Appeal of Raymond-Hadley Corp.

4 B.T.A. 889

• Court: United States Board of Tax Appeals
• Decided: September 22, 1926
• Docket: Docket No. 5128
• Status: Published

Opinion

OPINION.

Teussell

: 1. When in December, 1919, the petitioner made a sale of a cargo of flour for foreign account in an amount of $526,-224.85, and having placed that account in the hands of the Irving National Bank for collection and received a credit of $475,000, the petitioner assumed the obligation of paying to the bank interest upon the credit at the rate of 6 per cent, and a collection charge of % of 1 per cent on the amount involved in the transaction. The amounts due under these obligations were capable of exact' computation and the petitioner in accordance with its regular accounting method eharged itself with the collection charge in the amount of $1,975.32 and interest in the amount of $2,870.38. Later this interest item was readjusted as finally settled in the amount of $2,216.67. We are of the opinion that both of these items were properly accruable obligations against petitioner’s business for the year 1919, and, having been set up on the petitioner’s books in accordance with its regular method of accounting, must be allowable deductions from gross income for the year 1919. (Cf. United States v. Anderson, 269 U. S. 422.)

2. The record shows that during the year 1919 the petitioner’s London agent for the sale of flour earned commissions in the aggregate amount of $18,845.30; that that amount was set up on the petitioner’s books of account according to its regular method of accounting as commissions earned and owing to the London agent; and that in the ordinary course of business the petitioner would during the year 1919 or thereafter have paid to the London agent the total amount of $18,845.30 and would have been entitled to a deduction from gross income for the year 1919 in that amount.

It is not important whether this method of accounting is peculiar to this petitioner or whether it is a generally recognized method of accounting between principal and agent. Section 212(b) of the Revenue Act of 1918, under which this controversy arises, provides, among other things, that “ The net income shall be computed upon the basis of the taxpayer’s annual accounting period * * * in accordance with the method of accounting regularly employed in keeping the books of such taxpayer,” subject, however, to the qualification that such method of accounting must “ clearly reflect the income.” In view of the accounting methods plainly set forth in the findings of fact relating to the transactions here involved, we are of the opinion that the petitioner’s method of keeping its books of account does clearly reflect its annual income, and that the portion of the commission deduction disallowed by the .Commissioner must be allowed.

Order of redetermwmtion will be entered on 15 days' notice, under Rule 50.