dissenting: I can not agree with the conclusion reached in the foregoing opinion. The object of each of the Revenue Acts from 1913 to 1928 is the taxation only of net income and the purpose of all of the provisions of those Acts in defining gross income and allowing deduction of specific items is to arrive at actual net income. Where the construction placed on any one of those provisions in determining a rule for application upon the facts of one *249case to determine true net income has the effect of distorting income when applied to a case upon different facts, it merely indicates that the second case is an exception to the rule.
The conclusion reached in the foregoing opinion is upon authority of the decision of the Supreme Court in Lucas v. American Code Co., 280 U. S. 445; and certain decisions of the Board referred to in the opinion of the court. An examination of the opinion in Lucas v. American Codé Co., supra, and those of our cited decisions in which a liability was held not subject to accrual, shows them to be upon facts vitally different, in my opinion, from those existing in this proceeding. In none of those cases was the liability which was sought to be accrued either definite and possible of approximate determination in amount, or it was one not applicable to income of fhe year in which accrual and deduction were sought and to that year alone. In Lucas v. American Code Co., supra, the liability was one for breach of a contract of employment which had many years to run and had no connection with the production of income of the particular year in which the deduction was sought. In that case the court said:
In the case at bar, tlie contract had nearly eighteen more years to run, at the time of its breach. Liability for the breach was denied and strenuously contested, tlie litigation being carried to the highest court of the State. The amount of the damages, if any, was wholly unpredictable. While the facts determining liability had occurred in the year of the breach, the amount to be recovered, if there was legal liability, depended in large part on the course of future events. Farquhar was under a duty to mitigate damages. He might have procured new employment which would have reduced his recovery to a nominal amount. Or, recovery might have been reduced or defeated by his death. * * *
In the present case the taxpayer, in order to resell the sugar at the existing market price and realize an added gain over what it would have received from delivery under the existing contracts at 11.76 and 12 cents per pound, breached these contracts and by its voluntary act incurred the liabilities here in question, and by reason of this action was enabled to immediately resell the sugar on the market at 18 cents per pound and the additional $64,896 of income thus realized was included by it in its return for 1920. The liabilities thus voluntarily assumed and through which the realization of the additional income was effected bore no relation in character to the liability involved in the foregoing case, and which the court held to be not subject to accrual because the amount recoverable was “ wholly unpredictable ” and “depended in large part on the course of future events.” In the xDresent case the contract prices and the market price at the date of breach were known factors upon which a reasonably correct estimate could be made of the extent of the liability. The fact that the taxpayer would be called upon to satisfy these liabilities was reason*250ably certain when within the taxable year three of the five parties instituted suit for the breach and the other two took the same action shortly thereafter. Finally, the item is one which pertained wholly and exclusively to income for the year 1920. Its deduction from income of that year will only result in the determination of the real net income, its exact amount is now known, and the settlement of the tax liability for that year is still open and before us for determination. Not only is this the case, but the item must be admitted to be one which the taxpayer is to be allowed as a deduction for some period and to apply it against income of any other year but 1920, would, in my opinion, be a manifest distortion of the income for such year. Considering the admitted facts the liability is one, in my opinion, so definite and so subject to reasonable estimate that it falls clearly, within the excepted class referred to by the court in Lucas v. American Code Co., supra, as “losses which are so reasonably certain in fact and ascertainable in amount as to justify their deduction, in certain circumstances, before they are absolutely realized.”
The conclusion which I draw from the stipulated facts is that these liabilities, incurred in the fiscal year 1920, as an incident of the production of the income received and reported for that year, being definite and not dependent on the course of future events but subject to reasonable estimation, could under our decisions properly have been accrued in that year by the taxpayer in amounts representing the differences between the contract prices of 11.76 and 12 cents per pound and the market price at the date of the breach, and such amounts would have been adjustable to the sums in each case finally determined by judgment or compromise. Producers Fuel Co., 1 B. T. A. 202; Raleigh Smokeless Fuel Co., 6 B. T. A. 381; Fraser Brick Co., 10 B. T. A. 1252. I do not think that it can be said that the taxpayer, by its failure to accrue these liabilities on its books in 1920, has lost its right to deduct them now by adjustment of the net income returned. The tax liability for that year is still open for settlement and the determination of the real and actual net income for that year is the purpose of this proceeding. If the items in question were subject to accrual they were, as items pertaining wholly to income of that year, necessarily to be accrued to correctly reflect income, and to charge them now as of that year is merely to correct the mistake then made. This petitioner’s tax liability is not determined by the books it kept, but by the net income it received. Its books are merely looked to as one of the sources of evidence of such income which can not be increased or diminished by a failure to enter proper debits or credits.
I think that the sum of $42,100, representing the total of the judgments finally recovered and compromises effected for breach of the contracts in question, is an allowable deduction in arriving at net *251income for the fiscal year 1920, in which year the liabilities accrued and in which petitioner received and reported the $64,896 of additional income realized through the action imposing the liabilities.
Lansdon, Phillips, Seawell, and McMahon agree with this dissent.