DocketNumber： Docket No. 4509.
Citation Numbers： 10 B.T.A. 1378, 1928 BTA LEXIS 3884
Judges： Littleton
Filed Date： 3/15/1928
Status： Precedential
Modified Date： 10/19/2024
*3884 The Commissioner's determination in respect of petitioner's closing inventory for 1918 approved for lack of sufficient evidence to show error.
*1378 This is an appeal from the determination by respondent of a deficiency in income and profits taxes for 1918 in the amount of $2,297.38. Only one issue is raised by the pleadings - the value of petitioner's salmon inventory on the basis of cost at December 31, 1917.
FINDINGS OF FACT.
Petitioner is a Washington corporation with its principal office at Seattle, and, prior to 1918, was engaged in the salmon-packing business at Richardson, Wash.
During 1917 petitioner packed 17,994 cases of salmon and during that year sold 12,960 cases. On December 31, 1917, it had on hand 5,012 cases which had been packed during 1917 and which were entered on the books at the value of $28,900.55, which purported to be cost. The 5,012 cases were sold during 1918 for $44,347.27.
*1379 The ledger of the petitioner shows the following cost of packing salmon for 1917:
| Fish acct. | $119,421.63 |
| Miscl costs | 9,860.79 |
| White labor | 7,969.29 |
| Cool. House exp | 1,075.85 |
| Laundry & Sco. exp | 5,783.89 |
| Bonus to fishermen | 1,100.00 |
| Fares to Philippines | 182.00 |
| Canning supplies | 5,278.10 |
| Nets | $376.70 |
| Labeling | 217.33 |
| Water | 44.00 |
| Tools lost | 87.34 |
| Taxes | 242.75 |
| 151,639.67 |
*3885 The petitioner and the Hidden Inlet Canning Co. of Alaska filed a consolidated return for 1918 in which the income of the petitioner was shown in the following computation:
| Sales | $44,794.64 | |
| Cost of sales - Inventory | 28,900.55 | |
| 15,894.09 | ||
| Other income | 778.31 | |
| Total | 16,672.40 | |
| Deductions: | ||
| Freight out | $310.73 | |
| Interest | 816.19 | |
| Taxes | 1,249.09 | |
| Bad debts | 1,676.81 | |
| Depreciation | 3,000.00 | |
| Total deductions | 7,052.82 | |
| Net income | 9,619.58 |
The opening inventory of $28,900.55 shown above was likewise used as the closing inventory in the return as filed on a consolidated basis for 1917. The closing inventory of the Alaska Company as shown in this return was $25,468.08.
The return for 1918 on a consolidated basis was rejected by the respondent and petitioner's tax liability determined upon the basis of its separate income and invested capital. In this determination, respondent used an opening inventory in the amount of $28,900.55.
The salmon used by petitioner were for the most part obtained from fishermen and fur traders at an approximate cost of 35 cents each. The salmon used by the Alaska Company were either purchased or caught at a*3886 cost of from 3 to 5 cents each. Approximately 15 fish are required to pack one case. The cost of packing a case of salmon in Washington was much in excess of the cost in Alaska.
OPINION.
LITTLETON: The sole issue raised by the pleadings is the cost of petitioner's opening inventory which consisted of 5,012 cases of *1380 salmon, all of which were packed during 1917. Respondent, in computing income for 1918, used the cost value reported as the closing inventory in a consolidated return for 1917. This inventory was likewise used by the petitioner as the opening inventory in a consolidated return filed for 1918. Upon denial of an affiliated status for 1918 respondent used the inventory valuation pertaining to the petitioner as contained therein in determining petitioner's income on a separate basis. Petitioner contends that the inventory used in the consolidated returns and accepted by the respondent is not correct in that this inventory does not reflect the true cost of its inventory on the separate basis on which it is required to report its income.
The issue presented is one of fact, namely, what did it cost petitioner to pack the 5,012 cases of salmon which it*3887 had on hand on January 1, 1918? The cost valuation for which the petitioner contends is based upon the total costs for 1917, which appear on petitioner's ledger and which are set out in our findings of fact. The books were not introduced in evidence nor was the bookkeeper available who made the foregoing entries and took the inventory in question. While the items making up this total cost appear for the most part to represent costs which would ordinarily be properly applicable to the cost of packing salmon, no evidence was introduced as to the nature of these items beyond the names appearing on the ledger, except in the case of the "Fish acct." as to which an accountant, who had made a recent examination of the books, testified that it represented cost of raw fish and labor, but there was nothing to show that he had any knowledge of the account, other than that which would be obtained from an examination of the petitioner's books.
The only witness whose testimony might be considered competent for establishing the costs in question was an officer of the petitioner, but his testimony was so general that it could not be accepted for more than indicating that the respondent's cost*3888 valuation was too low. From his testimony, it appears that the cost of salmon in Alaska was much less than in Washington, and from this and other evidence in the case, the inference might be drawn that the low valuation of which the petitioner complains was obtained from a combination of the costs of the Alaska Company and the petitioner, who together filed a consolidated return for 1918, but the evidence is insufficient to justify a finding to this effect.
In view of the unsatisfactory character of the evidence presented, the Board is of the opinion that the respondent's determination must be sustained. To find the cost valuation claimed by the petitioner, or a valuation in any amount, would represent a finding based on incompetent *1381 and insufficient evidence, or an estimate based upon inferences which may, or may not, be justified.
Reviewed by the Board.