*2486 1. ACCOUNTING PERIOD. - Where the petitioner kept its accounts on a fiscal year basis and made its returns on a calendar year basis, the respondent properly taxed the petitioner on the fiscal year basis under section 212(b), Revenue Acts 1918 and 1921.
2. ID. - Where the petitioner changed its accounting period from a fiscal year to a calendar year and filed its returns on the basis of calendar years, which were accepted and approved by the Commissioner, and petitioner was taxed and deficiencies determined thereon, this is a compliance with sections 212(b) and 226, Revenue Acts of 1918 and 1921, and authorizes a separate return for the period between the close of the last fiscal year and the following December 31.
*932 The respondent determined deficiencies in income and profits taxes for the fiscal year ending July 31, 1920, in the sum of $2,202.43, and for the five-month period ending December 31, 1920, in the sum of $2,140.46. Petitioner alleges that the respondent erred in taxing it on the basis of a five-month*2487 period from August 1, 1920, to December 31, 1920, and a calendar year thereafter, and claims that it should have been taxed on the basis of a fiscal year beginning August 1, 1920, and ending July 31, 1921. It claims that it made no application to change its accounting period from a fiscal year to a calendar year, and the adjustment of the respondent based on such change was unauthorized.
The parties filed a written stipulation and from it we make the following findings of fact.
FINDINGS OF FACT.
The taxpayer is the Jonas Cadillac Co. and is the same corporation as the Jonas Auto Co. named in the deficiency letter. The name of the Jonas Auto Co. was changed to "Jonas Cadillac Company" to meet the requirements of certain provisions of the laws of the State of Wisconsin. The change in name was made subsequent to the taxable periods covered by this appeal.
The books of the petitioner were closed on the basis of a fiscal year ending October 31, to and including the fiscal year ended October 31, 1916. The books of the petitioner were thereafter closed at July 31, 1917, July 31, 1918, December 31, 1919, December 31, 1920, and *933 December 31, 1921. The petitioner*2488 filed its income and profits-tax returns for the taxable years 1917 to 1924, inclusive, upon the basis of a calendar year ending December 31.
In the audit of the petitioner's returns, the Commissioner adjusted the accounting periods for income-tax purposes from a calendar year basis to the basis of a fiscal year ended July 31, 1918, a fiscal year ended July 31, 1919, a fiscal year ended July 31, 1920, a five-month period beginning August 1, 1920, and ended December 31, 1920, and calendar years ended December 31, 1921, 1922, 1923, and 1924.
The said Jonas Auto Co. has never requested nor received permission from the Commissioner of Internal Revenue, under the provisions of section 212 of the Revenue Act of 1918 or section 212 of the Revenue Act of 1921, to change its accounting period, unless it be considered that the filing of the return for the year 1921 by the petitioner on a calendar year basis and the acceptance of the 1921 return on that basis by the Commissioner constitutes a request and the granting of permission under section 212.
In determining the deficiency of $2,202.43 for the fiscal year ended July 31, 1920, the Commissioner computed the income for the fiscal*2489 year ended July 31, 1920, by determining the net income for the 17-month period ended December 31, 1919, using five-seventeenths thereof and seven-twelfths of the net income for the calendar year 1920. The commissioner determined the amount to be credited against the tax found due by taking the tax assessed on the return for the calendar year 1919 and the tax assessed on the return for the calendar year 1920, dividing the same into twelfths, and adding five-twelfths of the tax assessed on the return filed for the calendar year 1919 to seven-twelfths of the tax assessed on the return filed for the calendar year 1920.
In determining the deficiency of $2,140.46 for the five-month period ended December 31, 1920, the Commissioner of Internal Revenue computed the net income for the said five-month period by taking five-twelfths of the net income of the Jonas Auto Co. for the calendar year 1920. The Commissioner determined the amount to be credited against the tax found due for the said five-month period by taking five-twelfths of the tax assessed on the return filed for the calendar year 1920.
There were no changes that took place in the system of accounting followed by the Jonas*2490 Auto Co. and its adopted manner of filing returns on the calendar year basis between the period July 31, 1920, and July 31, 1921.
The petitioner filed its returns for the respective years 1921 to 1924, inclusive, on the basis of a calendar year and the Commissioner accepted that basis of reporting income for those years. The returns *934 for the respective calendar years 1921 to 1924, inclusive, were audited in connection with a revenue agent's report, which audit resulted as follows:
| Deficiency | Overassessment | |
| Calendar year: | ||
| 1921 | $ 108.37 | |
| 1922 | $ 829.71 | |
| 1923 | 236.44 | |
| 1924 | 100.85 | |
| Total | 1,167.00 | 108.37 |
| Net deficiency | 1,058.63 |
In arriving at the above deficiency for the calendar year 1922, the petitioner was allowed as a deduction from net income for that year an amount of $17,490.37 determined to be a net loss for the calendar year 1921.
The petitioner consented to the findings of the revenue agent as shown above and on December 17, 1925, filed with the Commissioner of Internal Revenue the following agreement:
Jonas-Cadillac Company (Parent)
Milwaukee, Wisconsin.
AGREEMENT CONSENTING TO ASSESSMENT OF A DEFICIENCY.
The undersigned*2491 taxpayer hereby waives the right of appeal under Section 274(a) of the Revenue Act of 1924 with respect to the items listed below * and consents to the immediate assessment of the deficiency in tax resulting therefrom. These items are included in a deficiency in tax aggregating $1,058.63 as indicated in the report of the Revenue Agent in Charge at Milwaukee, Wisconsin, dated November 18, 1925.
JONAS CADILLAC COMPANY
By (Signed) Aug. A. Jonas
Pres.
Date Dec. 17th, 1925.
OPINION.
MILLIKEN: Under section 212(b) of the Revenue Acts of 1918 and 1921 it was the duty of the petitioner to make its returns for taxation according to its annual accounting period and its net income should have been computed on that basis. In 1918 petitioner's annual accounting*2492 period was kept on a fiscal year basis ending July 31. Petitioner *935 in filing its returns for said year made them on a basis of a calendar year and thus failed to comply with section 212(b). Beginning December 31, 1919, and since that date petitioner has closed its accounts on a calendar year basis and has made its returns for taxation in accordance therewith. So far as the record shows this change in accounting period from fiscal year to calendar year was of petitioner's volition, and was repeated by petitioner year after year to and including 1924. These calendar year accounting periods and returns were duly filed, accepted by, and overassessments and deficiencies determined thereon by the respondent for the years 1921, 1922, 1923, and 1924, which were accepted in writing by petitioner.
Section 212(b) provides in substance that if the taxpayer changes his accounting period the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226. This latter section provides that if the change is made with the Commissioner's approval a separate return shall be made for the period*2493 between the close of the last fiscal year and the following December 31. Tersely stated, the two sections merely mean that when a change is made in the accounting period it must have the approval of the Commissioner, and a separate return must be made for the short period resulting from the change. The method of approval by the Commissioner is not indicated.
When the respondent audited the petitioner's returns for 1918, 1919, and 1920, it was at once apparent that petitioner had failed to comply with section 212(b), as it kept its accounts on a fiscal year basis and made returns on a calendar year basis for 1918. The computation of income and tax by the respondent on the fiscal year basis was merely complying with the law and was correct. In , we said:
The Revenue Act of 1918 required a taxpayer keeping his books of account on the basis of a fiscal year different from the calendar year to make returns upon the basis of such fiscal year. The taxpayer was compelled to change the basis of reporting net income from the calendar year to a fiscal year.
On this basis of computing petitioner's net income and tax the fiscal year ended*2494 July 31, 1919, and the following fiscal year ended July 31, 1920, and when respondent agreed to the change in accounting period, January 1, 1921, to that of a calendar year beginning on that date, it necessarily left a period of five months from July 31, 1920, to December 31, 1920. Sections 212(b) and 226, Revenue Acts of 1918 and 1921, provide that changes in accounting period shall be with the approval of the Commissioner. In the instant case petitioner voluntarily changed its accounting period to that of a calendar year and filed returns thereon for four successive years, and these *936 returns were accepted by the respondent, who acted thereon in determining overassessments and deficiencies, which action of respondent was agreed to in writing by petitioner.
Petitioner now contends that it never asked permission to change its accounting period and that therefore its tax should still be computed on the fiscal year basis. While it may not in words have asked such permission, it made the change, and by accepting the returns on the new basis for four years and basing his action thereon the respondent necessarily approved the change and the requirements of sections 212(b) *2495 and 226 were satisfied. It does not lie in the mouth of petitioner to now say it did not ask or desire the change in accounting period.
Our attention is called to the cases of , and , as establishing the rule that a taxpayer must apply in a formal manner for the Commissioner's approval and receive same before changing his accounting period, but in those cases the petitioners failed to ask permission to make the changes, and, when made, the Commissioner refused to accept the new accounting period as the basis of his computation. They are therefore not in point, for in the instant case the respondent approved the change.
The respondent's action relative to the five-month period from July 31, 1920, to December 31, 1920, was correct and is approved. ; ; ; .
Judgment will be entered for the respondent.
Footnotes
*. Where the taxpayer consents to the assessment of the entire amount of the deficiency shown by the letter from the Commissioner or as indicated in the report of the Revenue Agent in Charge, the items need not be listed; reference may be made to the letter or report.
NOTE: This agreement is subject to the approval of the Commissioner and is not an agreement as provided under Section 1006, Revenue Act of 1924. ↩