*2540 Held, that the petitioner is not entitled to have its profits tax determined under the provisions of section 328 of the Revenue Act of 1918.
*1046 This proceeding is for the redetermination of a deficiency in income and profits taxes of $171.11 for the fiscal year ended June 30, 1920. The only matter in controversy is whether during the taxable year there existed such abnormalities in capital and income as to bring the petitioner within the purview of section 327(d) of the Revenue Act of 1918 and thereby entitle it to have its profits tax computed under section 328 of that act.
FINDINGS OF FACT.
The petitioner is a corporation with its principal office at Danville, Va. The petitioner is a dealer in leaf tobacco. It buys, handles, dries, and sells leaf tobacco as a principal, and in some cases as an agent or broker. In buying tobacco the purchases made one day were to be paid for on the following morning. Where tobacco was purchased for foreign customers it was usually held in the United States by the petitioner, *2541 who put it in a storage house, where it remained for a considerable time. When the petitioner shipped the tobacco to the parties for whom it was bought a draft was drawn against them. On this class of transactions the petitioner charged interest from the day an invoice was made out to it for the tobacco. In some cases interest was being charged by the petitioner when in fact it had not paid for the tobacco. Purchases made for domestic companies did not have to be carried and, consequently, the petitioner *1047 did not charge interest on them. During the year here involved the petitioner included in income as interest received the amount of $363,854.94 and deducted as an expense the amount of $275,781.18, representing interest paid in that year, making net income from interest for the year of $88,073.76.
During the taxable year and for a number of years the petitioner borrowed large amounts of money for the purpose of carrying its customers' accounts and for completing orders for leaf tobacco. Some of the loans were obtained upon the petitioner's notes without endorsement, while others were obtained upon the petitioner's notes with the endorsement of its officers. In*2542 some cases the officers would give a blanket guarantee to a bank for a certain amount and would bind themselves for a specific length of time to the bank in question up to a certain amount in order to save the trouble of endorsing each particular note of the petitioner. In many cases the officers gave their individual notes for money used by the petitioner. The petitioner was not able to borrow on its own notes, unendorsed, the amount of money it needed and did borrow. The following is a statement of the money obtained by the petitioner in the foregoing ways during the year ended June 30, 1920:
| Company notes not | Company notes | Company notes | |
| indorsed | guaranteed by | indorsed by | |
| officers | officers | ||
| Outstanding June 30, 1919 | $148,000.00 | $775,000.00 | $46,000.00 |
| Borrowed during year ended | |||
| June 30, 1920 | 2,421,543.63 | 6,385,000.00 | 618,223.75 |
| Total | 2,569,543.63 | 7,160,000.00 | 664,223.75 |
| Paid during year ended | |||
| June 30, 1920 | 2,519,543.63 | 6,460,000.00 | 569,223.75 |
| Outstanding June 30, 1920 | 50,000.00 | 700,000.00 | 95,000.00 |
| Officers' notes | Total | |
| Outstanding June 30, 1919 | $255,000.00 | $1,224,000.00 |
| Borrowed during year ended June 30, 1920 | 611,000.00 | 10,035,767.38 |
| Total | 866,000.00 | 11,259,767.38 |
| Paid during year ended June 30, 1920 | 696,000.00 | 10,244,767.38 |
| Outstanding June 30, 1920 | 170,000.00 | 1,015,000.00 |
*2543 The respondent denied the petitioner's application for a determination of its profits tax under section 328 of the Revenue Act of 1918.
OPINION.
TRAMMELL: The petitioner contends that its use of borrowed capital during the taxable year produced an abnormality affecting capital and income within the meaning of section 327 of the Revenue Act of 1918. It does not contend that the amount of money borrowed by it without the security of its officers is abnormal, but does contend, as stated in its brief, "that the amount of money borrowed upon the individual notes of the officers is very unusual, for the corporation was in no way responsible for these notes, but received the benefit of *1048 them and the officers in guaranteeing, endorsing and borrowing upon their notes placed their individual property in jeopardy for the benefit of the corporation without any consideration or compensation."
Whether the use of borrowed money creates an abnormality within the meaning of section 327 is a question of fact to be determined from the evidence. *2544 .
The petitioner offered evidence only as to the amount of borrowed money and submitted no evidence as to its invested capital or as to the total amount of capital used in the business during the taxable year. Neither was any attempt made by the petitioner to show the average amount of each or either class of capital for the whole or any portion of the taxable year.
There is no definite testimony as to petitioner's income. The evidence shows that the excess of interest received by the petitioner over that paid was $88,073.76. No evidence directed to the amount of petitioner's gross income was offered.
There are some statements in the petitioner's brief to the effect that the net amount of interest of $88,073.76 received is attributable to the money borrowed by the officers and turned over to the corporation and that the money obtained through the borrowings of the officers and upon their endorsement and guarantee was used by the petitioner without any cost to it. A careful examination of the record discloses nothing to support either of these statements. With respect to the petitioner using borrowed*2545 capital obtained in the manner mentioned without cost to it, the record tends to refute rather than substantiate the petitioner's statement.
From the record we are unable to determine whether the use of borrowed capital in the proportions used by the petitioner created an abnormality which resulted in undue hardship. Clearly the mere fact alone that borrowed capital was used in the business is not sufficient for the granting of special assessment. ; ; .
Nor is the mere fact that money was borrowed without cost in itself an abnormality.
We think the petitioner has failed to establish any abnormality in capital or income and its contention that its profits tax should be determined under section 328 of the Revenue Act of 1918 must be denied.
Judgment will be entered for the respondent.