This is an appeal from a determination by the Commissioner of a deficiency in income and profits taxes for the year 1917, amounting to less than $10,000, due to the exclusion by the Commissioner of $5,876.95 from the taxpayer’s invested capital, and the disallowance of a deduction to the extent of $1,575.
FINDINGS OP PACT.
The taxpayer! is an Indiana corporation. Until 1916 its books were so kept that it was impossible to determine from them the cost of the various items going into the taxpayer’s products. In April, 1916, it was decided to employ an accountant and systematizer to devise and install a modern cost-accounting system, The firm of A. L. Preston & Co., of Milwaukee, was retained for this purpose. It was agreed that Preston & Co. should be paid on the basis of per diem services rendered by members and assistants. Payments were made to Preston & Co. by the taxpayer from time to time in 1916 and 1917, as follows:
June 28, 1916_$1,000. 00
August 19, 1916_ 1, 000. 00
September 12, 1916_^_ 1,000. 00
October 14, 1916_ 1,000.00
November 3, 1916_ 1,204. 37
December 6, 1916_ 672.58
Total in 1916_$5, 876.95
January 11, 1917_$1, 320. 72
February 15, 1917_ 50. 00
February 28, 1917_ 446. 04
April 17, 1917_-_ 833.24
Total in 1917_ 2, 650. 00
Total__. 8,526.95
Work done by A. L. Preston & Co. consisted of making a complete examination of the taxpayer’s books and its affairs and of making recommendations and installing an accounting system. Some changes were made in this system in 1918. The taxpayer, in its income-tax returns for 1917 and 1918, treated the entire amount of $8,526.95 as a deferred expense and deducted one-half of it from its *1381917 gross income and one-half from its 1918 gross income. It also included the amount of $5,876.95, which had been paid in 1916, in its invested capital for 1917. The Commissioner, in auditing the taxpayer’s return for 1917, eliminated such sum of $5,876.95 from invested capital and disallowed as a deduction for 1917 the sum of $1,575, representing the difference between the amounts actually paid in 1917 and the amount deducted in the 1917 return, upon the theory that the amounts paid to Preston & Co. were ordinary, necessary expenses of carrying on the business and were accrued and paid in 1916 and deductible from 1916 gross income only.
DECISION.
The determination of the Commissioner is approved.