OPINION.
SteRnhagen :
The respondent determined a deficiency of $3,835.13 in income tax for the fiscal year ended January 31, 1920. The petitioner pleaded the bar of the statute of limitations on assessment [246] but withdrew this issue at the hearing. The only issue is petitioner’s right to a deduction of $42,100, being the aggregate amount of claims arising from petitioner’s breach in this year of contracts to sell sugar. The facts are stipulated by the parties as follows:
STIPULATION OP FACTS.
I.
Petitioner was organized and incorporated under the laws of the State of Louisiana during the year 1904, and during the fiscal year ended January 31, 1920, was engaged in the planting and manufacture of sugar. The deficiency in tax involved in this appeal is $3,835.13 for the fiscal year ended January 31, 1920.
II.
During the fiscal year ended January 31, 1920, petitioner entered into certain contracts to sell granulated sugar on the dates, at the prices, in the amounts and to the companies listed below:
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III.
On or about November 8th, 1919, a meeting was held in New Orleans between various sugar producers and the United States District Attorney for the Eastern District of Louisiana, acting under the authority of the Attorney General of the United States, at which meeting it was stated by said United States District Attorney that sales of granulated sugar at 180 per pound would be considered made within the law, but that if any sales were made above 180 the seller .would be arrested right away and charged with a violation of the Lever Act; and the Attorney General’s office, through the said United States District Attorney, suggested that all contracts for granulated sugar at a price higher than 180 per pound be abrogated.
IV.
Thereupon petitioner abrogated all of its contracts for the sale of granulated sugar at a pnce higher- than 180 per pound, being contracts at prices ranging from 200 to 250 per pound, and also abrogated the above-mentioned six contracts for granulated sugar at 11.760 and 120 per pound.
V.
Thereafter the taxpayer sold at 180 per pound the 1,052.500 pounds of granulated sugar which, in accordance with the contracts above listed, it had previously contracted to sell at 11.760 and 120 per pound, and the profit arising from the sale of said granulated sugar was included in its income reported for its fiscal year ended January 31, 1920.
[247] VI.
Under date of August 27, 1920, suit was instituted against petitioner by the IP. O. Stone Baking Company for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement on or about November 4, 1924, on the basis of 40 per pound for the 177.500 pounds contracted for.
VII.
Under date of August 3, 1920, suit was instituted against petitioner by C. M. Comati & Company for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about November 4, 1924, on the basis of 40 per pound for the 70,000 pounds contracted for.
VIII.
Under date of Jan. 16, 1920, suit was instituted against petitioner by Hy. S. Schlessinger, for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about May 13, 1927, on the basis of 40 per pound for the 175,000 pounds contracted for.
IX.
Under date of Jan. 16, 1920, suit was instituted against petitioner by McCord Stewart & Company, for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about May 13, 1927, on the basis of 40 per pound for the 175,000 pounds contracted for.
X.
Under date of Dec. 20, 1919, C. D. Kenny & Company filed suit in the United States District Court for the Eastern District of Louisiana, to recover the difference between the contract price of sugar under the two contracts entered into by it with petitioner, and 180 per pound, the then market price of sugar. Judgment was entered in favor of C. D. Kenny & Company, June 15, 1920, and signed August 2, 1920, on the basis of 40 per pound. Writ of error was prosecuted to the Circuit Court of Appeals for the Fifth Circuit, and judgment of the lower court was affirmed March 19, 1921.
XI.
Petitioner kept its books of account and filed its return for the fiscal year ended January 31, 1920, on the accrual basis.
XII.
The amount of $1S,200 for which judgment was entered against petitioner in the case of C. D. Kenny & Company vs. J. N. Pharr & Sons, Limited, was paid either during the years 1923 or 1924. The other amounts due and payable to F. O. Stone Baking Co., C. M. Comati & Company, Hy. S. Schles-singer, McCord Stewart & Company, under the compromise agreements herein referred to, have not as yet been paid but have been recognized as liabilities of the receivership proceedings of the taxpayer under an order signed by the [248] Judge of the 23rd Judicial District Court for the Parish of St. Mary, State of Louisiana, where the receivership proceedings are pending.
XIII.
No part of the $42,100’ representing the aggregate amounts referred to in Paragraphs VI to X inclusive of this stipulation, was accrued as a liability on petitioner’s books during the fiscal year ended January 31, 1920, nor was such sum or any part thereof set up as an accrual on its return for that fiscal year, nor was any part of such sum admitted by the taxpayer during said fiscal year to be a liability.
XIV.
It is further stipulated and agreed that the Board may base its decision on the facts herein stipulated and that no other or further testimony will be submitted by either party.
It will be noted that the taxpayer broke its contracts in the taxable year and sold the sugar for a higher price. There was no admission of liability; no determination of an amount of probable damages, and the facts to control the damages are confined to the conti'act price and the actual price at which the sugar was later sold; no account was taken of an accrued liability. There is no indication of the damages claimed. And of the five suits commenced, only three were begun in the' taxable year. We are of opinion that the decision of the United States Supreme Court in Lucas v. American Code Co., 280 U. S. 445, and the earlier decisions of this Board cited therein support the Commissioner’s disallowance of the deduction claimed.
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OPINION.
SteRnhagen :
The respondent determined a deficiency of $3,835.13 in income tax for the fiscal year ended January 31, 1920. The petitioner pleaded the bar of the statute of limitations on assessment [246] but withdrew this issue at the hearing. The only issue is petitioner’s right to a deduction of $42,100, being the aggregate amount of claims arising from petitioner’s breach in this year of contracts to sell sugar. The facts are stipulated by the parties as follows:
STIPULATION OP FACTS.
I.
Petitioner was organized and incorporated under the laws of the State of Louisiana during the year 1904, and during the fiscal year ended January 31, 1920, was engaged in the planting and manufacture of sugar. The deficiency in tax involved in this appeal is $3,835.13 for the fiscal year ended January 31, 1920.
II.
During the fiscal year ended January 31, 1920, petitioner entered into certain contracts to sell granulated sugar on the dates, at the prices, in the amounts and to the companies listed below:
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III.
On or about November 8th, 1919, a meeting was held in New Orleans between various sugar producers and the United States District Attorney for the Eastern District of Louisiana, acting under the authority of the Attorney General of the United States, at which meeting it was stated by said United States District Attorney that sales of granulated sugar at 180 per pound would be considered made within the law, but that if any sales were made above 180 the seller .would be arrested right away and charged with a violation of the Lever Act; and the Attorney General’s office, through the said United States District Attorney, suggested that all contracts for granulated sugar at a price higher than 180 per pound be abrogated.
IV.
Thereupon petitioner abrogated all of its contracts for the sale of granulated sugar at a pnce higher- than 180 per pound, being contracts at prices ranging from 200 to 250 per pound, and also abrogated the above-mentioned six contracts for granulated sugar at 11.760 and 120 per pound.
V.
Thereafter the taxpayer sold at 180 per pound the 1,052.500 pounds of granulated sugar which, in accordance with the contracts above listed, it had previously contracted to sell at 11.760 and 120 per pound, and the profit arising from the sale of said granulated sugar was included in its income reported for its fiscal year ended January 31, 1920.
[247] VI.
Under date of August 27, 1920, suit was instituted against petitioner by the IP. O. Stone Baking Company for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement on or about November 4, 1924, on the basis of 40 per pound for the 177.500 pounds contracted for.
VII.
Under date of August 3, 1920, suit was instituted against petitioner by C. M. Comati & Company for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about November 4, 1924, on the basis of 40 per pound for the 70,000 pounds contracted for.
VIII.
Under date of Jan. 16, 1920, suit was instituted against petitioner by Hy. S. Schlessinger, for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about May 13, 1927, on the basis of 40 per pound for the 175,000 pounds contracted for.
IX.
Under date of Jan. 16, 1920, suit was instituted against petitioner by McCord Stewart & Company, for the difference between the contract price of 11.760 per pound and 180 per pound. This suit was settled by a compromise agreement, on or about May 13, 1927, on the basis of 40 per pound for the 175,000 pounds contracted for.
X.
Under date of Dec. 20, 1919, C. D. Kenny & Company filed suit in the United States District Court for the Eastern District of Louisiana, to recover the difference between the contract price of sugar under the two contracts entered into by it with petitioner, and 180 per pound, the then market price of sugar. Judgment was entered in favor of C. D. Kenny & Company, June 15, 1920, and signed August 2, 1920, on the basis of 40 per pound. Writ of error was prosecuted to the Circuit Court of Appeals for the Fifth Circuit, and judgment of the lower court was affirmed March 19, 1921.
XI.
Petitioner kept its books of account and filed its return for the fiscal year ended January 31, 1920, on the accrual basis.
XII.
The amount of $1S,200 for which judgment was entered against petitioner in the case of C. D. Kenny & Company vs. J. N. Pharr & Sons, Limited, was paid either during the years 1923 or 1924. The other amounts due and payable to F. O. Stone Baking Co., C. M. Comati & Company, Hy. S. Schles-singer, McCord Stewart & Company, under the compromise agreements herein referred to, have not as yet been paid but have been recognized as liabilities of the receivership proceedings of the taxpayer under an order signed by the [248] Judge of the 23rd Judicial District Court for the Parish of St. Mary, State of Louisiana, where the receivership proceedings are pending.
XIII.
No part of the $42,100’ representing the aggregate amounts referred to in Paragraphs VI to X inclusive of this stipulation, was accrued as a liability on petitioner’s books during the fiscal year ended January 31, 1920, nor was such sum or any part thereof set up as an accrual on its return for that fiscal year, nor was any part of such sum admitted by the taxpayer during said fiscal year to be a liability.
XIV.
It is further stipulated and agreed that the Board may base its decision on the facts herein stipulated and that no other or further testimony will be submitted by either party.
It will be noted that the taxpayer broke its contracts in the taxable year and sold the sugar for a higher price. There was no admission of liability; no determination of an amount of probable damages, and the facts to control the damages are confined to the conti'act price and the actual price at which the sugar was later sold; no account was taken of an accrued liability. There is no indication of the damages claimed. And of the five suits commenced, only three were begun in the' taxable year. We are of opinion that the decision of the United States Supreme Court in Lucas v. American Code Co., 280 U. S. 445, and the earlier decisions of this Board cited therein support the Commissioner’s disallowance of the deduction claimed.
The petitioner argues that, the damages ultimately paid must be regarded as part of the cost of the sugar sold in the taxable year and that the profit from such sale and such cost should go hand in hand in determining gross income. But the possible damages for breach of five contracts can not be treated as cost of goods sold by new and different contracts with other buyers even where the motive of the breach was to enable petitioner to make the new and better sales.
Reviewed by the Board.
Judgment will be entered for the respondent.