Court Opinion

ID: 4499596
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:31.688309+00
Date Added: 2024-06-11T08:00:29.658588
License: Public Domain

*1058OPINION.
TRAmmell :
The parties have presented only one question for our decision and that is whether the amount of $8,982.06 was income *1059in that year or in the fiscal year 1923 when the petitioner claims the amount was actually realized as income upon the termination of its liability as bailee or warehouseman. In other words the question is whether the amount was taxable income in the fiscal year 1920 or 1923. No other issue is presented or argued. The insurance policies taken out by petitioner, while having a clause covering the merchandise of customers in the hands of petitioner, did not show what part of the face of the policy represented insurance on petitioner’s merchandise and what part represented insurance on customers’ merchandise.
The petitioner did not know the extent of its liability to customers for merchandise destroyed in the fire, and had no means of accurately determining such amount. After charging against the receipts from insurance policies and from salvaged merchandise and certain other minor sources, certain amounts representing as nearly as could be determined the merchandise on hand belonging to petitioner at the time of the fire, the balance due on C. O. D. and will-call merchandise held by petitioner and cash payments made to customers as a result of adjustments, the petitioner held the remainder as a reserve out of which to make payments to customers as further adjustments were found necessary. The credit balance remaining on January 31, 1920, was $10,122.06.
After that date, no further cash payments were made to customers but their losses were adjusted either by allowing a credit to their accounts or by furnishing them with new merchandise. The only other charge made against the credit balance of $10,122.06 was an amount of $1,140 made on February 28, 1920, and after that date the balance stood at $8,982.06. The petitioner carried the undiminished balance on its books until December 16, 1922, when it was transferred to surplus, and in its return for the year ended January 31, 1923, reported the amount as income.
With respect to the customers’ goods the petitioner was in the position of bailee or warehouseman, and customers were entitled to collect from the petitioner whatever amount it had received as insurance on their goods in excess of any charges it was entitled to against the customer. The amount received by the petitioner in excess of its charges, if any, was the property of the customers, which petitioner held as trustee. 3 R. C. L. 108; Ferguson v. Pekin Plow Co., 141 Mo. 161; 42 S. W. 711; Fish v. Seeberger, 154 Ill. 30; 39 N. E. 982; Southern Cold Storage & Produce Co. v. Dechman (Tex.) 73 S. W. 545. Consequently, such amount, or any part of it set aside or held as a reserve from which to make payment to customers for their losses as such became known to the petitioner, is in a different class from reserve set aside out of profits to meet contingent liabilities. The liabilities here were not contingent. *1060Such amount as was received from insurance on goods belonging to others belonged to the persons who owned the goods. The petitioner received it only in a fiduciary capacity. The fact that it was not paid out until later is not material.
The difficulty here, however, is lack of evidence as to the amount of money which the petitioner actually received in such capacity. It did not make any cash disbursements after 1921. We do not know whether the charge of $1,140 made in 1921 was a cash disbursement or not, but that fact is not material here. While we do know that adjustments were made with customers after 1920 and also after 1921, there is no evidence as to the nature thereof or the amounts, if any, finally determined to be due to customers on account of the fire loss. Any amounts due them did not belong to the petitioner but we can not find what portion, if any, of the amount of $8,982.06, the amount finally reported as income by the petitioner, was ever paid or credited to customers, to what extent the petitioner was liable to make adjustments with respect thereto, or what part of that amount represented money which should have been paid to customers on account of their losses. In view of this fact we must hold that the amount of $8,982.06 was income to the petitioner in its fiscal year ended January 81, 1920, the year in which it was received by it, and not in 1923.
The reserve set up by the petitioner is not deductible. Appeal of William J. Ostheimer, 1 B. T. A. 18; Appeal of Consolidated Asphalt Co., 1 B. T. A. 79; Appeal of Uvalde Co., 1 B. T. A. 932; Appeal of Morrison-Ricker Mfg. Co., 2 B. T. A. 1008; Appeal of Helvetia Milk Condensing Co., 5 B. T. A. 271; Crescent Cotton Co. v. Commissioner, 5 B. T. A. 850.
This disposes of the only issue presented by the pleadings, or in the argument of counsel.

Judgment will he enten'ed on 15 days' notice, wider Rule 50.