Guy v. Commissioner of Internal Revenue

• Decision Date: 15 October 1929
• Docket Number: No. 2870.,2870.
• Parties: GUY v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

35 F.2d 139 (1929)

GUY v. COMMISSIONER OF INTERNAL REVENUE.

No. 2870.

Circuit Court of Appeals, Fourth Circuit.

October 15, 1929.

J. W. Pless, of Asheville, N. C. (J. C. Martin, of Asheville, N. C., and J. W. Winborne, of Marion, N. C., on the brief), for petitioner.

Norman D. Keller, Sp. Asst. Atty. Gen. (Sewall Key, Sp. Asst. Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and John G. Harlan, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before PARKER, Circuit Judge, and GRONER and SOPER, District Judges.

SOPER, District Judge.

A petition was filed with the United States Board of Tax Appeals by W. W. Guy, administrator of the estate of A. Blanton, to secure a redetermination of the income tax payable by the estate for the calendar year 1920. Blanton had been a member of a partnership trading under the name of A. Blanton Grocery Company at Marion, N. C., and the interest of his estate in the partnership was continued throughout the period under discussion in this case. The record shows that the taxable year of the individual estate corresponded with the calendar year, while the taxable year of the partnership was computed for the period ending June 30. It is conceded by the parties that such a situation is governed by section 218 (a) of the Revenue Act of 1918 (40 Stat. 1057), and article 322 of Regulations 45 of the Treasury Department, and that in computing the net income of the estate of the deceased for the calendar year, there must be included his distributive share, whether distributed or not, of the net income of the partnership for the period ending June 30, 1920. The books of the partnership were closed in the usual manner on June 30, 1920, and there was credited to the capital account of the estate earnings or profits amounting to $48,746.51. The second half of the year 1920 was disastrous, and on December 31, 1921, a heavy loss, amounting to $88,728.59, was charged to the taxpayer's estate. While it is thus established that the partnership suffered a loss during the calendar year 1920, nevertheless it could be availed of only in the income tax return of the taxpayer for the calendar year 1921.

The taxpayer seeks relief on the ground that when the partnership accounts were closed on June 30, 1920, items of the inventory were erroneously overvalued or omitted, so that the apparent profits then shown by the books did not actually exist. When the case was heard below, the taxpayer offered to show that the errors alleged fell into two categories: (1) The partnership failed to include in the inventory certain Java sugar which the partnership had contracted to buy during the months of May and June, 1920, but which was not delivered until later in the year. There was a loss on these goods by reason of a decline in the market after they were bought, and it is claimed that this loss should appear in the statement of June 30, 1920. (2) Divers items of canned goods and other merchandise included in the inventory were erroneously overvalued. The taxpayer claims that, if the errors relied on are corrected, the substantial profit shown by the books as of June 30, 1920, will be materially reduced, if not entirely wiped out.

The Commissioner of Internal Revenue, the respondent in the case, makes the point on this appeal that it is not proper to include the losses on the sugar contracts in the taxable year ending June 30, 1920, on the ground that it appears from the contracts that title to the goods was not acquired by the partnership until after that date, and consequently no loss thereon could have accrued when the statement was made up. But it is not necessary in this case to decide this question, since, as will appear, there is evidence to sustain the finding of the Board that the market value on June 30, 1920, of the goods covered by the sugar contracts was not less than the contract price.

During the months of May, June and July, 1920, the sugar market was in an extraordinary state. Fluctuations were violent and erratic. Prices reached an unusually high level, and it is difficult to determine the precise market value at any given point of time. It is well known that a definite break in the market finally came to pass, but whether it began before or after June 30, 1920, was a controverted issue before the board. The Weekly Statistical Journal, an established publication devoted to the interests of the trade, failed to give the current daily prices between January 1 and August 12, 1920, and indicated the uncertain state of the market by describing the prices during this period as nominal. On August 12, 1920, the published price was given at 16.758 cents per pound.

The taxpayer offered the testimony of a member of the partnership who said that he had 28 years' experience in the purchase and sale of sugar, and that in his opinion the market value on June 30, 1920, of the sugar purchased by the firm was 4 cents per pound. Another wholesale grocer testified that he had bought the highest grade of refined sugar during the entire month of June at 18 cents per pound, and that Java sugar was of an inferior character, having a retail price between 2½ and 3½ cents less than the highest grade. He also said that in his opinion the break in prices occurred...