Court Opinion

ID: 4633884
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:14:50.901718+00
Date Added: 2024-06-11T07:58:08.106363
License: Public Domain

HUB FURNITURE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Hub Furniture Co. v. CommissionerDocket No. 16049.United States Board of Tax Appeals11 B.T.A. 303; 1928 BTA LEXIS 3832; March 29, 1928, Promulgated *3832  Under the facts in this case no such abnormal conditions as contemplated by the provisions of section 327 of the Revenue Act of 1918 existed which entitle petitioner to special assessment as provided in section 328.  J. R. Maceo, Esq., for the petitioner.  Harold Allen, Esq., for the respondent.  LOVE *303  This proceeding is for the redetermination of a deficiency for the year 1919 in the amount of $4,571.78.  The only question at issue is whether or not, under the facts of the case, petitioner is entitled to special assessment for 1919 under the provisions of section 328 of the Revenue Act of 1918.  FINDINGS OF FACT.  Petitioner is a corporation organized under the laws of Texas in 1907, with a capital stock of $40,000 par value, later increased to $60,000, and later to $100,000, the latter amount being the amount outstanding in 1919.  The business of the corporation was and is the manufacture of furniture.  The following facts were stipulated and we accept the same as true.  The invested capital in 1919 was $176,048.93.  The net income in 1919 was $61,619.75.  The percentage of income, compared with invested capital for five years, *3833  was as follows: 191719.04191818.09191941.2119201.991921loss 8.57*304  The net sales in 1919 were 241.19 per cent of the invested capital.  For other years, said percentages were as follows: 1917181.231918169.011920132.95192181.47The amount of money borrowed was: 1917$143,0001918201,0001919226,0001920347,0001921150,000For the year 1919, officers' salaries were: Vice president and general manager$3,000Secretary and treasurer1,800The turnover of goods for the several years is shown as follows: 1917Opening inventory$72,042Purchases during year171,087Closing inventory107,5391918Opening inventory107,539Purchases during year148,237Closing inventory131,5781919Opening inventory131,578Purchases during year288,676Closing inventory143,5341920Opening inventory143,534Purchases during year290,818Closing inventory227,3111921Opening inventory227,311Purchases during year65,938Closing inventory159,480The principal raw material used by petitioner*3834  was lumber.  Prior to 1918, that material cost petitioner from $22.50 to $27.50 per thousand feet.  In 1918 the price of lumber rose as high as $140 per thousand feet.  At the beginning of such rise in price, the petitioner's yards were full of the low-priced lumber.  In 1919, while the amount of lumber purchased was less than normal, the total amount paid therefor was more than the usual amount paid for lumber per annum.  The low-priced lumber went into its products.  *305  OPINION.  LOVE: The only question at issue in this case is whether or not petitioner is entitled to have its taxes computed for the year 1919 under the provisions of section 328 of the Revenue Act of 1918.  In order to entitle a taxpayer to the benefits of section 328 it must meet the requirements of section 327 of the same Act.  The pertinent part of section 327 is: (d) Where upon application by the corporation the Commissioner finds and so declares of record that the tax if determined without benefit of this section would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax*3835  computed without benefit of this section and the tax computed by reference to the representative corporations specified in section 328.  This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital * * *.  The question to be answered is whether or not the tax, if determined without the benefit of this section, owing to abnormal conditions affecting the capital or income of the corporation, works upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of this section and the tax computed by reference to the representative corporations specified in section 328, that is, corporations engaged in a like or similar trade or business.  There is no evidence in the record in regard to other corporations engaged in a like or similar trade or business.  We are not informed whether or not there are such corporations in the vicinity where petitioner is located.  In order to present a panoramic view of the trend of petitioner's business operations, we submit*3836  the following comparative data embracing five years of operations, including the taxable year: YearValue of turnoverMoney borrowedPer cent of sales compared with invested capitalPer cent of income compared with invested capital1917$135,590$143,000181.2319.041918124,198201,000169.0118.091919276,724226,000241.1941.211920207,041347,000132.951.991921133,769150,00081.471 8.57It is true that the salaries paid officers seem modest.  We are not informed however, in regard to salaries paid by other similar corporations, if any.  Petitioner used borrowed money but certainly not *306  in amounts in any degree startlingly out of proportion to invested capital, amount of business transacted, or in the ordinary experience of corporations.  The facts in this case indicate that no abnormality existed in 1919 other than by reason of the fact that petitioner entered that period with its yards full of low priced lumber and succeeded in selling a large volume of goods at high prices, it realized an abnormal profit in that year.  It will be noted in the section of the statute quoted hereinbefore, *3837  that it is provided that "this subdivision shall not apply to any case in which the tax (computed without the benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital." Judgment will be entered for the respondent.Footnotes1. Loss. ↩