1931 BTA LEXIS 2064 | B.T.A. | 1931
Lead Opinion
The respondent having determined an overassessment for 1921 in the case of both petitioners, the Board is without jurisdiction to determine any issue raised for that year. Cornelius Cotton Mills, 4 B. T. A. 255. Accordingly, the petition, so far as it relates to 1921, is dismissed.
The petitioners contend that in computing the income of the partnership from the Northville and Oakland Hills jobs, the full amount of $90,000 set aside as a “ Reserve for Overrun ” should be allowed as an offset against the fees received on those jobs; or, in the alternative, that the income of the partnership from the Northville and Oakland Hills jobs should be redetermined on the completed contract basis, in accordance with article 36 of Regulations 45. The respondent contends that a portion of the reserve represents a contingent liability which can not properly be taken into consideration in computing the income of the partnership. The respondent makes no defense to the petitioners’ alternative contention.
We omit consideration of the first contention advanced by the petitioners to consider the alternative one, because we believe that
Except for the Northville and Oakland Hills jobs, the accounting for all contract operations of the partnership was made on the completed-contract basis. It was not the intention of the partners that the accounting for the Northville and Oakland Hills jobs should differ, in any respect, from the method followed as to all other jobs; on the contrary, it was their wish, expressly communicated to the bookkeeper, that the accounting for the gains or losses on these two jobs should conform with the accounting practice as to all other jobs. Technically, it did not so conform, because there was an accounting made for the fees, as gains, prior to the completion of the contracts; but the reason for this, according to the bookkeeper’s testimony, was his lack of experience and of knowledge of what was required in the way of book entries, considering the peculiar compensation provisions of the two contracts. He had never before made an accounting for operations carried on under contracts which contained similar provisions as to guaranteed maximum costs and reduced fees in the event such guaranteed costs were exceeded. He believed, when he set up the “ Reserve for Overrun ” of $90,000 to take care of the estimated deductions which would be made from the fees provided in the two contracts on account of exceeding the guaranteed costs, that the accounting for those jobs conformed with the method otherwise used in keeping the books. In that he was mistaken. But his error, due to inexperience, can not alter the accounting method otherwise regularly emplo^^ed in keeping the partnership books.
The partnership having kept its books upon the completed-contract basis, the statute requires that its net income shall be computed upon the same basis. On this basis, gains and losses derived from long-
Judgment will i>e entered under Rule 50.