Peck Coal Corp. v. Commissioner

*189 This is a proceeding for the redetermination of deficiencies in income and profits taxes for the calendar years 1920 and 1921 in the amounts of $1,034.79 and $7,361.89, respectively.

The question involved is whether the petitioner had such abnormalities affecting its capital, as provided in section 327 of the Revenue Acts of 1918 and 1921, so as to entitle it to assessment under section 328 of said Acts.

FINDINGS OF FACT.

The petitioner is a corporation with its principal office at Port Chester, N.Y. During the years involved, that is, 1920 and 1921, it was engaged in the business of selling coal and wood as fuel, building materials, and kindred products at retail.

For the year 1920 the petitioner's gross sales, less returns and allowances, amounted to $296,832.90. Its net income as finally determined by the Commissioner was $7,190.56 and its invested capital*2898 as determined by the Commissioner was $24,065.29. During 1920 its mortgage indebtedness was $1,900; its loans amounted to $6,180; accounts payable $30,712.71 and notes payable, $11,871; making a total of all these items of $50,663.71. For 1920 its accounts receivable were $56,186.47.

For 1921 its mortgage indebtedness was $1,900; its loans amounted to $1,688.03; accounts payable $32,135.36 and notes payable $16,135.36, a total of all of these items of $51,877.70. For 1921 its gross sales, less returns and allowances, were $395,184.24. Its accounts receivable were $53,580.98. Its invested capital for that year as determined by the Commissioner was $27,987.68 and its net taxable income for that year as determined by the Commissioner was $25,800.52.

OPINION.

TRAMMELL: It is contended by the petitioner that the foregoing facts indicate that there were abnormalities affecting petitioner's capital which bring it within the provisions of section 327(d) of the Revenue Acts of 1918 and 1921.

*190 The petitioner further contends that the accounts payable and notes payable were in effect borrowed money used by the petitioner in its business in the production of its income*2899 and that the total amount of borrowed money, including these items, was so large in comparison with its invested capital as to constitute an abnormality when the gross sales and net income are taken into consideration. The record also discloses that the petitioner during 1920 had accounts receivable in the amount of $56,186.47 and for 1921 had accounts receivable in the amount of $53,580.98. The accounts payable and receivable at the end of each of the years indicate that the petitioner both bought and sold to some extent on credit, but the credit purchases in this case, even if we should hold that they constitute the use of borrowed capital, are not shown to constitute an abnormal situation as contemplated by section 327. The mortgage indebtedness is not explained, but, in our opinion, both the money actually borrowed and the purchases made on credit represented by notes payable are not shown to have constituted such an abnormal condition affecting the petitioner's capital as is contemplated in section 327. It may well be that the use of as much money as was borrowed by the petitioner and the use of credit of which the petitioner availed itself during the years involved to the*2900 extent involved in this case was the usual, normal and ordinary course of business dealings by corporations engaged in the same or similar enterprises.

Judgment will be entered for the respondent.