M. & B. Rubin, Inc. v. Commissioner

*866 The respondent has determined a deficiency in income tax for the year 1920 in the amount of $733.02. The petitioner alleges that it sustained a net loss in 1920.

FINDINGS OF FACT.

During the taxable year the petitioner was a New York corporation, with its principal office at 428 Fifth Avenue, Brooklyn, and was engaged in the restaurant business at said location, and also at 751 Broadway, New York City.

On or about May 5, 1919, the petitioner purchased a certain restaurant, located at 751 Broadway, New York City, for a recited consideration of $20,000, in cash, notes and assumed indebtedness. Prior to January 12, 1921, it transferred the restaurant operated by it at 428 Fifth Avenue, Brooklyn, to the individuals, Morris Rubin and Benjamin Rubin. On January 19, 1921, all its capital stock was sold for the amount of $8,000, subject to the payment of its liabilities at the 751 Broadway restaurant.

The restaurant at 751 Broadway, New York City, was located in an industrial district*4022 in which a strike of needle workers or garment workers occurred during the latter part of 1919 and continued into the year 1920. The petitioner also had labor trouble with his own employees at 751 Broadway, and for about twelve weeks during 1920 said restaurant was picketed by employees on strike. The Broadway restaurant served its patrons for lunch only; it had a seating capacity for about 170 patrons; its overhead expenses were fairly uniform regardless of patrons served. The restaurant at 428 Fifth Avenue, Brooklyn, was without table service or waiters and all food was served at a counter. It was kept open day and night. The gross sales of the petitioner from the operation of its two restaurants were $109,600 for the year 1920, allocated between the Broadway and the Brooklyn restaurants, in the amount of $45,600 and $64,000, respectively. During the taxable year the petitioner employed and paid help at its place of business, 751 Broadway, New York City, in average number and wages per week of services as follows: One chef, $29; one baker, $50; two counter men, $32.50 each; seven waitresses, *867 $7.50 each; two bus boys, $17.50 each; one assistant chef, $32.50; one*4023 dishwasher, $19; and one cashier, $16.50. The total weekly pay roll for help at the Broadway restaurant was $290.50; the total pay roll for help at said restaurant for the year of 52 weeks was $15,106. For similar services at its Brooklyn restaurant, the weekly pay roll was as follows: One chef, $25; one cook, $20; two counter men, $22.50 each; one dishwasher (day time), $16.50; or a total of $106.50. The total pay roll for the Brooklyn restaurant for the year of 52 weeks was $5,538.

The rent paid in 1920 for the leased premises at 751 Broadway, New York City, was $5,000. The rent paid in 1920 for the leased premises at 428 Fifth Avenue, Brooklyn, New York, was $960.

Morris Rubin and Benjamin Rubin together drew salaries for the year 1920 in the amount of $4,500, as managers of the two restaurants.

No evidence was adduced at the hearing as to general items of miscellaneous expense, such as repairs, gas, electricity, ice, insurance, coal, etc.

The petitioner's income-tax return for the year 1920 was made up by a lawyer, and the figures thereon reported were taken from the petitioner's books. This lawyer, however, depended upon either Morris Rubin or Benjamin Rubin, *4024 who were the managers of the two restaurants, throughout 1920, for an analysis of the transactions and items recorded on the books. This return showed a net loss of $984 for the taxable year.

Subsequent to the filing of such return, the books were lost or destroyed when the floor caved in while the restaurant at Brooklyn was being remodeled. Upon audit of such return, the respondent, being unable to find any books, computed the taxable income of the petitioner on the percentage basis. Forty per cent of the gross sales above found were determined as being the gross profit. The taxable net income was determined by taking 12 1/2 per cent of such gross profits so found.

OPINION.

LANSDON: The parties agree that the gross sales of the petitioner from the two restaurants in New York and Brooklyn amounted to $109,600 in the taxable year. The respondent has reduced gross sales to gross income by assuming that such sales resulted in a gross profit of 40 per cent of the amount thereof, and has determined taxable income by the further assumption that the net income was 12 1/2 per cent of the gross income. The petitioner does not question that gross income was 40 per cent of gross*4025 sales, but contends that net income was much less than 12 1/2 per cent of gross income. The record indicates that the New York restaurant was operated at a loss and that *868 substantial profits were realized from the Brooklyn place, but is insufficient for us to determine the actual loss or gain at either place. The evidence does not convince us that the respondent erred in his determination of the taxable income derived by the petitioner from the operation of the two restaurant properties in the taxable year.

Judgment will be entered for the respondent.