DocketNumber： Docket No. 16049.
Citation Numbers： 11 B.T.A. 303, 1928 BTA LEXIS 3832
Judges： Love
Filed Date： 3/29/1928
Status： Precedential
Modified Date： 10/19/2024
*3832 Under the facts in this case no such abnormal conditions as contemplated by the provisions of section 327 of the Revenue Act of 1918 existed which entitle petitioner to special assessment as provided in section 328.
*303 This proceeding is for the redetermination of a deficiency for the year 1919 in the amount of $4,571.78.
The only question at issue is whether or not, under the facts of the case, petitioner is entitled to special assessment for 1919 under the provisions of section 328 of the Revenue Act of 1918.
FINDINGS OF FACT.
Petitioner is a corporation organized under the laws of Texas in 1907, with a capital stock of $40,000 par value, later increased to $60,000, and later to $100,000, the latter amount being the amount outstanding in 1919.
The business of the corporation was and is the manufacture of furniture. The following facts were stipulated and we accept the same as true.
The invested capital in 1919 was $176,048.93. The net income in 1919 was $61,619.75. The percentage of income, compared with invested capital for five years, *3833 was as follows:
| 1917 | 19.04 |
| 1918 | 18.09 |
| 1919 | 41.21 |
| 1920 | 1.99 |
| 1921 | loss 8.57 |
*304 The net sales in 1919 were 241.19 per cent of the invested capital. For other years, said percentages were as follows:
| 1917 | 181.23 |
| 1918 | 169.01 |
| 1920 | 132.95 |
| 1921 | 81.47 |
The amount of money borrowed was:
| 1917 | $143,000 |
| 1918 | 201,000 |
| 1919 | 226,000 |
| 1920 | 347,000 |
| 1921 | 150,000 |
For the year 1919, officers' salaries were:
| Vice president and general manager | $3,000 |
| Secretary and treasurer | 1,800 |
The turnover of goods for the several years is shown as follows:
| Opening inventory | $72,042 |
| Purchases during year | 171,087 |
| Closing inventory | 107,539 |
| Opening inventory | 107,539 |
| Purchases during year | 148,237 |
| Closing inventory | 131,578 |
| Opening inventory | 131,578 |
| Purchases during year | 288,676 |
| Closing inventory | 143,534 |
| Opening inventory | 143,534 |
| Purchases during year | 290,818 |
| Closing inventory | 227,311 |
| Opening inventory | 227,311 |
| Purchases during year | 65,938 |
| Closing inventory | 159,480 |
The principal raw material used by petitioner*3834 was lumber. Prior to 1918, that material cost petitioner from $22.50 to $27.50 per thousand feet. In 1918 the price of lumber rose as high as $140 per thousand feet. At the beginning of such rise in price, the petitioner's yards were full of the low-priced lumber. In 1919, while the amount of lumber purchased was less than normal, the total amount paid therefor was more than the usual amount paid for lumber per annum. The low-priced lumber went into its products.
*305 OPINION.
LOVE: The only question at issue in this case is whether or not petitioner is entitled to have its taxes computed for the year 1919 under the provisions of section 328 of the Revenue Act of 1918. In order to entitle a taxpayer to the benefits of section 328 it must meet the requirements of section 327 of the same Act. The pertinent part of section 327 is:
(d) Where upon application by the corporation the Commissioner finds and so declares of record that the tax if determined without benefit of this section would, owing to abnormal conditions affecting the capital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax*3835 computed without benefit of this section and the tax computed by reference to the representative corporations specified in section 328. This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital * * *.
The question to be answered is whether or not the tax, if determined without the benefit of this section, owing to abnormal conditions affecting the capital or income of the corporation, works upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without the benefit of this section and the tax computed by reference to the representative corporations specified in section 328, that is, corporations engaged in a like or similar trade or business.
There is no evidence in the record in regard to other corporations engaged in a like or similar trade or business. We are not informed whether or not there are such corporations in the vicinity where petitioner is located.
In order to present a panoramic view of the trend of petitioner's business operations, we submit*3836 the following comparative data embracing five years of operations, including the taxable year: