Ray F. Mudd Motor Co. v. Commissioner

*630OPINION.

: The taxpayer’s books were kept on the accrual basis, and it accrued thereon its liability incurred during each of the years in question for premiums on insurance purchased during those years. It does not appear that any of this insurance extended over a period longer than one year. They constituted ordinary and necessary business expenses in each of the years in question, and must be allowed as deductions from gross income in the years in which accrued.

The evidence satisfies us that a reasonable allowance for the wear and tear and exhaustion of the small tools used in the taxpayer’s business is 33½ per cent, and that a reasonable allowance for the wear and tear and exhaustion of the “ lesson ” cars, is 50 per cent.

The taxpayer alleged in its petition, and it claimed at the hearing, that certain items of expense had been charged to its capital assets account in the amounts of $2,069.09 in the year 1919 and $3 in the year 1921, and that these amounts should be allowed as deductions from gross income in those years. At the hearing the taxpayer offered certain exhibits, which It. F. Mudd, general manager of the taxpayer, testified were copies of original entries on the taxpayer’s books. Objection was made by the counsel for the Commissioner to the introduction of these exhibits, for the reason that the taxpayer’s witness was unable to verify or substantiate the various items contained therein. In order to determine the character of these items, *631it was agreed between the taxpayer and the Commissioner that the exhibits should be sent to a revenue agent for comparison with the taxpayer’s books, in order that a stipulation might be entered into by the taxpayer and the Commissioner as to the facts. The exhibits were sent to a revenue agent, who visited the taxpayer’s place of business and compared them with the taxpayer’s books of account. The agent reported that some of the exhibits consisted of copies of entries found on the taxpayer’s books and correctly entered thereon, and that others appeared to be recapitulations from entries on the books. He also reported that the taxpayer refused to permit him to examine the books, in order to ascertain whether or not there were any offsetting entries to the various entries contained in the exhibits, and that it was not possible for him to ascertain whether or not the items in question represented capital expenditures or ordinary and necessary business expenses, inasmuch as there were no invoices from which to check. Under the circumstances, we are unable to determine whether the items aré properly ordinary and necessary business expenses or capital expenditures, and we must, therefore, confirm the action of the Commissioner with respect thereto.

The taxpayer in its petition claimed that certain State' and county taxes had been improperly treated by the Commissioner in ascertaining its net income. No evidence was presented showing the amount of the taxes or when they became a liability, and, in the absence of such proof, the Commissioner’s determination thereon is approved.