*3136 Net income determined from the evidence.
*657 In this proceeding the petitioner seeks a redetermination of its income and profits-tax liability for the calendar year 1918, for which the Commissioner has determined a deficiency in the sum of $1,651.43. The issue involved is whether the Commissioner overstated the petitioner's net income for 1918 in arriving at the deficiency.
FINDINGS OF FACT.
The petitioner is a corporation engaged in the cooperative business of buying and selling lumber, flour and feed, grain, coal, and live stock at Boyden, Iowa. It kept books of account on the accrual basis. During the calendar year 1918 it made the following purchases and sales:
| Commodity | Purchases | Sales |
| Corn | $78,736.35 | $79,646.59 |
| Oats | 94,607.17 | 115,998.49 |
| Barley | 14,007.40 | 14,892.86 |
| Wheat | 5,410.20 | 2,074.38 |
| Coal and freight | 17,965.17 | 15,889.70 |
| Lumber and freight | 79,408.55 | 88,101.89 |
| Flour and feed | $19,627.06 | $17,111.01 |
| Twine | 4,929.57 | 5,041.35 |
| Hogs | 312,994.43 | 321,158.63 |
| Cattle | 68,863.75 | 71,238.14 |
| Total | 696,549.65 | 731,153.04 |
*3137 *658 The inventories of the above mentioned commodities at the beginning and end of the calendar year 1918 were as follows:
| Commodity | Dec. 31, 1917 | Dec. 31, 1918 |
| Corn | $2,536.80 | $1,038.75 |
| Oats | 17,233.20 | 1,769.58 |
| Barley | 728.00 | 766.40 |
| Wheat | 3,340.20 | |
| Coal | 3,500.00 | |
| Lumber | 17,482.96 | 17,627.00 |
| Flour and feed | $1,736.63 | $1,714.86 |
| Twine | 545.00 | 560.00 |
| Hogs | 2,494.64 | |
| Cattle | 144.20 | 150.00 |
| Total | 42,901.43 | 30,466.79 |
In addition to the profits derived from the aforegoing purchases and sales the petitioner also received income during 1918 from the following sources:
| Discounts | $1,267.29 |
| Interest | 557.73 |
| Miscellaneous | 100.45 |
| 1,925.47 |
In connection with its business for the year 1918, it incurred the following expenses:
| Livestock expense | $2,522.99 |
| Supplies | 535.31 |
| General expense | 1,110.08 |
| Repairs | 97.80 |
| Drayage | 718.65 |
| Telephone | 119.54 |
| Labor and salaries | 7,537.56 |
| Bonuses (additional compensation) | 200.00 |
| Light and power | $82.11 |
| Income taxes | 1,635.33 |
| Other taxes | 545.75 |
| Freight | 437.24 |
| Interest | 2,502.49 |
| Patronage dividends | 3,200.31 |
| Total | 21,245.16 |
During the taxable year in*3138 question the petitioner used certain property in its trade or business. The Commissioner determined that this property depreciated during the year to the extent of $1,055.42.
The petitioner in operating its business extended a certain amount of credit to its customers. It ascertained during 1918 that at least five of its debtors would never be able to pay their accounts with the petitioner, whereupon the petitioner charged off on its books such accounts amounting to $615.40.
The deficiency determined by the Commissioner was based in turn upon a determination of net income in the amount of $8,918.03. In determining this net income, the Commissioner allowed as one of *659 the deductions from gross income patronage dividends in the amount of $3,200.31.
OPINION.
GREEN: This proceeding involves the broad issue of determining the petitioner's net income for the taxable year 1918 in accordance with section 232 of the Revenue Act of 1918. The elements necessary to such a determination are set out in the findings of fact. A summary of such findings discloses a net taxable income to the petitioner for the calendar year 1918 of $2,813.57, set out as follows:
| Gross sales | $731,153.04 | |
| Inventory Dec. 31, 1917 | $42,901.43 | |
| Purchases during 1918 | 696,549.65 | |
| 739,451.08 | ||
| Inventory Dec. 31, 1918 | 30,466.79 | |
| Cost of goods sold | 708,984.29 | |
| Gross profits | 22,168.75 | |
| Add: Additional income | 1,925.47 | |
| Total | 24,094.22 | |
| Deduct: | ||
| Expenses | $21,245.16 | |
| Depreciation | 1,055.42 | |
| Bad debts | 615.40 | |
| 22,915.98 | ||
| Net book income | 1,178.24 | |
| Add unallowable deductions: | ||
| Income taxes | 1,635.33 | |
| Net taxable income | 2,813.57 |
*3139 The deficiency should be redetermined based upon a net taxable income of $2,813.57 instead of $8,918.03.
Judgment will be entered on 15 days' notice, under Rule 50.
Considered by STERNHAGEN and ARUNDELL.