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Deakman-Wells Co. v. Commissioner of Internal Revenue.

decided: June 8, 1954.

DEAKMAN-WELLS CO., INC.
v.
COMMISSIONER OF INTERNAL REVENUE.



Author: Maris

Before MARIS, McLAUGHLIN and HASTIE, Circuit Judges.

MARIS, Circuit Judge.

In this case the court is asked to review a decision of the Tax Court. The facts are these. Taxpayer, a corporation organized under the laws of the state of New Jersey, was engaged in the business of constructing buildings. Since its incorporation, taxpayer has kept its books of account on the accrual basis but has filed its federal income tax returns on the cash basis. The accrual method of accounting clearly reflected the net income of taxpayer for each of the taxable years involved and taxpayer's net income should have been computed and reported in its returns in accordance therewith. Taxpayer's return for the taxable year ended April 30, 1947 was filed on July 15, 1947. The notice of deficiency was sent to taxpayer on June 27, 1951. The only portion of the notice relating to the taxable year ended April 30, 1947 concerned the disallowance of a carryback loss from the taxable year ended April 30, 1948 and the allowance of an increased carry-over loss from the taxable year ended April 30, 1945. On September 21, 1951 the taxpayer petitioned for a redetermination by the Tax Court. On September 3, 1952, the Commissioner filed in the Tax Court an amendment to his answer which asserted that the taxpayer had failed to include properly in its gross income the sum of $72,694.87.

Taxpayer's return for the taxable year ended April 30, 1947 did not contain any report on page one of the items includible in its gross income, but in a schedule entitled "Statement of Operations-Fiscal Year Ended April 30, 1947" attached to the inside portion of the return, taxpayer reported and computed its "gross profit" as follows:

"Income

From Construction Contracts, rental of

equipment, etc. $1,471,581.08

Plus: Unpaid Accounts Receivable 4/30/46 10,674.04

1,482,255.12

Deduct Unpaid Accounts Receivable 4/30/47 217,931.43

Sales - Cash Basis 1,264,323.69

Cost of sales

Job Costs 1,323,032.16

Small Tools Consumed ...


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