13 B.T.A. 582 | B.T.A. | 1928
Lead Opinion
The petitioner complains of respondent’s refusal to compute his income from installment sales for 1919, 1920, and 1921, in accordance with the installment sales method prescribed by subdivision (d) of section 212 of the Revenue Act of 1926.
The petitioner regularly sold personal property on the installment plan in 1919,1920, and 1921, and he is entitled, therefore, to have his
The petitioner filed original returns for 1919, 1920, and 1921, ,in which net income was computed in accordance with the accounting method employed in keeping his books. Under that method he accounted for all sales, whether made for cash, on open account, or on the deferred payment plan, as income of the years in which such sales were made. Later he sought to file amended returns for those years in which net income purported to be computed in accordance with the installment sales method. From these facts it is apparent that the petitioner is not entitled to the benefits of section 705 of the Revenue Act of 1928, since the change to the installment basis of reporting income was not made by an original return filed prior to February 26, 1926. Therefore, if the net income is to be computed on the installment basis, it must be computed ,in strict accord with the provisions of section 212(d) of the Revenue Act of 1926.
In Blum’s, Incorporated, supra, we held, in construing the provisions of section 212 (d) of the Revenue Act of 1926, that a taxpayer who changes to the installment basis of reporting income must return as income of the year in which the change is made, and of all subsequent years, a proper proportion of all installment payments actually received in those years relating to sales effected in years prior to the change in method, notwithstanding that the entire profits from the sales to which such payments relate were, under the method of returning income then employed, returned and taxed as income of the years in which such sales were effected. This rule applies in computing this petitioner’s income from installment sales. To compute the petitioner’s income under this rule, we must know what installment payments were received during the taxable years in controversy, the years in which the sales to which such payments relate were made, and the percentage of gross profit on installment sales of each year in which there were sales in respect of which installment payments were received during the taxable years in controversy. For instance, if the petitioner received during the years in controversy installment payments relating to sales made in 1918, it would be necessary, in order to determine what proportion of such payments is income, to know the percentage of gross profit on all installment sales made in 1918; and we must know what that percentage is in respect of the installment sales of any other year as to which there may have been collections during the years in controversy. An
Further, the petitioner testified that he was constantly repossessing merchandise from installment purchasers who had defaulted in their payments. To determine the petitioner’s net income on the installment basis, it is necessary that we should know all of the facts as to such repossessions, such as the fair market value of the repossessed merchandise and the unrecovered cost of the repossessed merchandise represented in the unpaid balance due from the defaulted purchaser, for upon these must rest the determination as to what deductions the petitioner is entitled to for losses sustained through damage to repossessed merchandise and for bad debts. However, we have no facts upon which to predicate a determination as to the amounts of such deductions which petitioner is properly entitled to.
The petitioner has failed to established facts upon which the Board may determine the correct income and what deficiency, if any, is due. Proof of such facts as are necessary to establish a right to return income from installment sales in accordance with the installment sales method, does not prove error in the respondent’s determination of net income which was reached by another method. Cf. Berkshire Cotton Manufacturing Co., 5 B. T. A. 1231. Without proof of the net income on the installment basis, we can not determine the true deficiency and we are not justified in disturbing the respondent’s determination. Cf. Yost Furniture Co., 5 B. T. A. 652.
All other issues and matters in controversy have been eliminated by the stipulation of the parties as to proper computations of net income under the method followed by the respondent in the deficiency notice. These computations have been set out in the findings of fact, and accordingly we hold that for 1919, 1920, and 1921 the net income subject to normal tax is $40,499.25, $51,332.04, and $30,492.65, respectively, and the net income subject to surtax is $40,676.95, $51,827.46, and $31,133.53, respectively.
Reviewed by the Board.
Judgment will be entered under Bule 50.
There can be no doubt that the Board may require a taxpayer to establish in the first instance not only that it is entitled to compute its income upon an installment sales basis and that its books are kept in such a manner that its income can be computed on