1934 BTA LEXIS 1014 | B.T.A. | 1934
Lead Opinion
OPINION.
The Commissioner determined a deficiency of $14,377.22 in the petitioner’s income tax for the fiscal year ended November 30, 1930. The petitioner assigned as error the action of the Commis
The petitioner is a Delaware corporation, with its principal office in Indianapolis, Indiana. The petitioner delivered 31 automobiles during the taxable year to 4 corporations which were subsidiaries of the De Kalb Co. These cars had cost the petitioner $202,587.85. Their value for sale by the petitioner was $304,269.70. Each automobile, as delivered, was accompanied by an invoice. Each invoice contained a description of the goods shipped and the price of the goods to the recipient. The words “ Open account, subject our draft ” appear on most of the invoices after the word “ Terms ”, but on a few, only the words “ Open account ” appear at that place. These invoices reflect the bookkeeping entries of the petitioner in respect to these automobiles. None of the automobiles was included in the inventory of the petitioner at the close of the taxable year. The petitioner used an accrual method of accounting in reporting its income. The Commissioner determined that the 31 automobiles had been sold by the petitioner during the taxable year and included in the petitioner’s income for the taxable year, as a profit from the sale of automobiles, $101,681.85, being the difference between the sales value and the cost of the 31 automobiles.
The following facts relating to the first issue are found in the testimony of a witness who was the only witness in the case :
The four companies to which the thirty-one automobiles were shipped acted as distributors for the petitioner’s automobiles in certain territories. The petitioner frequently shipped automobiles to each of these companies without first receiving an order from the company. Such shipments were made at the direction of the petitioner’s vice-president and sales manager who based his decision to make the shipments upon the stock which the distributor had on hand. The distributor would not pay the petitioner for a car received from the petitioner until that car had been sold to a customer of the distributor. When one of the distributors sold a car to a customer, a copy of the order was forwarded to the petitioner. The petitioner did not charge interest on its open accounts with these four distributors. In case ears were not sold, they would either remain in the stock of the distributor or else would be reshipped*924 to some other distributor at the direction of the petitioner’s vice-president and sales manager. Payment in full for all of the thirty-one cars in question had not been received by the petitioner up to the date of the hearing on April 18, 1934.
The facts stated in the two preceding paragraphs are ail of the facts relating to the first issue which the record contains. The Commissioner has determined that the 31 automobiles were sold by the petitioner during the taxable year and, as a result, has included in income a profit from the sale of the automobiles. The petitioner concedes the correctness of the figures, but contends that none of the automobiles was sold during the taxable year. This contention is directly contrary to the determination of the Commissioner. If the contention is not supported by sufficient proof to show that it is correct and the action of the Commissioner is incorrect, then the determination of the Commissioner as to this item must be approved.
The record does not show that the 31 automobiles were not sold by the petitioner during the period in question. They were taken out of the petitioner’s inventory and were apparently included in the inventory of the four companies until disposed of to customers. The purchase price of the automobiles was charged to the four companies on open accounts on the books of the petitioner. The general practice of the petitioner in dealing with these four companies, as outlined by the witness, does not show that these particular automobiles were not sold to the four distributors. Furthermore, there is nothing in the record to indicate how many of these automobiles were disposed of by the distributors to customers during the taxable year. Thus it may be that all of them were sold to customers. The petitioner used an accrual method of accounting. It does not appear that the Commissioner erred in including the profit from the sale of these 31 automobiles in the petitioner’s income for the taxable year here involved.
The facts relating to assignment of error (b), which "facts came into the record by way of allegations in the amended petition which were admitted in the answer thereto, are as follows:
In its fiscal year ended November 30, 1930, the petitioner paid $1,784.05 to Messrs. Marks & Clerk, Attorneys of New York City, for their services and expenses in registering the name “ Duesenberg ” as a trade mark in some thirty-five foreign countries. In the preparation of its return of income for said fiscal year petitioner deducted said payment as an ordinary and necessary business expense.
The respondent disallowed the deduction and restored the said item of $1,784.05 to taxable income as representing a capital expenditure.
The benefits to be derived from the registration of the name “ Duesenberg ” in the 35 foreign countries were not limited necessarily to the year in which the expenditures were made. These ex
The stipulation of facts, in so far as it relates to the error assigned as (c), is in part as follows:
The petitioner expended $97,697.60 in the fiscal year ended October 31, 1927, and $85,233.20 in the fiscal year ended October 31, 1928, and $17,069.20 in the fiscal year ended October 31, 1929, or a total of $200,000.00 in said three fiscal years, in development and experimental work upon a new model car called Model J, and charged the said amounts in the respective fiscal years on its books of account to expense and deducted the said amounts from its gross income in each of said fiscal years, and filed its Federal income tax returns accordingly. The Commissioner, in determining the income tax liability of the petitioner for said three fiscal years, allowed the said sums so expended as deductions for business expense.
Said development and experimental expenditures were based upon an expected production of 500 Model J cars, with an allocation of development and experimental cost of $400 to each Model J car produced.
The first Model J car was completed in the fiscal year ended October 31, 1929. In the fiscal year ended October 31, 1929, the petitioner produced 147 Model J cars at an allocated development and experimental cost of $58,800.00; in the period of the month of November, 1929, it produced 33 Model J cars at an allocated development and experimental cost of $13,200.00; in the fiscal year ended November 30, 1930, it produced 135 Model J cars at an allocated development and experimental cost of $54,000; thereafter, it has produced, or will produce, 185 Model J cars at an allocated development and experimental cost of $74,000.00.
There are additional statements in the stipulation which show that the petitioner reported and the Commissioner determined that, because of statutory net losses for the first two fiscal years, no tax was due for the fiscal years ended October 31, 1927, 1928, and 1929 and for the month of November 1929, and, furthermore, there would have been no tax due for any of these periods even though no expense deductions had been claimed or allowed on account of the development and experimental work on the Model J car.
The petitioner contends that the expenditures in question were not deductible as ordinary and necessary expenses of the years in which
The remaining assignment of error is the failure of the Commissioner to allow as a credit against the petitioner’s net income for the fiscal year ended November 80, 1930, an alleged net loss sustained by the petitioner during the fiscal year ended October 31, 1929. Unless the petitioner was entitled to deduct for the fiscal year ended October 31, 1929, a greater amount than the development and exper
Decision will be entered for the respondent.