1924 BTA LEXIS 250 | B.T.A. | 1924
Lead Opinion
In the years 1919 and 1920 the taxpayer received from the construction of certain asphalt street paving $1,097,216.55. About this there is no dispute. The contracts under which the work was done provided that upon the completion of the work the entire price should be paid. There was no provision such as is frequently found in such contracts that the city should withhold a portion of the price as a means of assuring the proper maintenance of the pavement, paying it over to the contractor in installments as the period of maintenance elapsed. Here the only assurance that the city had was covered by the bond. Thus this amount received by the taxpayer was its own to do with entirely as it chose. It was in fact an actual receipt.
The taxpayer contends, however, that all of the amount so received was not income, and that it had the right to omit the amount which in its wisdom it set aside as a reserve to take care of the future maintenance of the pavements in accordance with its contract obligations. Its counsel urges that the amount of the reserve was a reasonable reserve for the purpose, and that such amount is not income and can not therefore be taxed and under the Revenue Act of 1918 was not attempted to be taxed. We have no doubt that the amount is income taxable under the sixteenth amendment as
The question whether the probable future expenditure for maintenance of the pavements is the proper subject of a deduction when the accounts and return are made on the accrual basis is not open for our consideration, because the stipulation of the parties expressly states that the cash receipts and disbursements basis was used. The casual statement of the witness at the hearing that the accrual basis was used must be disregarded in the light of this deliberate stipulation. The use of the cash basis means that net income must be determined by including all the gross income actually received and deducting only the amounts actually paid out. It would be an obvious distortion to return only the gross income actually received and deduct therefrom both the amounts paid out and the payments anticipated.
Our attention is directed by the taxpayer to article 36 of Regulations 45, in which special provision is made by the Commissioner for so-called long-term contracts so that an equitable adjustment of receipts and expenditures may be made by a taxpayer whose income is derived mainly from construction contracts, the performance of which may extend over a period of several years. In such case the taxpayer is permitted to apportion ratably in each year his receipts and his expenditures on each contract. By its terms the article relates to uncompleted contracts. The present taxpayer, however, stipulates that its returns were made on the “basis of completed contracts as provided for in article 36 of Regulations 45 ”, which in the light of the evidence, apparently means that they were not made on the long-term contract basis, and there is not sufficient in the record upon which the application of the method
The deficiency seems to have been properly found by the Commissioner and can not be disallowed.