William Hardy, Inc. v. Commissioner of Internal Revenue, 33.
| Decision Date | 10 February 1936 |
| Docket Number | No. 33.,33. |
| Citation | 82 F.2d 249 |
| Parties | WILLIAM HARDY, Inc., v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
J. S. Y. Ivins and Brewster, Ivins & Phillips, all of Washington, D. C., for petitioner.
Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, J. Louis Monarch, and Francis I. Howley, Sp. Assts. to Atty. Gen., for respondent.
Before L. HAND, SWAN, and CHASE, Circuit Judges.
The petitioner is a New York corporation that makes and sells women's wearing apparel and also sells some imported dresses. From the time it was organized and began to do business in 1921 to and including 1925, it filed its returns on the cash receipts and disbursements basis. Until August 1, 1925, it used the single entry system of bookkeeping in its business, but then changed to the double entry system because it was more suitable. In 1926, after its 1925 return had been filed but before it had been audited, it applied to the commissioner for permission to change from the cash receipts and disbursements basis to the accrual basis in filing its return for 1926 and was informed that no permission was necessary because the nature of its business was such that it would be required to use the accrual method. When its 1925 income return was audited, it was notified that its income for that year would have to be reported upon the accrual basis also. It submitted a return accordingly, though protesting that the accrual method should not be required for that year. The commissioner recomputed the tax on the accrual basis, not accepting the petitioner's method of accrual, and the resulting deficiency was redetermined by the Board of Tax Appeals in a yet different manner which was still unsatisfactory to the petitioner.
The first question raised is whether or not the commissioner could insist upon a determination of petitioner's taxable income for 1925 upon the accrual basis. His authority for doing so is found in section 212 (b) of the Revenue Act 1926, 44 Stat. 23, providing that net income shall be computed in accordance with the method of accounting regularly employed by the taxpayer but if there is no such method "or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income." In deciding what method is necessary clearly to reflect a taxpayer's income, the commissioner is given a breadth of discretion which, though not unlimited, will be reviewed here only when abuse of it is clearly shown. See Brown v. Helvering, 291 U.S. 193, 54 S.Ct. 356, 78 L.Ed. 725, Lucas v. American Code Co., 280 U.S. 445, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010. That he has in previous years accepted returns upon a basis other than that of the change he requires will not preclude him from insisting upon a method that will clearly reflect the income for the period being audited. Niles Bement Pond Co. v. United States, 281 U.S. 357, 50 S.Ct. 251, 74 L.Ed. 901; Mt. Vernon Trust Co. v. Commissioner, 75 F.(2d) 938 (C.C.A.2). We need not take much time in upholding the commissioner's decision. On August 1, 1925, the petitioner changed its system of bookkeeping to one which readily lends itself to use in the accrual method of income reporting, and in 1926 it requested permission to change to the accrual method. As there is no proof of any change in its manner of doing business between August 1, 1925, and the time it made the request in 1926, it is fair to assume that there was none. With both the petitioner and the commissioner in agreement that in 1926 the accrual method was a proper one and like conditions to be taken for granted to have prevailed in the business for the last half of 1925 at least, the determination of the commissioner that the accrual basis was necessary for 1925 in order clearly to reflect the petitioner's income during that period will not be disturbed.
The second question is whether or not if the accrual basis was properly required the computation made under it was correct. The commissioner made the audit on the accrual basis by adding to the net income reported by the petitioner on the cash basis the value of the inventory and of the accounts receivable at the end of 1925....
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Ross v. Commissioner of Internal Revenue
...as possessing considerable discretion to prescribe conditions to the granting of consent to a change-over. Cf. William Hardy, Inc. v. Commissioner, 2 Cir., 1936, 82 F.2d 249. In the Hardy case, however, there was no problem, as here, of whether accrued salary was constructively received in ......
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Patchen v. Commissioner of Internal Revenue
...attempting to find and then apply as a basis for distinguishing the holding pronounced by Judge Learned Hand in William Hardy, Inc., v. Commissioner, 2 Cir., 1936, 82 F.2d 249, a distinction which that eminent jurist first expatriated as 121 volumes and 17 years later he overruled the case ......
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...Opinion of this Court, and cases cited therein, the first distinguishing and the second overruling William Hardy, Inc. v. Commissioner, 82 F.2d 249 (C.A. 2, 1936); Caldwell v. Commissioner, 202 F.2d 112 (C.A. 2, 1953), affirming a Memorandum Opinion of this Court; D. E. Alexander, 22 T.C. 2......
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