*2509 1. The Commissioner's action in disallowing the application of the 25 per cent reduction provided by Title XII, Revenue Act of 1924, to that portion of petitioner's income returned for 1924 which came from the proportionate 1923 earnings of his partnership, which had a fiscal year, is approved. Charles Colip,5 B.T.A. 123">5 B.T.A. 123, followed.
2. Petitioner's earned income and resulting earned income tax credit, determined.
3. The Commissioner's motion to increase the deficiency as disclosed by the deficiency notice for the taxable year in question, other than the notice of deficiency appealed from, denied. See Georgiana McFetridge,9 B.T.A. 759">9 B.T.A. 759.
*766 This proceeding was brought for the redetermination of a deficiency in income tax for the calendar year 1924, in the amount of $923.10, the notice of which deficiency was mailed to the petitioner on December 3, 1925. The deficiency proposed arose by reason of the Commissioner's action in disallowing the application of 25 per cent reduction to that portion of petitioner's income returned for 1924 which came from the proportionate*2510 1923 earnings of his partnership which had a fiscal year, and by reason of the further action in reducing the earned income of $10,000, as reported by the petitioner, to the amount of $5,985.84, and in computing the earned-income tax credit thereon to be $12.18. The petitioner alleged error on the part of the Commissioner with respect to the action taken.
On December 23, 1926, the Commissioner mailed to the petitioner a second notice of deficiency proposing for the year 1924 a deficiency of $1,316.27. The circumstances surrounding and the basis of the second deficiency notice will sufficiently appear hereinafter. There was no appearance for the petitioner.
*767 FINDINGS OF FACT.
The petitioner is an individual residing at Baraboo, Wis. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning February 1, 1923, and ending January 31, 1924.
The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $15,759.79 as his distributive share of the partnership income for its fiscal year. Of this amount $14,446.47 was reported as his portion of the*2511 partnership income attributable to the year 1923.
During the year 1924, the petitioner was president of the Island Woolen Co., a corporation. In his return for 1924 he reported as earned income the amount of $10,000 upon which, after certain adjustments, there resulted an earned-income tax credit of $55.
Upon audit of his return for the calendar year 1924, the Commissioner applied rates imposed by the Revenue Act of 1921 to $14,446.47 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924 and the Commissioner also reduced the amount of earned income to $5,985.84, and computed the earned-income tax credit to be $12.18. This action by the Commissioner resulted in a deficiency in tax, of which he notified the petitioner on December 3, 1925, stating the amount to be $923.10. Thereafter an appeal was taken to the United States Board of Tax Appeals, within the time required by law, the petition having been filed on February 1, 1926.
On December 23, 1926, the Commissioner, by his usual notice of deficiency, advised the petitioner that for the year 1924 there was a deficiency of $1,316.27. This notice of deficiency contained the following statement:
*2512 IT:PA:60D-Conf.
In re: Edward P. McFetridge, 515 Fourth Avenue, Baraboo, Wisconsin.
Year 1924
Deficiency in tax. $1,316.27
The report on the audit of your books of account and records for the year 1924 made by the Internal Revenue Agent in Charge at Milwaukee, Wisconsin, under date of May 17, 1926, has been reviewed by this office and approved with the following exception:
The income subject to tax at 1924 rates has been increased by $1.00 to $29,831.51, due to the correction of an error in computation.
The revised computation follows:
| 1924 Net Income reported | $29,432.13 | |
| Add: Increase in partnership income | $111.72 | |
| Foreign interest | 287.66 | 399.38 |
| Adjusted net income | 29,831.51 | |
| Less: Dividends | $504.00 | |
| Personal exemption | 2,500.00 | |
| U.S. Interest | 2,005.21 | $5,009.21 |
| Balance subject to normal tax | 24,822.31 | |
| Amount subject to normal tax at 2% | 4,000.00 | |
| Balance | 20,822.31 | |
| Amount subject to normal tax at 4% | 4,000.00 | |
| Balance subject to normal tax at 6% | 16,822.31 | |
| Normal tax at 2% | 80.00 | |
| Normal tax at 4% | 160.00 | |
| Normal tax at 6% | 1,009.34 | |
| Surtax on $29,831.51 at 1924 rates | 904.84 | |
| Tax liability at 1924 rates | 2,154.18 | |
| Less: Earned income credit | 55.00 | |
| 2,099.18 | ||
| 1923 net income reported | $14,760.34 | |
| Add: Increase in partnership income | 1,228.98 | |
| 1923 net income adjusted | 15,989.32 | |
| Less: United States Interest | 328.94 | |
| Balance subject to normal tax at 8% | 15,660.38 | |
| Normal tax at 8% | 1,252.83 | |
| Surtax on $15,989.32 ($29,831.51 to $45,820.83) at 1923 rates | 2,644.39 | |
| Tax liability at 1923 rates | 3,897.22 | |
| Total tax liability | 5,996.40 | |
| Less: Tax paid at source | 13.80 | |
| Balance of tax due | 5,982.60 | |
| Previously assessed | 4,666.33 | |
| Deficiency in tax | 1,316.27 |
*2513 *768 Payment should not be made until a bill is received from the Collector of Internal Revenue for your district and remittance should then be made to him PS:KMC
The increase of the deficiency for 1924 from $923.10 to $1,316.27, as disclosed by the notice of December 23, 1926, was due to an increase in partnership income of $1,339.50, based on a revenue agent's report, and the inclusion in income of $287.66, foreign interest.
The petitioner took no action with respect to the notice of deficiency dated December 23, 1926.
This proceeding was called for hearing on May 10, 1927. The petitioner did not appear nor did any representative appear for him. At the hearing the Commissioner, by his attorney, moved to increase *769 the deficiency appealed from, to wit, $923.10, to $1,316.27, the amount stated in his notice of December 23, 1926. In support of this motion, the deficiency notice of December 23, 1926, the revenue agent's report upon which that notice was based, and a memorandum from the assistant to the Commissioner to the General Counsel of Internal Revenue, were introduced in evidence.
OPINION.
*2514 LOVE: The first contention of the petitioner is that the Commissioner erred in disallowing the application of the 25 per cent reduction provided by section 1200 of the Revenue Act of 1924 to that portion of his income for 1924 which came from the proportionate 1923 earnings of his partnership, which had a fiscal year. The issue thus presented has heretofore been considered by the Board in , wherein it was held that the Commissioner did not err by reason of such action. Accordingly, his action in this respect herein is approved.
The petitioner's next contention is that the Commissioner erred in reducing his earned income from $10,000 as reported by him, to $5,985.84, thereby reducing the earned-income tax credit of $55, as claimed. It is also contended by the petitioner that the earned-income tax credit of $12.18 as computed by the Commissioner on earned income of $5,985.84 is erroneous on its face.
The petitioner alleged that for the year 1924 he received as salary from the Island Woolen Co., a corporation, the amount of $25,416.67, of which amount he reported as earned income the maximum allowed by the statute, to wit, $10,000, which*2515 amount, it is alleged, was erroneously reduced to $5,985.84. In his answer, the Commissioner admits that the petitioner reported the amount of $25,416.67 as salary but denies the receipt thereof and he further admits that the earned-income tax credit of $12.18, as computed by him, was based upon the amount of $5,985.84. The burden of proof with respect to the amount of salary received, is, therefore, on the petitioner.
In support of a motion to increase the deficiency herein, which motion will be considered hereinafter, the Commissioner, by his attorney, introduced in evidence, solely for the purpose of showing the method of computing the increased deficiency, a revenue agent's report covering the year in question, a memorandum from the assistant to the Commissioner to the General Counsel of Internal Revenue and the notice of deficiency, dated December 23, 1926, which notice sets forth the increased amount in respect of which the motion was made. All of these documents, introduced for the limited purpose of showing the method of computing the increased deficiency, if considered as evidence for any other purpose, tend to substantiate the *770 petitioner's allegation with*2516 respect to the amount of salary received and his consequent right to report and have his earned-income tax credit computed on the basis of $10,000. We are of the opinion, however, that the above-described documents have been introduced in evidence for the limited purpose stated. They do not constitute proof of the receipt of the alleged salary or overcome the presumption of correctness with respect to the Commissioner's action in reducing earned income to $5,985.84.
We agree, however, with the petitioner's contention that the earned-income tax credit of $12.18 computed on earned income of $5,985.84 is erroneous on its face. The Commissioner's computation in the notice of deficiency of December 3, 1925, is as follows:
| COMPUTATION OF TAX. | |
| 19. Earned Income | $5,985.84 |
| 20. Less Personal Exemption and Credit for Dependents | 2,500.00 |
| 21. Balance (Item 19 minus 20) | 2,485.84 |
| 22. Amount taxable at 2% (not over the first $4,000 of Item 21) | 2,485.84 |
| 23. Amount taxable at 4% (not over the second $4,000 of Item 21) | None |
| 24. Amount taxable at 6% (balance over $8,000 of Item 21) | None |
| 25. Normal Tax (2% of Item 22) | 48.72 |
| 26. Normal Tax (4% of Item 23) | None |
| 27. Normal Tax (4% of Item 24) | None |
| 28. Total Normal Tax Computed on Earned Net Income | 48.72 |
| 29. Credit of 25% of Tax on Earned Net Income | 12.18 |
*2517 It is apparent that in subtracting Item 20 from Item 19, an error of $1,000 was made. The correct computation is:
| Earned income | $5,985.84 |
| Less personal exemption and credit for dependents | 2,500.00 |
| Balance | 3,485.84 |
| Taxable at 2% | 69.72 |
| Total normal tax | 69.72 |
| Credit of 25% | 17.43 |
The remaining point for consideration, the Commissioner's motion to increase the deficiency for 1924 from $923.10, as proposed in the notice of December 3, 1925, and from which this appeal is brought, to $1,316.27, as proposed in the notice of December 23, 1926, has been decided adversely to the Commissioner in . Accordingly, the motion herein is denied.
The deficiency proposed in the notice of December 3, 1925, should be recomputed, giving effect to the correct earned-income tax credit of $17.43.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.
TRUSSELL dissents.