Mifflin v. Comm'r of Internal Revenue, Docket No. 50124
| Decision Date | 31 August 1955 |
| Docket Number | 54165.,50125,Docket No. 50124 |
| Citation | 24 T.C. 973 |
| Parties | CHARLES D. MIFFLIN, PETITIONER, v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT.CHARLES D. MIFFLIN AND ANNE MIFFLIN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.CHARLES D. MIFFLIN AND ANNE MIFFLIN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Respondent sustained in his determination that petitioners, whose books were kept on an accrual basis, should have reported their income for taxation on an accrual basis in conformity with the books of account. David P. Brown, Jr., Esq., and A. Stuard Young, Jr., Esq., for the petitioners.
Max J. Hamburger, Esq., for the respondent.
Respondent determined deficiencies in income tax of petitioner in Docket No. 50124 and of petitioners in Docket No. 50125 and 54165, as follows:
Certain issues raised in the pleadings have been resolved by stipulation of the parties. The sole question remaining is whether petitioners properly reported their taxable business income on a cash basis of accounting for each of the taxable years 1945 through 1949, or whether such income should properly have been reported on an accrual basis, as determined by respondent. The parties agree that there is no deficiency as to the year 1949.
The stipulation of facts filed by the parties, with an exhibit attached, is adopted and, by this reference, made a part hereof.
The petitioners herein are Charles D. Mifflin and his wife Anne, whose address during the years involved was in Trenton, New Jersey. Petitioners filed joint income tax returns for the taxable years 1945, 1947, 1948, and 1949 with the then collector of internal revenue for the first collection district of New Jersey at Camden. Petitioner Charles D. Mifflin filed his individual income tax return for the taxable year 1946 with the same collector. For convenience, Charles D. Mifflin will hereinafter be referred to as the petitioner.
Petitioner, at all times during the years here at issue, conducted, as a sole proprietor, a business as a retailer, principally of pianos and organs, in Trenton, New Jersey, under the name of Mifflin Pianos, which business was founded in 1935. In addition to the purchase and sale of new and used pianos, Mifflin Pianos also sold radios, televisions, and miscellaneous merchandise. The following table reflects the purchases and sales of Mifflin Pianos during the years involved; its increase in accounts receivable during each respective year; its opening and closing inventory for such years; and the additional income determined by respondent on an accrual method:
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¦ ¦1945 ¦1946 ¦1947 ¦1948 ¦1949 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Purchase of new pianos¦$21,535.15¦$56,300.93¦$55,052.64¦$65,171.29¦$49,174.66¦
+----------------------+----------+----------+----------+----------+----------¦
¦Sale of new pianos ¦39,181.00 ¦90,713.00 ¦103,264.25¦113,242.63¦84,259.34 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Purchase of used ¦ ¦4,220.00 ¦3,824.00 ¦90.00 ¦1,240.00 ¦
¦pianos ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Sale of used pianos ¦ ¦11,191.00 ¦17,867.40 ¦12,679.62 ¦13,209.25 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Purchase of organs and¦ ¦ ¦ ¦ ¦5,616.82 ¦
¦sonovoxes ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Sale of organs and ¦ ¦ ¦ ¦ ¦13,246.00 ¦
¦sonovoxes ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Cash sales ¦35,923.08 ¦77,165.04 ¦64,195.04 ¦61,806.73 ¦57,458.42 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Credit Sales ¦4,486.00 ¦27,671.45 ¦59,027.35 ¦66,129.41 ¦66,406.40 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Total sales ¦40,409.08 ¦104,836.49¦123,222.39¦127,936.14¦123,864.82¦
+----------------------+----------+----------+----------+----------+----------¦
¦Purchase of radios and¦ ¦4,543.51 ¦2,816.97 ¦2,382.99 ¦16,993.21 ¦
¦TVs ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Sale of radios and TVs¦ ¦2,344.60 ¦3,933.27 ¦3,679.01 ¦16,822.65 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Purchase of misc. ¦224.99 ¦84.47 ¦1,596.99 ¦2,924.80 ¦1,618.96 ¦
¦items ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Sale of misc. items ¦1,228.08 ¦587.89 ¦239.37 ¦694.88 ¦342.63 ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Increase in accounts ¦8,305.13 ¦19,503.11 ¦20,393.15 ¦20,431.36 ¦9,878.04 ¦
¦receivable ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Additional income ¦ ¦ ¦ ¦ ¦ ¦
¦determined on accrual ¦8,121.23 ¦20,531.15 ¦20,020.47 ¦19,618.59 ¦(5,518.42 ¦
¦method ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Inventory at beginning¦3,133.72 ¦2,466.00 ¦15,818.38 ¦11,657.32 ¦16,989.21 ¦
¦of year ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦Inventory at end of ¦2,466.00 ¦15,818.38 ¦11,657.32 ¦16,989.21 ¦21,336.93 ¦
¦year ¦ ¦ ¦ ¦ ¦ ¦
+----------------------+----------+----------+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
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The parties have stipulated that when the business of Mifflin Pianos was organized in 1935, its books of account were established on an accrual basis of accounting, on which basis they have been, and continue to be, maintained. Such books were originally set up in 1935 by Anne Mifflin, a petitioner herein, who will hereinafter be called Anne, without benefit of accounting or tax advice. During the years here in issue, Anne continued to do all the posting and make all the entries in such books. Since 1938, her work has been supervised by various certified public accountants. The services rendered by these accountants to Mifflin Pianos, in addition to supervising its books, included general business accounting and tax advice.
Petitioner's first income tax returns reflected the business income of Mifflin Pianos for the years 1935, 1936, and 1937 and were prepared by an employee of the office of the collector of internal revenue located in Trenton. For each of these years, Anne took the books of Mifflin Pianos, consisting of a cash book, a record of expenses, and a book for accounts receivable, to such collector's office to have that office prepare the returns. The aforementioned employee prepared the returns on a cash receipts and disbursements basis and such returns were so filed. On petitioner's 1935 return, question nine, with regard to the basis on which his books are kept, is answered ‘Cash.’ On all of petitioner's income tax returns, the schedules reporting income from the business (Schedule C of the returns 1945-1949) used opening and closing inventories in the determination of cost of goods sold but did not report accounts receivable or accounts payable.
During the years 1945 through 1949, Mifflin Pianos attempted to obtain from piano manufacturers, one of each of several models or organs produced by each, which it used as floor samples for inspection by, and demonstration to, prospective purchasers. Sales from floor samples were not generally made except at a customer's insistence, in which case a similar model would then be ordered for replacement of the floor sample. Pianos were ordered as sold. The stock of pianos held by Mifflin Pianos for the years 1945 through 1949 consisted principally of floor samples. During this period, also, petitioner acquired used pianos as trade-ins. Petitioner also purchased used pianos when the need arose. During the same period, when it was possible to obtain skilled labor, trade-in pianos were reconditioned, and the resultant increase in their market value was reflected on the books in the account showing used pianos on hand.
For the years 1945-1949, inclusive, Mifflin Piano's record of new and used units of pianos and organs indicates the number of such units, by description and model number, held on December 31 of each year to have been as follows:
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