*4054 Inventory. - Part of petitioner's inventory of raw materials adjusted from cost to market in accordance with testimony respecting wholesale selling prices existing in December, 1920.
*710 This proceeding is for a redetermination of a deficiency in income and profits tax in the amount of $3,619.92 for the calendar year 1920, as asserted by the respondent.
The petitioner alleges that the respondent erred in increasing its closing inventory for the year 1920.
FINDINGS OF FACT.
The petitioner is a California corporation with its principal place of business in San Francisco where it is engaged in the manufacture *711 of men's and boys' hats and caps. In the operation of its business, the petitioner purchases woolens, silks and some cotton from manufacturers and jobbers in large bolts or full pieces and parts of bolts or remnants.
The opening inventory for 1920 was based on cost and the closing inventory as of December 31, 1920, showed:
| Raw material, woolens at cost | $15,174.67 |
| Trimmings and supplies at cost | 3,546.95 |
| Finished goods at cost | 3,642.90 |
| Total | 22,364.52 |
| Estimated market value of total inventory | 10,607.12 |
*4055 In computing cost of goods sold the petitioner used the closing inventory value of $10,607.12; the Commissioner used the cost of inventory value of $22,364.52.
OPINION.
TRUSSELL: The record of this action contains the testimony of the principal officer of the petitioner corporation who testified generally concerning the character of the goods on hand at the end of the year 1920, and his views respecting the market values of such goods on December 31 of that year. The record also contains the testimony of Herbert Rabiner, a member of the firm of S. Naitove & Co., of New York City, and also a salesman for said company, who testified that his firm had sold to the petitioner a large portion of the raw materials contained in the petitioner's inventory and that his conpany's sales to the petitioner had been made during the early part of the year 1920 and prior to the general drop in prices of merchandise of the character contained in the petitioner's inventory. He testified that during the late months of 1920 the wholesale trade of such goods was thoroughly demoralized; that there was little demand for merchandise of the character here under consideration and that his company was, *4056 during December and on December 31, offering goods of the same character as those contained in the petitioner's inventory at figures from 30 to 40 per cent under former list prices, and that if petitioner had been purchasing from his firm the goods contained in the petitioner's inventory he would have been able to buy them at figures from 30 to 40 per cent less than the list prices at which the same goods had been sold. This testimony puts into concrete figures the generalizations made by the petitioner in its effort to reduce its closing inventory to market and establishes that the woolen raw materials, contained in the petitioner's inventory, should have been reduced by at least 30 per cent from cost. We are, therefore, of the opinion that that portion of the petitioner's inventory represented *712 by woolen raw materials at a cost of $15,174.67 should be reduced to $10,622.27, and the total inventory should be reduced to $17,812.12.
The deficiency should be recomputed accordingly.
Judgment will be entered upon 15 days' notice, pursuant to Rule 50.