E. B. Ficklen Tobacco Co. v. Commissioner

OPINION.

Phillips:

Petitioner claims that during the taxable year there were abnormalities affecting both its capital and income which bring it within section 327 of the Revenue Act of 1918 and entitled it to a computation of its tax under section 328 of the statute. Several abnormalities are urged. Eighty per cent of the income was from commissions, representing a personal service in which invested capital played only a minor part. The invested capital was only a small part of the total capital used in the business. The money borrowed was secured only after the .two officers, and in some cases others, had endorsed the notes' individually, thereby risking a further part of their private resources in the business. Substantial profits were derived from joint ventures with others, operated solely on borrowed capital. The petitioner was not in existence in one or more of the prewar years and the profits credits have been computed without the benefit of the income and invested capital of the prewar years. While no one of these standing aíone might be sufficient to constitute an abnormality, we are of the opinion that the combination is such as to overcome any contention that the income was due to a high rate of profit on a normal invested capital and is such as to establish abnormalities affecting the income and capital of the petitioner.

The deficiency will be redetermined wider Rule 62(c) of the Board and decision entered accordingly.