230 F.2d 722 (5th Cir. 1956), 15751, Schuessler v. C.I.R.

Docket Nº:15751.
Citation:230 F.2d 722
Party Name:E. W. SCHUESSLER and Aline Schuessler, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Case Date:March 14, 1956
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 722

230 F.2d 722 (5th Cir. 1956)

E. W. SCHUESSLER and Aline Schuessler, Petitioners,



No. 15751.

United States Court of Appeals, Fifth Circuit.

March 14, 1956

Page 723

D. H. Markstein, Jr., Kenneth R. Cain, Birmingham, Ala., for petitioners.

Melva M. Graney, Atty., Dept. of Justice, H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, A. F. Prescott, John J. Kelley, Jr., Attys., Dept. of Justice, John Potts Barnes, Chief Counsel, I.R.S., Vernon F. Weekley, Sp. Atty., Washington, D.C., for respondent.

Before BORAH, TUTTLE and JONES, Circuit Judges.

TUTTLE, Circuit Judge.

This is a petition for review of a decision by the Tax Court disallowing a deduction in 1946 of an item of $13, 300.00, representing a reserve set up by taxpayers while keeping their books on the accrual basis, to represent their estimated cost of carrying out a guarantee, given with each of the furnaces sold by them during the year, to turn the furnace on and off each year for five years.

The opinion of the Tax Court treats the matter as though ample proof was offered by the taxpayer (hereafter the husband will be called 'taxpayer') to raise the legal issue and we find the record warrants this treatment. Taxpayer was in the gas furnace business in 1946, during which he sold 665 furnaces, each with a guarantee that he would turn the furnace on and off each year for five years. The fact that such service, if performed, would cost $2.00 per call was amply established. The taxpayer, himself a bookkeeper and accountant prior to entering this business, testified to his keeping his books on the accrual method and claimed that the only way his income could be accurately reported was by charging against the cost of furnaces sold in 1946 the reserve representing the amount which he became legally liable to expend in subsequent years in connection with the sales. The proof was clear that he actually sold the furnaces for $20.00 to $25.00 more than his competitors because of his guarantee, which they did not give.

We think it quite clear that petitioner's method of accounting comes much closer to giving a correct picture of his income than would a system in which he sold equipment in one year and received an inflated price because he obligated himself, in effect, to refund part of it in services later but was required to report the total receipts as income on the high level of the sales year and take deductions on the low level of the service years. The reasonableness of taxpayer's action, however, is not the test if it runs counter to requirements of the statute.

We find that not only does it not offend any statutory requirement, but,

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in fact, we think it is in accord with the language and intent of the law. 1 Clearly what is sought by this statute is an accounting method that most accurately reflects the taxpayer's income on an annual accounting basis. 2


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