EW Bliss Company v. United States

• Decision Date: 29 September 1965
• Docket Number: No. 15810,15811.,15810
• Parties: E. W. BLISS COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. E. W. BLISS COMPANY, Plaintiff Cross Appellant, v. UNITED STATES of America, Defendant Cross Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

351 F.2d 449 (1965)

E. W. BLISS COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

E. W. BLISS COMPANY, Plaintiff Cross Appellant, v. UNITED STATES of America, Defendant Cross Appellee.

Nos. 15810, 15811.

United States Court of Appeals Sixth Circuit.

September 29, 1965.

Chester C. Davis, New York City, Simpson, Thacher & Bartlett, New York City, Squire, Sanders & Dempsey, Cleveland, Ohio, on the brief, for E. W. Bliss Company.

Richard J. Heiman, Atty., Dept. of Justice, Washington, D. C., John B. Jones, Jr., Acting Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Attys., Dept. of Justice, Washington, D. C., on the brief; Merle M. McCurdy, U. S. Atty., Cleveland, Ohio, of counsel, for the United States.

Before EDWARDS, Circuit Judge, MACHROWICZ, District Judge,¹ and McALLISTER, Senior Circuit Judge.

McALLISTER, Senior Circuit Judge.

The E. W. Bliss Company, taxpayer herein, brought an action in the district court to recover an alleged overpayment of corporate income taxes for the year 1951. It contended that the Commissioner of Internal Revenue acted arbitrarily in disallowing a write-down of the taxpayer's inventory of work in process; and that certain New York franchise tax refund claims had accrued at the time the application for refund was filed. The greater the write-down of the inventory, the less was the amount of income tax payable. The Commissioner contended that the accounting procedure used by the taxpayer in writing down the inventory did not conform to the best accounting practices, and did not clearly reflect income. Accordingly, the Commissioner of Internal Revenue gave notice of a deficiency, which the taxpayer paid in the amount of $621,983.30 on June 10, 1959; and thereafter the taxpayer filed suit to recover the claimed overpayment. The district court held that the Commissioner of Internal Revenue had acted arbitrarily in disallowing the write-down of the taxpayer's inventory of work in process; that there was no accrual of the New York franchise tax refunds at the time application therefor was made; and, by order, the court denied the company's application for the allowance of taxation of expert witness fees. The government appealed from the judgment of the district court, and the taxpayer filed a cross appeal.

The Bliss company manufactures rolling mills and huge presses used in the making of steel and the fabrication of steel products. These were manufactured and sold on a custom basis on orders and specifications furnished by its customers. The price of the presses, which were made to individual order, was fixed before work thereon commenced. Some were priced at a few thousands of dollars and others at hundreds of thousands of dollars for each press. The company computed the value of its inventory of work in process on the basis of cost or market, whichever was lower, as permitted by Regulation. The method adopted was to accumulate all direct costs on each job more than 50% complete. To this amount was added the estimated cost of completion. The total cost of each press as thus determined was then compared with the sale price of presses manufactured at the company's plant at Canton, Ohio, less an allowance of 15% for gross profit margin, and the sale price of presses manufactured at Toledo, less a gross profit margin of 20%. In addition to the "individual" presses, the company also manufactured the so-called "normal" presses. The Canton and Toledo plants were different from the company's other plants. At the...