J. C. Nichols Realty Co. v. Commissioner

J. C. NICHOLS REALTY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

J. C. Nichols Realty Co. v. Commissioner

Docket No. 30160.

United States Board of Tax Appeals

20 B.T.A. 402; 1930 BTA LEXIS 2130;

July 30, 1930, Promulgated

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Held that the petitioner changed its method of reporting income to the installment basis by an original return for 1920, and that respondent correctly included in income for 1922 payments received in that year on account of installment sales made in 1920 and 1921.

Perry W. Shrader, Esq., for the petitioner.

George S. Herr, Esq., for the respondent.

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LANSDON

This is a proceeding for the redetermination of a deficiency in income tax asserted by the respondent for 1922 in the amount of $801.20. While the pleadings set forth eight assignments of error, seven of them relate to the single question of whether the respondent correctly included in income the sum of $7,749.77, representing profits realized through collections made during the year on installment sales of 1920 and 1921. The other assignment of error charges the respondent with having erroneously included in income the sum of $2,454.89, representing "profit realized from forfeited sales made in 1921." As to this latter assignment, the respondent, in an amended answer, admits error.

FINDINGS OF FACT.

Petitioner, a Missouri corporation with its principal office at Kansas City, is engaged in the development, building and sale of residential and business property in Kansas City.

The petitioner's books of account have always been kept on the accrual basis, and the net income reported in its income-tax returns for all years to and including 1919, has been computed on the same basis.

In computing net income in its returns for 1920, 1921, and 1922 the petitioner deducted the sums of $15,317.20, $984.03, and $4,384.26, respectively, representing unrealized profits on installment sales. It included in income for 1921 the sum of $4,021.04, representing profits collected in that year on 1920 installment sales, and in income for 1922 the sum of $2,561.39, representing profits collected in that year on installment sales of 1920 and 1921. Using figures applicable to 1920, the following statement shows the manner in which the petitioner computed the unrealized profits on installment sales of each year:

(a) Net income computed without deduction of unrealized
profits on installment sales	$26,206.18
(b) Gross sales in which initial payments exceeded 25%
of the contract prices	50,000.00
(c) Income from interest, rent, etc	$12,818.13
(d) Total	62,818.13
(e) Gross sales in which initial payments were less
than 25% of the contract prices	114,530.20
(f) Gross income from all sources	177,348.33
(g) Percentage of gross income represented by net
income, (a) divided by (f)	14.1%
(h) Payments received during the year on installment
sales shown in (e)	$15,145.45
(i) Percentage of installment sales paid during the
year, (h) divided by (e)	13.2%
(j) Net income from sources other than installment
sales, (d) multiplied by (g)	$8,857.35
(k) Net income from installment sales, (e) multiplied
by (i) multiplied by (g)	2,031.63
(l) Taxable net income, (j) plus (k)	10,888.98
(m) Unrealized profits on installment sales,
(a) minus (l)	$15,317.20

After an examination of the petitioner's books of account for 1920 and 1921 by a revenue agent, the respondent approved the returns as filed by the petitioner for those years.

The respondent redetermined the income from installment sales for 1922 in the following manner:

	1920	1921	1922
Total installment sales	$111,030.20	$48,028.94	$7,613.25
Cost of installment sales	71,717.83	29,499.60	3,575.00
Total profit to be realized	39,312.37	18,529.34	4,038.25
Total contract prices	101,030.20	48,028.94	7,613.25

	Payments	Ratio of total
	received	profit to total	Profit realized
	in 1922	contract price	in 1922
On 1920 installment sales	$ 8,831.25	39,312.37/
		101,030.20	$ 3,436.37
On 1921 installment sales	4,817.36	18,529.34/
		48,028.94	1,858.51
On 1922 installment sales	1,650.00	4,038.25/
		7,613.25	875.20
			6,170.08
Add: Forfeitures in 1922 of
payments made in 1921 on
installment sales of the
latter year			2,454.89
Total profits realized in 1922
from installment sales			8,624.97

In his amended answer, the respondent concedes that he erred in including in income for 1922 the sum of $2,454.89 shown above, representing forfeitures in that year of payments made in 1921 on installment sales of the latter year.

OPINION.

LANSDON: This case raises the same questions as in , decided this day; and, except for figures, the stipulated facts are the same in both cases. Accordingly, it is held that the respondent properly included in income for 1922 the payments received in that year on account of installment sales of 1920 and 1921.

In accordance with respondent's confession of error as to the other issue, the net income shown by the deficiency notice should be reduced by the sum of $2,454.89.

Judgment will be entered under Rule 50.