Fincannon v. Comm'r of Internal Revenue, Docket No. 109881.

• Decision Date: 25 June 1943
• Docket Number: Docket No. 109881.
• Citation: 2 T.C. 216
• Parties: BERRYMAN D. FINCANNON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

2 T.C. 216

BERRYMAN D. FINCANNON, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 109881.

Tax Court of the United States.

Promulgated June 25, 1943.

The petitioner kept his individual accounts on a cash basis. He owned individually a school book depository business, the books of which were kept upon the same accrual basis which had for several years been followed by a corporation from whom the petitioner took over the business. Held, income from the school book depository business must be reported upon an accrual basis. Robert R. Milam, Esq., for the petitioner.

J. Marvin Kelley, Esq., for the respondent.

OPINION.

DISNEY, Judge:

This case involves income tax for the calendar year 1937. A deficiency of $9,755.55 was determined. The question presented it as to the proper year in which there should be taxed to the petitioner certain commissions, which in turn depends upon whether he is upon the cash basis or an accrual basis of accounting as to such income.

The facts may be briefly stated: The income tax return for the taxable year was filed with the collector for the district of Florida at Jacksonville, Florida. The Florida School-Book Depository, Inc., a corporation of which the petitioner was the dominant stockholder, was from about 1917 and until June 1937 engaged in the business of representing various publishers of school books and the distribution of their products in the State of Florida. It rendered its income tax returns upon an accrual basis. It had a large number of contracts with various publishers, the gist of which contracts was that the corporation should receive from the publishers, store, and distribute school books throughout Florida, collect from the state therefor, allow the state a 10 percent discount, retain 10 percent as its commission, and remit the balance to the publishers. After 1925 there was a free textbook law in Florida and from and including 1937 about 90 percent of the business was with the State of Florida. The corporation took no title to the books which were charged to, warehoused by, and distributed by it, but received them upon consignment, and title passed to the state when delivered to it. The books were carried on the records of the corporation as consigned inventory, and accounts receivable were set up showing the amounts owing by the state to the publishers. The corporation collected for the publishers.

In June 1937 petitioner took over the business from the corporation and thereafter during 1937 the business was continued as before. During that year and after petitioner took over the business there were delivered to the state school books of such sales price as to result in a commission of $25,139.87. Collection for such books was not made in 1937 because the state did not have sufficient money with which to pay. The books were paid for in 1938 and in that year the petitioner received the commissions. The petitioner was not entitled to his commissions until he had made collection from the state for the publishers, after delivery of the books. At the end of the year 1937 petitioner had, with respect to the school books, the duty of collecting for them, placing the money in a trust fund in a local bank for the publishers, and distributing the money to the publishers. All of his other duties under his contracts had been performed.

The petitioner, prior to the time of his taking over the business from the corporation, made his returns on a cash basis. The business taken over involved the use of inventories of consigned books, accounts receivable by the publishers, and accounts payable. The contracts of the publishers required use of an accrual basis of accounting. The petitioner handled other books aside from those sold to the state and such books were not handled on the consigned-inventory basis.

Prior to June 1937 petitioner's income from the school book business was by way of salary and dividends from the corporation.

The petitioner reported the commissions of $25,139.87 as income in 1938, and contends that he was on the cash basis of accounting, permitting the return thereof in that year. The respondent contends that his basis was an accrual system of accounting and that return of the commissions should have been made in the year 1937. The Commissioner gave credit to the petitioner in the year 1938 for the commissions and determined an overassessment of $6,630.54 for that year.

In Georgia School-Book Depository, Inc., 1 T.C. 463, we had occasion to examine a situation involving essentially the same pertinent facts as here involved, that is, involving the income of a representative of school book publishers receiving a percentage commission for acting as a depository for, and distributor of, school books. Therein, as here, the petitioner had no title to the school books, and payment was owed by the state directly to the publishers, though collected by the petitioner. Also,...