*1760 1. The Commissioner's decision on a question of law does not estop him from reversing his opinion though after his first decision a part of the tax paid had been refunded.
2. Additions to a reserve for discounts may not be taken as a reduction of price where the discounts were certain percentages off a fixed price dependent upon the time of payment, of which about 90 per cent of the taxpayer's customers availed themselves irrespective of the time of payment, especially where the taxpayer in a proceeding before the Board involving a deficiency for the next succeeding year had agreed to the redetermination of such deficiency by taking a reduction equal to its actual discount and where such redetermination was favorable to the taxpayer.
*1162 The Commissioner determined a deficiency in income tax for the fiscal year ending November 30, 1923, in the amount of $1,640.86, the whole of which is in controversy. The petitioner alleges that the respondent erred (1) in attempting to reopen this case*1761 and make an assessment after a final determination had been made in or about May, 1926; and (2) in refusing to allow as a deduction discounts actually deducted by customers of the petitioner during the fiscal year involved, and also in refusing to allow discounts accrued during that year.
FINDINGS OF FACT.
The petitioner is a corporation organized in 1890 under the laws of New York, with its principal office at Rochester, N.Y. It is and was engaged in the manufacture and sale of men's clothing. The terms for payment given to its customers, particularly during the years ended November 30, 1922, 1923 and 1924 were: 30 days from date of invoice, then 7 per cent in 10 days, 6 per cent 30 days, 5 per cent 60 days, and net thereafter. About 90 per cent of the petitioner's customers took advantage of these discounts irrespective of the time of payment, and this policy has been in effect both as to the petitioner, its predecessors, and their customers for about 40 years. In 1911 or 1912 the petitioner opened on its books an account entitled "Discount Reserve a/c." This account was continued from that time until at least November 30, 1925. This account was credited from time to time*1762 with the estimated amount of the discounts that the petitioner expected its customers to take. These credits were *1163 computed upon a percentage of the sales, using a 3-year average to determine the rate. When a discount was taken by a customer it was charged to the discount account and the balance of the discount account was charged to the reserve for discount. The following are the amounts of the net additions to this reserve and the amounts of the discounts actually given in the fiscal years ending November 30, 1922 and 1923:
| Year | Net addition to reserve | Discount given |
| 1922 | $284,478.26 | $298,120.43 |
| 1923 | 321,051.06 | 307,924.15 |
In reporting its income for these two fiscal years the petitioner reported its gross sales by first deducting from the gross amount of sales returns and allowances and as allowances it took in each of the above years the amount of its net addition to its reserve for discounts. In October, 1925, the books of the petitioner were investigated by a revenue agent who in his report recommended overassessments for the year ending November 30, 1922, in the amount of $673.48 and for the year ending November 30, 1923, in the amount*1763 of $1,726.76. In making his recommendations, the agent left undisturbed the deductions taken by the petitioner of its net additions to its discount reserve. A copy of this report was furnished the petitioner, which in October, 1925, signed Form 873, in which it stated that it had examined the report, agreed to the findings therein and that it would not be necessary to withhold action thereon as no protest would be made. In May, 1926, the Assistant to the Commissioner mailed to the petitioner two written communications in which it was stated that upon an audit of the petitioner's tax returns for 1922 and 1923 by a revenue agent it was disclosed that the petitioner was entitled to overassessments for the fiscal years ending November 30, 1922 and 1923, in the respective amounts of $673.48 and $1,726.76, and that this report was approved. A check for the overassessment of $673.48 and interest in the amount of $92.13 was enclosed. Of the overassessment of $1,726.76, the amount of $569.20 was abated and a check for the remainder of the overassessment and for interest in the sum of $98.48 was inclosed.
On July 23, 1927, the Commissioner sent by registered mail to the petitioner a*1764 deficiency notice in which he determined a deficiency in income tax for the year ended November 30, 1924, in the amount of $6,526.30 and an overassessment for the year ending November 30, 1925, of $1,805.34. In making this determination, among other things, the Commissioner added to the petitioner's gross income for *1164 the first year "Reserve for Discount" $52,209.53 and for the second year he added the same item in the amount of $5,747.18. On October 30, 1927, at an informal hearing held between representatives of the petitioner and of the Commissioner the petitioner signed the following statement:
The taxpayer corporation hereby agrees, for purposes of stipulation, to the adjustment of its income tax liability for the fiscal years ended November 30, 1924, and November 30, 1925, on the following bases:
For the fiscal year ended November 30, 1924, the net income as shown in the registered deficiency letter dated July 23, 1927, is to be decreased by $69,787,65, representing discounts which were actually allowed customers during the year in the settling up of their accounts, which discounts were not charged off by the corporation in ascertaining its net income for the*1765 year, but instead, were charged against a reserve of like amount that had been provided for these allowances at the close of the preceding year.
The tax computation for said fiscal year should be revised accordingly, resulting in an overassessment instead of the deficiency heretofore calculated.
For the fiscal year ended November 30, 1925, the net income as shown by the registered deficiency letter dated July 23, 1927, is accepted as correct, and the overassessment resulting therefrom is hereby agreed to.
It is further hereby understood and agreed that by the entering into of this stipulation that said taxpayer does not in any way [sic] waive its rights, for taxable years subsequent to November 30, 1925, to contend for the accruing of customers discounts, and its rights to a reserve for bad debts method in the computation of net taxable income, and said taxpayer shall not be held to have prejudiced its claims for any taxable years subsequent to November 30, 1925, to said items, by the entering into of this stipulation.
On February 28, 1928, a stipulation was entered into between the petitioner and the General Counsel of the Bureau of Internal Revenue, the counsel*1766 for the Commissioner:
UNITED STATES BOARD OF TAX APPEALS
STEIN-BLOCH COMPANY, Petitioner. vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Docket No. 31382
STIPULATION
It is hereby mutually agreed by and between the parties to this appeal, by their respective counsel, that for the fiscal year ended November 30, 1924, the correct tax liability is $20,471.56; that there has been assessed and paid the sum of $22,668.72 and that there is accordingly an overpayment of $2,197.16 for this year; that the Commissioner has determined an overassessment for the fiscal year ended November 30, 1925; and that accordingly the Board has no jurisdiction as to that year under the provisions of Section 274(g) of the Revenue Act of 1926.
Subsequent to all this the Commissioner mailed to the petitioner a check for $2,197.16 (the amount of the overassessment for the year *1165 ending November 30, 1924) and $323.28. interest and also a check for $1,805.34 (the amount of overassessment for the year ending November 30, 1925) and interest in the amount of $157.61. In the letter mailing the check for the overassessment for the year ending November 30, 1924, it is stated:
The overassessment*1767 shown herein is in accordance with the order of redetermination issued by the United States Board of Tax Appeals on March 17, 1928, Docket No. 31,382.
The agreement of February 28, 1928, is a part of the record in the proceeding . That proceeding was based upon the deficiency notice mailed July 23, 1927. The petition in that proceeding alleged the following errors:
(a) The Commissioner's failure to allow discounts actually deducted by customers during the fiscal year ended November 30, 1924, amounting to $69,787.65. The Commissioner's failure to allow accrued discounts for the fiscal year ended November 30, 1924, of $52,209.53.
(b) The Commissioner's failure to allow accrued discounts for the fiscal year ended November 30, 1925, amounting to $57,956.71. The Commissioner's failure to allow a reserve for bad debts for the fiscal year ended November 30, 1925, of $17,000.00.
On February 7, 1928, the Commissioner mailed to the petitioner the deficiency notice on which the petition in this proceeding is based, and therein determined the deficiency above set forth, all of which is the result of the addition by the Commissioner*1768 to the petitioner's gross income for the year ending November 30, 1923, of the sum of $13,126.91, which is the amount by which the additions to the petitioner's reserve for discount exceeds the amount of discount actually taken by its customers during that fiscal year.
OPINION.
MURDOCK: This proceeding was submitted upon the pleadings, depositions and exhibits attached, and three exhibits filed at the hearing by the petitioner and one filed by the respondent. No oral testimony was given by either party at the hearing.
In support of its first contention the petitioner relies upon , in which the court in effect held that where a Commissioner with all the facts before him has determined the March 1, 1913, value of certain stock of the Ford Motor Company and such valuation has been approved by his successors in office, a later Commissioner in the absence of fraud or mistake was without power to increase such valuation. In the opinion in that case, especially as construed by the same court in *1769 , it was pointed out that, while the Commissioner *1166 might not in such a case change his determination as to a fact, he had the right to change his opinion on a pure question of law. That is all he has done in the instant proceeding. On practically the same facts we, in , reached a different conclusion from that reached in the Kales case, and such has been our consistent holding since the former decision. See especially ; affd., , where the court said:
But the sole question presented by the record before us is not whether the first action of the Commissioner in allowing the deduction was right or wrong but whether having once determined the matter and the tax computed upon such determination having been paid, the Commissioner had power or authority in the absence of fraud or other new evidence to reopen the case, disallow the deduction theretofore allowed by him and make a redetermination of the tax. In support of their contention that the Commissioner was without*1770 power to reopen the case and make a redetermination, the petitioners, the taxpayer's executors, rely upon (C.C.A. 6) and the Commissioner's Order of January 20, 1923, while the Commissioner finds support for his opposite view in , (C.C.A.2.), (C.C.A.8), (C.C.A. 6), Sections 1312 and 1313 of the Revenue Act of 1921, 42 Stat. 227, and Sections 1006 and 1007 of the Revenue Act of 1924, 43 Stat. 253.
The statutory provisions last referred to were first introduced in the Revenue Law of 1921 and were reenacted without substantial change in the Act of 1924. They were explained in the Report of the Senate Finance Committee on the Internal Revenue Bill of 1921, page 31, thus: "Under the present method of procedure a taxpayer never knows when he is through, as a tax case may be opened at any time because of a change in ruling by the treasury department. *1771 It is believed that this provision will tend to promote expedition in the handling of tax cases and certainty in tax adjustment." These provisions appear to be intended to apply to determinations and assessments made after their passage in any case even though the tax liability may have arisen out of an earlier statute and they are sufficiently broad for that purpose. Furthermore, they prescribe the steps for making final and conclusive not compromises, as does R.S. Sec. 3229, but the payment of any tax based on a determination and assessment. And the law is that when a statute limits a thing to be done in a particular mode, it includes a negative of any other mode.
In the case at bar, the statutory procedure was not followed in that there was no agreement in writing, or otherwise, that the determination and assessment of February, 1924, should be final and conclusive. As a consequence, we are constrained to hold that the determination and assessment of 1924 were not final and conclusive and that the Commissioner was not estopped or otherwise barred, by the payment and acceptance of the tax based on such determination*1772 and assessment, from reopening the case and making the further determination subsequently made by him.
In the brief filed in its behalf the petitioner raises the question of estoppel. In so doing reference is made to the testimony of its *1167 officers to the effect that they relied upon the action of the respondent in approving the revenue agent's report on its taxes for the years 1922 and 1923 and in refunding or abating a part of the taxes for these two years. It further claims that the respondent did not change his determination until it was too late for it to file a claim for an additional refund of its taxes for 1922 to which it was entitled if the respondent is right in his later determination as to 1923. It may be stated that we are not informed as to the date when the petitioner filed its income-tax return for 1922, nor the date upon which it paid in full all its taxes for that year, nor when it first knew that the respondent had changed his opinion, and for these reasons we can not determine whether after the petitioner first knew of the respondent's reversal of opinion it was then too late for it to file a claim for refund. However this may be, we find nothing*1773 in the record to create an estoppel against the United States if in fact the Government can be estopped by the action of its officers (Cf. ), especially in matters of taxation, which are vital to its very existence.
The respondent proceeded in a legal way. He not only changed his opinion in respect of the taxes for the year 1923, but also as to the taxes for 1924 and 1925. This appears from the deficiency notice covering these years, which was placed in evidence by the petitioner. This and two other exhibits filed by the petitioner, the stipulation of February 28, 1928, and its letter of the Commissioner transmitting the check for overassessment for 1924, disclose the fact that the stipulation was filed with the Board in the proceeding by the petitioner under Docket No. 31382 and that the refund was made in pursuance of a redetermination by the Board. Our attention being thus drawn directly to our own record, it is our duty to look to this record to determine what occurred in that proceeding. *1774 ; . We have therefore incorporated in our findings of fact the allegations of error in the petition in that proceeding. In that proceeding, among others, precisely the same issue was raised that appears here, with this difference in fact, that it appears from our records that for the year 1924 the petitioner's actual discounts exceeded its accrued discounts by over $17,000, while for 1923 its accrued discounts exceeded its actual discounts by something over $13,000. There, as here, the petitioner had the right to try out the issue and attempt to secure the benefit of its accrued discounts. Instead of doing this the petitioner entered into an agreement by which it was agreed that it was entitled to deduct its actual discounts. This agreement was not filed with the Board, but there was filed with it the stipulation based on this agreement consenting to an *1168 overassessment for 1924, which was afterwards paid to and accepted by the petitioner. Having in this way secured from the Board a decision which in effect approved the position taken by the respondent and having*1775 accepted the benefit of that decision, the petitioner now asks the Board to decide that the respondent's contention is wrong. While the respondent is now occupying a position as to the tax for 1923 which is inconsistent with his position as to the taxes for 1922, it appears that the petitioner's position as to 1924 is also inconsistent with his attitude as to 1923, the year in question. Neither side can derive much comfort from the attitude of the other as to the taxes for these various years. If one is estopped, so is the other, and the estoppels, if any, are mutual.
Furthermore, if the petitioner desired finality with respect to the respondent's determination as to the taxes for 1922 and 1923, the road was open to it to secure an agreement pursuant to section 1006 of the Revenue Act of 1924 or section 1106 of the Revenue Act of 1926 and the method pointed out by these sections was the only method by which a final agreement as to these taxes could have been had. . We find no merit in the petitioner's first contention.
The allegation in the second assignment of error to the effect that the respondent*1776 has refused to allow discounts actually deducted is refuted by the facts proven. He has allowed all discounts actually taken and the only question left is whether he erred in disallowing the excess of the discounts accrued over the amount of discounts actually taken.
A taxpayer may take into consideration its trade discounts in determining the amount of its gross sales, since this is but a method of determining the actual price for which articles are sold. Cf. . On the other hand, the Board has consistently held that additions to reserves for cash discounts may not be deducted, for the reason that the nature of such discounts is contingent, and for the further reason that deductions of additions to reserves are not allowed unless permitted by the revenue acts, the only exception so provided being reasonable additions to reserves for bad debts provided by section 214(a)(7) and section 234(a)(5) of the Revenue Act of 1921 and similar provisions in succeeding revenue acts. ; *1777 ; ; affd., ; Cf. .
The petitioner billed its goods to its customers at fixed prices subject to discounts ranging from 7 to 5 per cent, depending upon when payments were made. The actual prices were dependent upon *1169 the varying amounts of discount that might or might not be taken. We are met here with the contention that these discounts were in fact trade and not cash discounts and its officers so testified. This contention is based upon the following testimony given by the petitioner's accountant.
Q. Before we go into the question of the actual books and Bookkeeping, can you tell us the percentage of sales made to customers who take a discount irrespective of the terms of payment?
A. I should say about ninety per cent.The petitioner's secretary and treasurer in answer to the same question, but referring particularly to the years 1922, 1923 and 1924 answered: "Better than ninety per cent." This testimony is*1778 by no means clear. We are not informed what were the rates of which this 90 per cent took advantage - whether of the 7 per cent, the 6 per cent or the 5 per cent discount, nor are we informed whether this percentage permitted the whole time to pass within which the discounts were deductible according to the terms of sale before making payment. Further, we are not told whether there existed a favored class of buyers who always took the discount and a smaller class to whom this privilege was denied, or whether the customers shifted from one class to the other for reasons not disclosed. It may be that as to certain customers these discounts were in fact trade discounts, but on the evidence before us it is impossible to make any classification whatever. On the other hand, the evidence does not disclose what was the course pursued by the remaining 10 per cent, whatever this classification may mean. In the absence of testimony on this point we assume that they paid according to the billing; that is, they took or did not receive discounts according to the time of payment. As to these it is clear the ultimate prices paid by them were contingent upon times of payment.
If as contended*1779 by the petitioner, these discounts were in fact trade discounts resulting in a flat rate of prices irrespective of the time of payment, there was no necessity of going through the process of taking averages on the basis of three years for the purpose of ascertaining what would be proper additions to its reserve for discounts. The fact that it was necessary to make this complex computation shows that the petitioner did not know what were the precise prices it would receive for its wares; that a distinct element of contingency existed and, further, that this reserve was created for the purpose of taking care of this contingency. But a reserve to cover a contingent liability is not allowable as a deduction. .
, upon which the petitioner relies, is not in point, since there the discounts were *1170 taken advantage of in all sales. We are convinced that in cases like this a deduction of discounts actually taken results in a closer approximation to true income than the deduction of estimated discounts. Further, our decision in the petitioner's first appeal*1780 made upon its stipulation should not now be in effect overruled except for the most cogent reasons. To hold that actual discounts should be deducted in one year and accrued discounts in the preceding year would result in a distortion of income.
Judgment will be entered for the respondent.