Appeal of Morrison-Ricker Manufacturing Co. , 2 B.T.A. 1008 ( 1925 )

OPINION.

Littleton:

The taxpayer contends that the Commissioner erred: (1) In reducing the deduction claimed in each of the years on account of accrued commissions; (2) in adjusting the deductions claimed in each of the years as accrued advertising expense; and (3) in disallowing a deduction of $30,496.58 set up as a reserve estimated to cover (he sales price of goods shipped in November, 1918, which it anticipated would eventually be returned on account of late delivery.

As to the first issue, it appears that the taxpayer employed salesmen on a commission varying from 8 to 10 per cent of the gross selling price, according to the class of goods for which orders were received. The contracts of employment provided that, upon the receipt of orders, two-thirds of the selling commission should either be paid to the salesman responsible for the order, or credited directly to his commission account, the balance of the commission to be paid to him or credited to his account when the goods were actually shipped. Instead of crediting the salesmen with the actual accrued commission, there was credited at the end of each .month to the “Accrued Commissions ” account an amount representing 10 per cent of the total sales price of goods shipped during the month. In its return for each of the years 1917 to 1920, inclusive, the total amount so credited during each of these years was deducted from gross income. Upon audit of the returns the Commissioner determined that the deduction for each of the years exceeded the actual accrued commissions and reduced the deductions by the amounts set forth in the findings of fact. No evidence has been submitted upon which we can base a conclusion that the Commissioner’s determination of the amount of salesmen’s commissions which had actually accrued each year is erroneous, and his determination is, therefore, approved.

With reference to the second issue, it appears that the taxpayer inaugurated an advertising campaign extending over the years here involved, and placed with various publications orders for advertising space. To take care of the expense incurred or‘to be incurred, it set up an account known as “Advertising Reserve,” to which was credited monthly an amount equivalent to 4 per cent of the sales price of all orders shipped during the month, and the total amount so credited during each of the fiscal years was claimed as a deduction from gross income without regard to the actual amount which had accrued for advertising during the year. The Commissioner determined that the deductions claimed in the returns for 1937 and 1918 for advertising exceeded the amounts actually incurred by $14,589.64 and $10,867.07, respectively, and that the deductions claimed in the returns for 1919 and 1920 were less than the expense actually incurred in those years by the amounts of $389.59 and $32,771.15, respectively, and adjusted the net income accordingly. The evidence shows that the amount of advertising expense paid or incurred in each of the years was capable of definite determination, but no evidence has been submitted showing that the Commissioner erred in his determination of the actual amounts incurred for each of the years, and his determination is, therefore, approved.

The third issue relates to the right of the taxpayer to deduct in the year 1918 $30,496.58, estimated to be the sales value of goods which it anticipated would eventually be returned on account of late delivery. The evidence shows that none of the goods were returned during the fiscal year ended November 30, 1918. The goods were shipped just before the close of the fiscal year, and at the end of the year taxpayer had no information that any of the goods would be returned. The Commissioner correctly disallowed the deduction for 1918. Appeal of William J. Ostheimer, 1 B. T. A. 18; Appeal of Consolidated Asphalt Co., 1 B. T. A. 79; Appeal of Uvalde Co., 1 B. T. A. 932.