MacDonald-Kaitchuck Printing Co. v. Commissioner

*999OPINION.

The issues involved in this proceeding are all substantially questions of fact. We are of the opinion from the entire *1000record that the petitioner has sustained the burden of proof and has thereby established its right to all of the deductions claimed, with the exception of the loss upon the exchange of the Essex automobiles for new ones in 1920. Accordingly, in computing the deficiencies for 1918, petitioner should be allowed a deduction for exhaustion, wear and tear of machinery at 10 per cent, type and metal at 33% per cent, tools and furniture at 10 per cent; the income determined by the Commissioner should be decreased in the amount of $717 received from employees for Liberty bonds. The deficiency as finally determined should be reduced by the amount of $48 paid upon the return filed for that year.

The deficiency, for 1919 should be computed by allowing a deduction for exhaustion, wear and tear of machinery at 10 per cent, type and metal at 33% per cent, tools and furniture at 10 per cent. A deduction of $7,200 should be allowed as compensation of officers, and the income should be reduced in the amount of $128 received from employees for Liberty bonds.

The deficiency for 1920 should be computed by allowing a deduction for exhaustion, wear and tear of machinery at 20 per cent, type and metal at 33% per cent, tools and furniture at 10 per cent. Further, commissions of $2,457.90 should be allowed as deductions in that year. In 1920, MacDonald and Kaitchuck each owned an Essex automobile. In August of that year they turned these automobiles in to the corporation, and it exchanged them for two new automobiles, the difference between the exchange value and the tost of the new cars being paid by the corporation. The petitioner claims a loss on the Essex cars of $2,481.56, being the difference between the unextinguished cost to MacDonald and Kaitchuck and the credit received upon the exchange. Petitioner paid nothing for the Essex cars and it is not entitled to deduct as a loss the difference between the depreciated cost and the credit obtained upon them.

The evidence shows that in 1920 Cook County personal property taxes for that year amounting to $717 were assessed and became due in December of the same year. The amount should be allowed as a deduction from gross income for 1920. ■ ■

The deficiency for 1921 should be computed by allowing a deduction for exhaustion, wear and tear, computed at the rates mentioned above for 1920.

The evidence shows that the reserve of $12,000 for 1921 for doubtful accounts was reasonable and should be allowed. The evidence further shows that commissions totaling $19,223.36 were paid or incurred and that they were legitimate business expenses. The Commissioner allowed a deduction of only $6,938.41 on this account. The petitioner is therefore entitled to a further deduction of $12,-285.25.

*1001In 1921 petitioner sold the two Marmon automobiles acq'uired in 1920, at a loss of $4,008.95, and the income for that year should be reduced accordingly. It further appears that certain machinery was sold in 1921 at a loss of $8.95. The Cook County personal property taxes, amounting to $1,771.20, for 1921, constituted a proper deduction for that year. The petitioner kept its books and rendered its returns upon the accrual basis.

Order of redetermination wül be entered on 15 days' notice, under Rule 50.