Income taxes1,635.33Other taxes545.75Freight437.24Interest2,502.49Patronage dividends3,200.31Total21,245.16During the taxable year in*3138  question the petitioner used certain property in its trade or business.  The Commissioner determined that this property depreciated during the year to the extent of $1,055.42.  The petitioner in operating its business extended a certain amount of credit to its customers.  It ascertained during 1918 that at least five of its debtors would never be able to pay their accounts with the petitioner, whereupon the petitioner charged off on its books such accounts amounting to $615.40.  The deficiency determined by the Commissioner was based in turn upon a determination of net income in the amount of $8,918.03.  In determining this net income, the Commissioner allowed as one of *659  the deductions from gross income patronage dividends in the amount of $3,200.31.  OPINION.  GREEN: This proceeding involves the broad issue of determining the petitioner's net income for the taxable year 1918 in accordance with section 232 of the Revenue Act of 1918.  The elements necessary to such a determination are set out in the findings of fact.  A summary of such findings discloses a net taxable income to the petitioner for the calendar year 1918 of $2,813.57, set out as follows: Gross sales$731,153.04Inventory Dec. 31, 1917$42,901.43Purchases during 1918696,549.65739,451.08Inventory Dec. 31, 191830,466.79Cost of goods sold708,984.29Gross profits22,168.75Add: Additional income1,925.47Total24,094.22Deduct:Expenses$21,245.16Depreciation1,055.42Bad debts615.4022,915.98Net book income1,178.24Add unallowable deductions:Income taxes1,635.33Net taxable income2,813.57*3139  The deficiency should be redetermined based upon a net taxable income of $2,813.57 instead of $8,918.03.  Judgment will be entered on 15 days' notice, under Rule 50.Considered by STERNHAGEN and ARUNDELL.