Long Beach Improv. Co. v. Commissioner

1926 BTA LEXIS 2830 | B.T.A. | 1926

Lead Opinion

OPINION.

Morris:

It was stipulated that the petitioner had a deficit at the beginning of 1919 which was reduced by a profit for that year and further reduced at the close of 1920 by the profit realized in that year. It contends, however, that such profit is not net income as it can have no net income while there is an operating deficit and that the gain realized in 1920 can not be construed other than as a return of capital. Although it was stipulated that the net income for the taxable year in question was $17,247.63, the petitioner contends in its brief that the reduction of the deficit existing at the close of 1919 eliminates any possibility of net income and that the use of the words “ gain, net gain, profit, net profit ” mean something entirely different, when applied to a corporation, than net income.

Section 232 of the Revenue Act of 1918 provides that in the case of a corporation, net income means the gross income as defined in section 233, less the deductions allowed by section 234, and that the net income shall be computed on the same basis as provided in subdivision (b) of section 212. This subdivision provides for the computation of the net income on the basis of the taxpayer’s annual accounting period, which in the instant case is the calendar year. It therefore follows that the petitioner’s gross income for 1920, less the deductions authorized by law, is its net income for that year and such net income is subject to tax under section 230, unless the organization is exempt from taxation under section 231, a question which is not in issue. Petitioner offered no evidence that the net income as adjusted by the Commissioner is incorrect. The Commissioner’s determination must therefore be approved.

Judgment will he entered for the Commissioner.