South Texas Lumber Co. v. Comm'r of Internal Revenue

Decision Date30 August 1946
Docket NumberDocket No. 10050.
Citation7 T.C. 669
PartiesSOUTH TEXAS LUMBER COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

Petitioner, a corporation which kept its books and filed its income and excess profits tax returns on the accrual basis, elected to compute and report the profit on installment sales of real estate made by it on the installment basis in accordance with section 44(b), I.R.C. Held, petitioner's anticipated and unreported income from installment sales as of the beginning of the years 1941, 1942, and 1943 is not includible as part of its ‘accumulated earnings and profits‘ in arriving at its equity invested capital within the meaning of section 718(a)(4), I.R.C. J. Arthur Platt, Esq., for the petitioner.

P. Louis Bergeron, Esq., for the respondent.

Petitioner seeks a redetermination of a deficiency in excess profits tax for the year 1943 in the original amount of $6,797.34, which amounts, however, has since been reduced by negotiations between the parties, leaving a net amount in controversy of $1,708.53.

The question involved is whether petitioner is entitled to include the anticipated and unreported profits from installment transactions outstanding on its books as at January 1, 1941, 1942, and 1943, as part of its surplus or ‘accumulated earnings and profits‘ in arriving at its equity invested capital within the meaning of section 718(a)(4) of the Internal Revenue Code.

FINDINGS OF FACT.

This case was submitted on the following agreed statement of facts:

1. South Texas Lumber Company, hereinafter referred to as petitioner, is a corporation organized on September 17, 1902, under the laws of the State of Texas, with its principal place of business as a retail dealer in lumber and building materials located in Houston, within the First Collection District of Texas.

2. Petitioner keeps its books and filed its income and excess profits tax returns on the calendar year and accrual basis.

3. During the course of its business, life petitioner acquired title to certain real estate situated in the State of Texas. Beginning with the taxable year 1937, petitioner has made sales of portions of such real estate and, in accordance with section 44(b) of the Internal Revenue Code, has elected to compute and report the profit thereon on the installment basis. In each of the transactions where petitioner made such real estate installment sales, deeds were given to purchasers, and the deferred payments were evidenced by promissory notes executed by the purchaser, payable to the order of petitioner as therein shown, and were secured by vendor's lien and mortgage lien against the land. Petitioner, being on the accrual basis of accounting, carried on its books as receivables all of the said installment obligations so received by it from such sales.

4. The books disclose the following with reference to such sales:

+-----------------------------------------------------------------------------+
                ¦       ¦         ¦Sales    ¦         ¦Per   ¦Reported       ¦Unreported      ¦
                ¦Name   ¦Cost     ¦Price    ¦Profit   ¦cent  ¦Profits        ¦Profits 12-31-40¦
                ¦       ¦         ¦         ¦         ¦      ¦1937-1940      ¦                ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦1937   ¦         ¦         ¦         ¦      ¦               ¦                ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Melton ¦         ¦$1,500.00¦$1,500.00¦100.00¦$877.31        ¦$622.69         ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Crowley¦$1,891.69¦3,750.00 ¦1,858.31 ¦49.555¦600.19         ¦1,258.12        ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Freitag¦806.87   ¦2,552.40 ¦1,745.53 ¦68.39 ¦1,186.84       ¦558.69          ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Lacas  ¦610.50   ¦1,931.20 ¦1,320.70 ¦68.39 ¦898.08         ¦422.62          ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Porter ¦796.63   ¦3,170.00 ¦2,373.37 ¦74.87 ¦1,749.96       ¦623.41          ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Arls   ¦826.97   ¦4,443.00 ¦3,616.03 ¦81.39 ¦2,151.07       ¦1,464.96        ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Towson ¦2,149.64 ¦8,250.00 ¦6,100.36 ¦73.94 ¦3,882.00       ¦2,218.36        ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Winn   ¦1,019.18 ¦3,224.00 ¦2,204.82 ¦68.39 ¦1,119.05       ¦1,085.77        ¦
                +-------+---------+---------+---------+------+---------------+----------------¦
                ¦Rosen  ¦3,561.88 ¦4,000.00 ¦438.12   ¦10.95 ¦151.35         ¦286.77          ¦
                +-----------------------------------------------------------------------------+
                
1938
                Speed   477.72   1,700.02 1,222.30 71.90 928.95   293.35
                Modglin 3,034.80 7,679.76 4,644.96 60.48 2,495.67 2,149.29
                
1941
                Jones  3,907.80   5,000.00   1,092.20   21.84
                Totals $19,083.68 $47,200.38 $28,116.70       $16,040.47 $10,984.03
                

5. At the time provided by law petitioner filed corporation income tax (Form 1120) and corporation excess profits tax (Form 1121) returns for the calendar years 1941, 1942 and 1943, disclosing the net income and income taxes due thereon for the three years and excess profits tax for the calendar year 1943. In arriving at the net income for the said three years, petitioner reported the following realized profits on the installment sales previously referred...

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  • Latham Park Manor, Inc. v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • November 9, 1977
    ...except for weighty reasons. Commissioner v. South Texas Co., 333 U.S. 496, 501 (1948), revg. 162 F.2d 866 (5th Cir. 1947), revg. 7 T.C. 669 (1946); see also Fawcus Machine Co. v. United States, 282 U.S. 375, 378 (1931). The Court's task is not to sit as a committee to revise or perfect the ......
  • Tilford v. Comm'r of Internal Revenue , Docket No. 1334-77.
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    • October 20, 1980
    ...except for weighty reasons. Commissioner v. South Texas Lumber Co., 333 U.S. 496 (1948), revg. 162 F.2d 866 (5th Cir. 1947), revg. 7 T.C. 669 (1946). Ordinarily, regulations must be sustained unless they are unreasonable and plainly inconsistent with the revenue statute. Topps of Canada, Lt......
  • Commissioner of Internal Revenue v. South Texas Lumber Co
    • United States
    • U.S. Supreme Court
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    ...the tax for 1943 after eliminating this item from 'invested capital.' The Tax Court sustained the Commissioner's redetermination, 7 T.C. 669, relying on its opinion in Kimbrell's Home Furnishings, Inc., v. Commissioner, 7 T.C. 339.5 The Circuit Court of Appeals, 5 Cir., 162 F.2d 866, with o......
  • Hart Furniture Co.  v. Comm'r of Internal Revenue
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    ...Kimbrell's Home Furnishings, Inc., 7 T.C. 339; reversed, 159 Fed.(2d) 608; J. L. Goodman Furniture Co., 11 T.C. 530. Cf. South Texas Lumber Co., 7 T.C. 669; reversed, 162 Fed.(2d) 866; the Supreme Court ultimately affirmed the Tax Court, in Commissioner v. South Texas Lumber Co., 333 U.S; 4......
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