C. Niss & Sons, Inc. v. Commissioner

C. NISS & SONS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. C. Niss & Sons, Inc. v. Commissioner Docket No. 47089. United States Board of Tax Appeals 22 B.T.A. 732; 1931 BTA LEXIS 2077; March 13, 1931, Promulgated *2077 Where petitioner, at the beginning of the year 1927, elected to report income on the installment basis instead of the accrual method which it had theretofore employed, held that in computing taxable income for the year 1927 respondent did not err in including payments received in 1927 on installment sales made during the years 1925 and 1926 although such payments were received under sales the total profit from which had been returned as income during the years 1925 and 1926. Blum's, Inc.,7 B.T.A. 737, followed. Arthur A. Mueller, Esq., for the petitioner. F. R. Shearer, Esq., for the respondent. MCMAHON *732 This is a proceeding for the redetermination of a deficiency in income taxes for the year 1927 in the amount of $6,210.69. The following allegations of error are set forth in the petition: (a) Error was committed in finding that taxable profit of $8,727.36 was realized in the year 1927 on installments collected in 1927 on sales made during the year 1925, the profit on which was reported in full in the return for the year 1925 and assessed and a tax paid thereon for that year. (b) Error was committed in finding*2078 that taxable profit of $38,439.63 was realized in the year 1927 on installments collected in 1927 on sales made during the year of 1926 the profit on which was reported in full in return for the year of 1926 and tax assessed and paid thereon for that year. * * * The facts were stipulated by the parties and we base our findings thereon. FINDINGS OF FACT. Petitioner is a Wisconsin corporation located at Milwaukee. It filed its Federal income tax return for the calendar year 1927 with the Collector of Internal Revenue for the District of Wisconsin at Milwaukee. A deficiency letter was duly mailed to petitioner November 22, 1929. The petition was filed with the Board January 20, 1930. The taxes in controversy are income taxes for the calendar year 1927. The deficiency determined by the Commissioner is $6,210.69, all of which is in controversy. Prior to the year 1927 the petitioner employed the accrual method of accounting in keeping its books and in making its Federal income tax returns. For the calendar year 1927 and beginning with January 1, 1927, the petitioner elected to report on the installment basis. During 1925, 1926, and 1927 the petitioner regularly sold*2079 and disposed of personal property on the installment plan. In its tax returns for the years 1925 and 1926 the profits on such sales were reported and tax paid thereon on the accrual basis of accounting. In *733 its return for 1927 the petitioner, having elected to return its income from such installment sales on the installment basis, reported as income from installment sales the installment payments actually received in the year 1927 only with respect to installment sales made in 1927, and in computing its income for the year 1927 excluded all payments received in the taxable year 1927 on installment sales made during the years 1925 and 1926, on the ground that such payments were received under sales, the total profit from which had been returned as income during the years 1925 and 1926. In determining the deficiency, the Commissioner restored to income two items as follows: Profit on 1925 installments collected in 1927 which had previously been reported in full for the year 1925 $8,727.36 Profit on 1926 installments collected in 1927 which had previously been reported in full for the year 1926 38,439.63 OPINION. MCMAHON: The action of the respondent*2080 in including the amounts of $8,727.36 and $38,439.63 in income of the petitioner for the year 1927 is the only thing the petitioner is questioning in this proceeding, the amounts themselves having been stipulated to be correct. Section 212(d) of the Revenue Act of 1926 provides, in part: Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price. * * * Article 42 of Regulations 69, promulgated under the Revenue Act of 1926 provides, in part, as follows: * * * No payments received in the taxable year shall be excluded in computing the amount of income to be returned on the ground that they were received under a sale the total profit from which was returned as income during a taxable year or years prior to the change by the taxpayer to the installment basis of returning income. * * * *2081 We have heretofore held in a number of cases that when a taxpayer elects to change from the accrual method to the installment sales method of returning income, there must be included in the income of the year in which the change is made and of subsequent years a proper proportion of the installments received in these years upon sales made in prior years, regardless of whether the entire profit upon such sales has been reported in income for prior years. ; ; . Following those decisions we approve the action of the respondent in the instant proceeding. Judgment will be entered for the respondent.