Burns v. Commissioner of Internal Revenue, Docket No. 4753
| Decision Date | 09 July 1928 |
| Docket Number | 4783.,Docket No. 4753,4784 |
| Parties | W. J. BURNS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ALEXANDER BAILLIE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. MRS. ALEXANDER BAILLIE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Warren Olney, Jr., Esq., J. M. Mannon, Jr., Esq., and A. Crawford Greene, Esq., for the petitioners.
Granville S. Borden, Esq., for the respondent.
These proceedings were by motion made and granted consolidated and involve deficiencies in income taxes for the years 1918 and 1919. In the appeal of W. J. Burns the deficiencies are for the year 1918, $87,308.31, and for the year 1919, $54,225.01. In the appeal of Mrs. Alexander Baillie the deficiencies are for the year 1918, $31,074.04, and for the year 1919, $16,799.72. In the appeal of Alexander Baillie the deficiencies are for the year 1918, $11,923.01, and for the year 1919, $5,886.60. Each of the petitioners allege as errors, (1) the disallowance of the deduction by the partnership Balfour, Guthrie & Co. for the year 1918 of a bad debt in the amount of $170,879.91 and (2) the disallowance of credits against taxes taken by petitioners on account of their respective shares of British and Canadian taxes of the partnership Balfour, Guthrie & Co. which accrued during the years 1918 and 1919.
Respondent has confessed error as to error (1) and has stipulated that the petitioner W. J. Burns is entitled to a deduction from his gross income for the year 1918 in respect to said error of $23,068.79, and that the petitioners Alexander Baillie and Mrs. Alexander Baillie are each entitled to deduct from their gross income for the year 1918 the amount of $9,825.59.
FINDINGS OF FACT.
Petitioner W. J. Burns (hereinafter called Burns) is now and was during the taxable years 1918 and 1919 a citizen of the United States. Burns now resides at San Francisco, Calif., but during the taxable years of 1918 and 1919, resided at Portland, Oreg. Burns was during said years a member of the partnership of Balfour, Guthrie & Co. (hereinafter called the partnership).
Petitioner Alexander Baillie (hereinafter called Baillie) is now and was during the taxable years 1918 and 1919 a citizen of the United States. Baillie now resides at San Francisco, Calif., but during said taxable years 1918 and 1919 resided at Seattle, Wash. Baillie was during said years a member of the partnership.
Petitioner Mrs. Alexander Baillie (hereinafter called Mrs. Baillie) was during the taxable years of 1918 and 1919 a citizen of the United States and a resident of Seattle, Wash. Mrs. Baillie was during said taxable years 1918 and 1919 the wife of said Baillie and she and said Baillie lived together in the State of Washington and were subject to the community property law of said State. Under said community property law Mrs. Baillie, during the said years 1918 and 1919, was the owner of and taxable upon one-half of the income from the partnership which would otherwise belong to Baillie, and was entitled to one-half of any deductions and credits to which Baillie would otherwise be entitled because of the transactions of the partnership; also, Baillie was the owner of and taxable upon only one-half of said income from the partnership and was entitled to only one-half of the deductions and credits arising out of the transactions of said partnership during said years.
The partnership was during all of said taxable years 1918 and 1919 a domestic partnership having its principal office in the Balfour Building, 351 California Street, San Francisco, Calif. During all of said years the complete and exclusive control and management of the business of the partnership was situate in the United States and belonged solely to the partners permanently resident in San Francisco, Calif., Portland, Oreg., and Seattle, Wash., together with such other partners as were personally present at said places, but only while so present. Under the partnership agreement Burns was, during said years, entitled to 13½ per cent of the net profits of said partnership, and was liable for 13½ per cent of the losses, if any, of said partnership, and Baillie was, during said years, entitled to 11½ per cent of the net profits of said partnership and liable for 11½ per cent of the losses, if any, of said partnership.
During the taxable years 1918 and 1919, the books of account of the partnership were kept on an accrual basis and the partnership made its United States income-tax information returns for said two years likewise upon an accrual basis and upon a calendar year basis. Neither Burns, Baillie, nor Mrs. Baillie, during said years, kept any individual books of account aside from the partnership books. For said two years, Burns, Baillie, and Mrs. Baillie made United States income-tax returns on a calendar year basis in which they reported their respective shares of the net profits of said partnership in accordance with the books and information returns of said partnership, that is to say, on an accrual basis, and similarly treated all items of deduction or credit on account of the operations of said partnership; but in said returns they and each of them reported all other items of income and deductions and credits on a receipts and disbursements basis and not on an accrual basis. For each of said years the major portion of the income of said Burns, Baillie, and Mrs. Baillie, and each of them, as shown by their said returns, was accrued income of said partnership, as shown on its information return for each of said years.
On November 12, 1920, the partners paid to the Dominion of Canada income taxes for the calendar year 1918 amounting to 3,602.77 Canadian dollars. No credit on account of Canadian taxes for 1918 was allowed by respondent in computing the taxes of petitioners in the deficiency letters on which these appeals are based.
On February 3, 1920, the partnership paid to the British Government income taxes amounting to 17,291 pounds sterling, 14 shillings, 6 pence for the British tax year commencing April 6, 1917, and ending April 5, 1918. Of said year 95 days, or 95/365, were in the United States tax year or calendar year 1918, and 95/365 of said taxes accrued during the said United States tax year 1918. No credit on account of British taxes for the British tax year commencing April 6, 1917, and ending April 5, 1918, was allowed by respondent in computing the taxes of petitioners in the deficiency letters aforesaid.
On May 19, 1927, the partnership paid to the British Government income taxes amounting to 25,893 pounds sterling and 6 shillings for the British tax year commencing April 6, 1918, and ending April 5, 1919. Of said year 270 days, or 270/365 were in the United States tax year or calendar year 1918, and 95 days, or 95/365 were in the United States tax year or calendar year 1919. Of said taxes 270/365 accrued during the United States tax year 1918, and 95/365 accrued during the United States tax year 1919. No credit on account of British taxes for the British tax year commencing April 6, 1918, and ending April 5, 1919, was allowed by respondent in computing the taxes of petitioners in the above-mentioned deficiency letters.
On May 19, 1927, the partnership also paid to the British Government income taxes amounting to 989 pounds sterling and 2 shillings, for the British tax year commencing April 6, 1918, and ending April 5, 1919. Of said year 270 days, or 270/365 were in the United States tax year or calendar year 1918, and 95 days, or 95/365 were in the United States tax year or calendar year 1919. Of said taxes 270/365 accrued during the United States tax year 1918 and 95/365 accrued during the United States tax year 1919. No credit on account of British taxes for the British tax year commencing April 6, 1918, and ending April 5, 1919, was allowed by respondent in computing the taxes of petitioners in the deficiency letters aforesaid.
On May 19, 1927, the partnership also paid to the British Government income taxes amounting to 20,637 pounds sterling, 12 shillings, for the British tax year commencing April 6, 1919, and ending April 5, 1920. Of said year 270 days, or 270/365 were in the United States tax year or calendar year 1919. Of said taxes 270/365 accrued during the United States tax year 1919. No credit on account of British taxes for the British tax year commencing April 6, 1919, and ending April 5, 1920, was allowed by respondent in computing the taxes of petitioners in the deficiency letters aforesaid.
On May 19, 1927, the partnership also paid to the British Government income taxes amounting to 350 pounds sterling, 9 shillings, and 6 pence, for the British tax year commencing April 6, 1919, and ending April 5, 1920. Of said year 270 days, or 270/365 were in the United States tax year or calendar year 1919. Of said taxes 270/365 accrued during the United States tax year 1919. No credit on account of British taxes for the British tax year commencing April 6, 1919, and ending April 5, 1920, was allowed by respondent in computing the taxes of petitioners in the deficiency letters aforesaid.
The correct rates of exchange and the correct values in United States currency of Canadian dollars and of British pounds sterling were as follows on the following dates:
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