Hurwitz v. Commissioner

*136 This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1922 in the amount of $4,810.29.

The following errors are alleged:

(1) In determining the profit from the sale, in 1922, of the stock in trade, fixtures and good will of a cigar, stationery and toy store, the Commissioner has taken a chattel mortgage of $26,250 received *137 as a part of the sales price as being the equivalent of cash to the extent of its face value, whereas, such mortgage had no market value, or if such mortgage had a fair market value, such value would not exceed $17,500; and

(2) In determining the profit on the sale referred to above, the Commissioner has determined the cost of the stock in trade of the store to be $5,000, the amount paid for the stock in trade of the store when it was*2637 purchased by the taxpayer in 1913, whereas the cost to the taxpayer of the stock in trade included in the sale made in 1922 was at least $30,000.

FINDINGS OF FACT.

The petitioner is an individual residing at Far Rockaway, New York. In 1913 petitioner entered in business at Cedarhurst, Long Island, by purchasing a store for $12,000. No contract for the purchase of the store was entered into. In return for the $12,000, the petitioner received $5,000 in merchandise, $11,000 in fixtures and $6,000 in good will. The petitioner continued business at this location until 1920. He then moved next door into a larger store. Up to this time petitioner had dealt in tobacco, candy and toys. In the new store petitioner, in addition, handled sporting goods, commercial stationery, willow ware, etc.

Cedarhurst is a summer colony in which most of the business is done during the period from about the middle of June until Labor Day. In the original store petitioner did about $20,000 worth of business annually.

During the first year, in the larger store, the petitioner did about $48,000 worth of business. The summer business constituted nearly half of the entire business. Petitioner*2638 paid $7,400 for fixtures for the new store.

The profit derived on sales was about 1/3 of the selling price or 1/2 the cost of the goods sold.

On July 1, 1922, petitioner, by written contract, sold the Cedarhurst store. The selling price was $56,250. The written agreement does not show the terms of the sale but the petitioner testified that $30,000 was to be paid in cash at the time of transfer of title to the store and the balance of $26,250 was to be paid in monthly installments. Fifty-three notes were given for the payment of this balance, all in the sum of $500, except the final note which was for the amount of $250. These notes were secured by a chattel mortgage. The purchaser also gave petitioner a note for $800 to cover a deficiency in the cash payment. This note was payable after all the other notes had been paid.

The expense incurred in the sale amounted to $2,750, which included attorney fees and also commissions to three agents.

*138 Petitioner gave the notes as collateral to a loan of $10,000. He also gave his own note for payment of the $10,000.

At the time of the sale the petitioner and the purchaser, together, made a rough inventory of the*2639 assets in the store.

The petitioner's return for the year 1922 shows total income from the Cedarhurst store of $28,862.10. This represents the cash taken in which is the same as the amount of business done by the petitioner. This return shows that the cost of the merchandise sold was $21,049.68.

During the year 1922 the petitioner kept in his stores a purchasing book and a day book. The latter book showed the amount that was taken in every day. These two books are now lost.

OPINION.

SIEFKIN: The petitioner, on July 1, 1922, sold the stock in trade, fixtures and good will of a cigar, stationery and toy store which he owned in Cedarhurst, N.Y. He received therefor $29,200 in cash. The agreed cash payment was $30,000, but a note for the remainder was taken. In addition the petitioner received 53 notes payable monthly, of a total face value of $26,250. These 53 notes were secured by a chattel mortgage. The petitioner contends that the respondent erred in computing the profit derived from the sale in considering that the chattel mortgage was worth its face value. However, there is no evidence upon which we can determine the value of the notes or the chattel mortgage*2640 and the holding of the respondent will not be disturbed.

The petitioner further contends that in determining the profit on the sale, the respondent erred in holding that the cost of the stock in trade of the store was $5,000. Petitioner contends that such cost was at least $30,000.

The petitioner testified that a rough inventory was taken about the time of the sale, but the evidence does not disclose the amount thereof. In the absence of evidence of the cost of the stock in trade sold we must uphold the determination of the respondent.

Judgment will be entered for the respondent.