DocketNumber： Docket No. 1120.
Judges： Lansdon, Graupner, Smith, Littleton
Filed Date： 3/16/1925
Status： Precedential
Modified Date： 11/2/2024
*772 Before GRAUPNER, LANSDON, LITTLETON, and SMITH.
FINDINGS OF FACT.
After an examination by a revenue agent of the taxpayer's accounts and records, the Commissioner has determined an overassessment of income tax for the year 1919 of $186.36, and deficiencies in tax for the years 1920 and 1921 of $355.77 and $543.80, respectively, or a net deficiency for the three years of $713.21. The revenue agent found that the taxpayer had no accurate books of account and the net income shown by him was verified by bank deposits and expenditures shown by canceled checks.
During 1919 and 1920 the taxpayer was engaged as a sole proprietor in the manufacture and sale of ice cream. This business was sold in the early part of 1921 to the Imperial Ice Cream Co. and from the date of sale until some time in July the taxpayer was not engaged in any business. About July 15, 1921, the taxpayer and W. E. Hartley organized the Marion Bag & Paper Co., a partnership.
The net income of the taxpayer, as disclosed by his income-tax return for the calendar year 1920, was $8,144.15. *2811 To this amount the revenue agent added $3,283.95. This was due to the disallowance of deductions as follows:
| Salaries and wages | $84.37 |
| Depreciation | 932.62 |
| Other expense | 2,266.96 |
The taxpayer filed no income-tax return for 1921, as he did not consider that any profit had been made upon the sale of his business and he had less income from other sources than the amount of the exemption to which he was entitled. The revenue agent computed his total net income at $10,415.04. Included in the gross income is a profit of $5,025.43 from the sale of the taxpayer's business to the Imperial Ice Cream Co. and $5,556.63 from the conduct of the ice cream business. The taxpayer's books of account were kept upon a receipts and disbursements basis, and during the year 1921 the taxpayer collected outstanding accounts from the sales of ice cream in 1920 of $10,322.14 and paid during the year bills appertaining to the ice cream business in the amount of $4,765.51. The difference between these items was found by the revenue agent to represent income liable to tax.
The profit of $5,025.43 from the sale of the ice cream business was computed as follows:
Business sold to Imperial*2812 Ice Cream Co., of Fairmont, W. Va., January 1, 1921:
| Sale price | $14,000.00 | |
| Investment Jan. 1, 1918 | $12,400.00 | |
| Additional investment in 1918 | 350.00 | |
| Additional investment in 1919 | 2,492.79 | |
| Additional investment in 1920 | 2,471.18 | |
| Total investment | 17,713.97 | |
| Less depreciation | 8,739.40 | |
| 8,974.57 | ||
| Net profit | 5,025.43 |
*773 The ice cream business was acquired in February, 1913, at a cost of $3,000, and during the same year $2,000 was expended for additional equipment. In December, 1917, a competitor's business was purchased for $10,000. The revenue agent found that the depreciated cost of plant and equipment at January 1, 1918, was $12,400. The taxpayer claimed depreciation on plant and equipment in his income-tax returns for 1918, 1919, and 1920 of $8,739.40.
DECISION.
The Board discovers no errors in the computations of the Commissioner resulting in a net deficiency in income tax for the years 1919, 1920, and 1921, of $713.21. His determination of the net deficiency is, therefore, approved.