Jackson Casket & Manufacturing Co. v. Commissioner of Internal Revenue, Docket No. 5610.

• Citation: 7 BTA 1190
• Decision Date: 01 September 1927
• Docket Number: Docket No. 5610.
• Parties: JACKSON CASKET & MANUFACTURING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

7 B.T.A. 1190 (1927)

JACKSON CASKET & MANUFACTURING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 5610.

Board of Tax Appeals.

Promulgated September 1, 1927.

Garner W. Green, Esq., for the petitioner.

W. F. Wattles, Esq., for the respondent.

This proceeding seeks the redetermination of a deficiency of $14,780.44 in income and profits taxes for 1918, and alleges that the respondent's determination is based upon the following errors: (1) Addition to income of $12,515.53 set aside as a reserve for cash discounts and freight allowances; and (2) refusal to grant special assessment under the provisions of section 328 of the Revenue Act of 1918.

FINDINGS OF FACT.

Petitioner, a Mississippi corporation with its principal office at Jackson, was, during the year in issue, engaged in manufacturing and selling caskets for burial purposes.

Goods were billed to purchasers on the basis of a cash discount if paid within 30 days, freight charges paid by purchasers to be deducted from invoice prices in making remittances.

It has been the petitioner's accounting practice, at least since 1910, to set aside at the close of each month, as a reserve, a percentage of the sales made during the month to cover the cash discounts and freight allowances on those sales. The percentage set aside as a reserve for cash discounts and freight allowances was uniform throughout the year, but varied as between years, and it was determined upon the basis of past experience. As allowances for cash discounts and freight charges were made to customers, the amounts thereof were charged against the reserve. On several occasions the balance in the account at the close of the year was deemed to be in excess of that required to cover allowances which would be made in respect of the sales of that year, in which event the excess was charged against the reserve and credited back to profit and loss. As to this accounting practice, petitioner's books of account show the following:

                -------------------------------------------------------------------------------------------
                                 |              |    Gross    |   Credited   |               |  Percentage
                                 |              | amount set  |    back to   |   Net amount  |   of sales
                      Year       | Total sales  |   aside to  |  profit and  |    set aside  | represented
                                 |              |   reserve   |     loss     |  to reserve   |   by net
                                 |              |             |              |               |    reserve
                -----------------|--------------|-------------|--------------|---------------|-------------
                1911 ___________ |  $154,524.75 |  $25,798.72 | ____________ |    $25,798.72 |        16.7
                1912 ___________ |   151,518.65 |   22,731.20 | ____________ |     22,731.20 |        15.0
                1913 ___________ |   144,608.92 |   21,687.57 |    $3,438.45 |     18,249.12 |        12.6
                1914 ___________ |   139,468.93 |   20,915.85 |       768.27 |     20,147.58 |        14.5
                1915 ___________ |   139,300.33 |   20,996.78 |     3,944.17 |     17,052.61 |        12.2
                1916 ___________ |   162,319.73 |   19,480.56 |     1,108.75 |     18,371.81 |        11.3
                1917 ___________ |   227,749.15 |   27,329.55 |     3,064.42 |     24,265.13 |        10.6
                                 |--------------|-------------|--------------|---------------|-------------
                                 | 1,119,490.46 |  158,940.23 |    12,324.06 |    146,616.17 |        13.1
                1918 ___________ |   354,885.19 |   43,604.23 | ____________ |     43,604.23 |        12.3
                1919 ___________ |   370,557.41 |   21,902.58 | ____________ |     21,902.58 |         5.9
                1920 ___________ |   314,239.54 |   18,187.08 | ____________ |     18,187.08 |         6.0
                1921 ___________ |   230,175.21 |   14,508.12 | ____________ |     14,508.12 |         6.3
                                 |--------------|-------------|--------------|---------------|-------------
                                 | 1,269,857.35 |   98,202.01 | ____________ |     98,202.01 |         7.7
                -------------------------------------------------------------------------------------------
                

                --------------------------------------------------------------------------------------------
                                         |             |             |            |            |  Percentage
                                         |  Discount   | Percentage  |  Accounts  |  Amount of | of accounts
                                         | and freight |  of sales   | receivable | reserve at | receivable
                          Year           | allowances  | represented |  at close  |  close of  |  in reserve
                                         |  actually   |  by actual  |  of year   |    year    |  at close
                                         |    made     | allowances  |            |            |   of year
                -------------------------|-------------|-------------|------------|------------|------------
                1910 ___________________ | ___________ | ___________ | $23,795.14 | $1,764.59  |         7.4
                1911 ___________________ |  $20,658.09 |       13.3  |  32,207.70 |  6,905.22  |        21.5
                1912 ___________________ |   21,797.24 |       14.4  |  35,717.82 |  7,838,48  |        22.3
                1913 ___________________ |   21,507.08 |       14.8  |  31,895.26 |  4,580.52  |        14.3
                1914 ___________________ |   19,063.01 |       13.7  |  35,797.81 |  5,665.09  |        15.8
                1915 ___________________ |   17,052.61 |       12.2  |

...