Chapin Constr. Co. v. Commissioner

*27OPINION.

Teussell:

The Commissioner has filed a plea in bar to the right of the taxpayer to maintain its appeal as to the year 1922 on the ground that there has not been, since the enactment of the Kevenue Act of 1924, a determination by the Commissioner that a deficiency in tax is due from the taxpayer for that year and that the Commissioner has not, since the enactment of the Kevenue Act of 1924, proposed to assess a deficiency in tax against taxpayer for the year 1922. The record discloses that the Commissioner has determined that there is additional tax due from the taxpayer for each of the years 1919, 1920, and 1921, and an overassessment for the year 1922, making a net deficiency from which the taxpayer has appealed. The plea in bar is overruled on the authority of the Appeals of E. J. Barry, 1 B. T. A. 156; and Hickory Spinning Co., 1 B. T. A. 409.

The record in this appeal shows that the Commissioner proposes to assess additional tax against the taxpayer for the year 1920 in the amount of $6,322.42. The amount of this proposed additional assessment was arrived at on the theory that the only tax heretofore assessed against the taxpaper for the year 1920 was that assessed on the original return in the amount of $4,423.90, whereas there had theretofore been assessed, on an amended return, an additional tax in the amount of $4,309.31. The Commissioner, in his answer filed herein, admits that the additional tax in the amount of $4,309.31, assessed against the taxpayer on its amended return in the year 1922, was not taken into consideration in determining the deficiency for the year 1920, involved in this appeal. It therefore follows that the deficiency for the year 1920, as determined by. the Commissioner, should be reduced by the amount of tax assessed on the taxpayer’s amended return for that year.*

This taxpayer appears to have consistently followed a system of accounting based upon completed contracts and, without any reference to the time when contract moneys have been received or the work actually performed, the total contract price has been treated as gross income and the total cost of performance of the contract has been treated as deductions in the year in which the original construction work under the contract was completed. This method of accounting for road, paving, and similar contracting *28appears to be in accord with generally approved accounting methods. Practically all of these kinds of contracts require that the contractor shall maintain and repair the roads or streets built or paved by it for a specified term of years, and experience has demonstrated that under the repair and maintenance provisions of such contracts the contractor will be required to expend various sums of money for repairs during the maintenance period. Whether the relationship between the gross price of the contract and the cost of future repairs has ever been or can be worked out to a reliable percentage basis has not been shown in the record of this appeal and is not known to the Board. However, in total disregard of the merits, if any, of this accounting question, the Board has determined in other appeals that reserves for repairs and maintenance under conditions such as those existing in this appeal can not be allowed as a deduction from gross income. Appeals of Uvalde Co., 1 B. T. A. 932; Consolidated Asphalt Co., 1 B. T. A. 79.

We therefore find: That there is no reason for modifying the deficiency determined by the Commissioner for the year 1919; that the deficiency for the year 1920 should be reduced by the amount of $4,309.31, assessed upon an amended return; and the excess profits tax, if any, for the year 1921 should be computed upon the basis set forth in Appeal of Guarantee Construction Co., 2 B. T. A. 1145.