Preuss v. Commissioner

ELLA A. PREUSS, EXECUTRIX, ESTATE OF GUSTAV A. PREUSS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

JOHN H. JEWETT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Preuss v. Commissioner

Docket Nos. 8737, 8738.

United States Board of Tax Appeals

20 B.T.A. 447; 1930 BTA LEXIS 2125;

July 31, 1930, Promulgated

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Valuation of inventory of dry egg albumen and dry egg granulated yolk determined.

Lawrence A. Baker, Esq., and Henry Ravenel, Esq., for the petitioners.

Ralph N. Scott, Esq., and Edwin M. Niess, Esq., for the respondent.

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TRAMMELL

These proceedings involve deficiencies for 1919 in the amounts of $7,593.38, Docket No. 8737, and $7,431.13, Docket No. 8738. The two proceedings were consolidated for the purpose of hearing and decision.

The questions involved are the same, to wit, the value of the inventory of egg products as of December 31, 1919, and the proper division of the partnership income of Hadden & Co.

At the hearing, the death of Gustav A. Preuss being suggested, a substitution was made of Ella A. Preuss, Executrix, as petitioner in his stead.

FINDINGS OF FACT.

John H. Jewett is a resident of Plainfield, N.J. Ella A. Preuss is executrix under the last will and testament of Gustav A. Preuss, and is a resident of Brooklyn, N.Y.

In 1915 a partnership known as Hadden & Co. existed and did business in New York City as importers of various products from foreign countries, said partnership consisting of Harold Hadden, Gustav A. Preuss, and John H. Jewett, each individual having a one-third interest therein. In 1917 Hadden joined the Army and withdrew from the partnership, leaving his capital investment therein as a loan, on which interest was guaranteed and paid by Preuss and Jewett, who continued to carry on the business of the partnership, each having a one-half interest therein.

In 1919 Hadden left the Army and rejoined Jewett and Preuss in business about June 1, 1919, but in rejoining the partnership accepted no responsibility with regard to any transactions entered into in his absence. From June 1, 1919, all new business was transacted by the firm of Hadden & Co., a copartnership consisting of the three named individuals, whereas as to transactions which had been entered into prior to that date, they were concluded and carried on by Jewett and Preuss on a partnership basis of one-half each.

Prior to June 1, 1919, Jewett and Preuss, as partners, had ordered from China certain quantities of egg albumen and spray egg yolk. These products arrived in New York in October or November of 1919, but upon their arrival it was discovered that instead of getting spray egg yolk they had received granular egg yolk. Since the perfection of spray egg yolk, granular egg yolk has not had the market or demand that it previously had. The egg albumen in form consited of flakes or crystals which were very fragile, and although the practice among the importers of that product permitted "siftings" to the extent of 20 per cent without materially reducing the value of the product, the albumen which was received by the petitioners herein was discovered to have "siftings" to the extent of 30 per cent. If the "siftings" did not exceed 20 per cent, the product was considered of prime quality.

Upon receipt of the yolk and albumen in October of November, 1919, Jewett and Preuss, through their own efforts and through brokers, attempted to make sale of it but found that, excepting a small quantity of the yolk which was sold for experimental purposes, it was not marketable and the trade generally was not receptive to their albumen, because of its inferior quality.

The following table shows the amounts of egg albumen and yolk held by Jewett and Preuss on December 31, 1919, with the cost thereof and the value allowed by the respondent therefor in computing the deficiencies claimed for 1919.

HADDEN & CO.
Memorandum re items in inventory, December 31, 1919
				Value determined by
				Commissioner as of
				Dec. 31, 1919
	Total	Average	Cost per	Average	Total value
	pounds	cost per	item	per	per item
		pound		pound
A. Dry egg albumen	3,000	$1.12	$3,360.00	$1.15	$3,450.00
B. Dry egg albumen	22,400	1.30	29,120.00	1.19	26,656.00
C. Dry egg granulated yolk	44,800	.68	30,464.00	.40	17,920.00
D. Dry egg granulated yolk	33,600	.63	21,168.00	.40	13,440.00
Sundry charges			236.97
Total			84,348.97		61,466.00

OPINION.

TRAMMELL: The first question to be decided, in so far as the inventory is concerned, is whether the partnership consisted of three individuals, or only two, for the period here involved. We think that the evidence establishes the fact that in so far as the purchase of the material here involved was concerned, the partnership consisted of only Preuss and Jewett. Hadden, while coming into the partnership again in June, 1919, had a specific understanding and agreement that he would have no interest in any transactions entered into while he was not a partner and would have no interest in any profits or losses resulting from goods purchased during his absence by the partnership. The goods involved here were of that classification and any profit or loss resulting from their purchase and sale was attributable only to Jewett and Preuss. So far as this case is concerned, Hadden had no interest in them or in any profits or losses therefrom. We think, therefore, that this transaction, involving goods purchased while Hadden was not a partner, although on hand while he was a partner, should affect the tax liability of only Jewett and Preuss.

With respect to the value of the dry egg albumen and the dry egg granulated yolk, four witnesses testified. From all the testimony we are of the opinion that the albumen owned by the petitioners on December 31, 1919, had a value of 50 cents per pound, and that the granular yolk had a value of 20 cents per pound.

The testimony is not free from conflict. One witness testified that albumen was worth at the time involved from $1 to $1.25 per pound; another testified that it was worth from $1 to $1.10 per pound; another that it was worth from 35 cents to 40 cents per pound; and another that it was worth 50 cents per pound. The witnesses who testified, however, to the higher values of from $1 to $1.25 per pound apparently had in mind albumen of prime quality and referred to "siftings" not to exceed 20 per cent, whereas the albumen here involved had "siftings" as high as 30 per cent.

All the testimony discloses that the high percentage of "siftings" very materially affected value and we think, from all the testimony, considering the facts, the knowledge of the witnesses and their experience in such matters, that the valuation of 50 cents per pound more nearly reflects the true value of this particular product.

As to the granular yolk, we think that the testimony fairly supports the value of 20 cents per pound.

Judgment will be entered under Rule 50.