*2534 Expense items accrued in taxable year, although not paid in that year, allowed as deductions from gross income.
*714 This proceeding is for a redetermination of deficiencies in income tax for the years 1920 and 1921, in the amounts of $3,544.74 and $1,162.65, respectively, a total of $4,707.39.
Petitioner in his petition assigned three errors, the second one of which he waived at the time of the hearing. The first error complains of the action of the Commissioner in disallowing as a deduction commissions earned by and accrued to salesmen in 1920, in the aggregate amount of $18,632.43. The third error complains of the action of the Commissioner in refusing to allow the expense of operating his farm in 1920, in the amount of $5,546.17, and in 1921 the amount of $9,157.20.
FINDINGS OF FACT.
Petitioner is an individual and resides in Memphis, Tenn. In the taxable years in question he operated a retail furniture store and also a farm.
He effected sales of furniture largely through the instrumentality of salesmen*2535 who were paid a salary plus a commission on sales. The *715 commissions were not ascertainable or due until the close of the year's work.
As sales were made by the several salesmen, they were recorded in what was termed a "Sales Book," and the amount of commission earned on each, designated. Some of the sales proved unsatisfactory, and the merchandise was returned. Such returns were recorded in what was termed a "Return Book." On December 31 those two books were audited and compared and the "return" items deducted from the "sales" items, and the difference as to commissions was carried to the ledger and credited as accrued to the several salesmen. Just to what extent those accrued and credited amounts were affected by subsequent returned merchandise does not appear, but under petitioner's established policy it appears evident that they were reduced to some extent before final payment. However, we are satisfied and so find that he paid on those accrued commissions:
| To Bulman | $1,500.97 |
| To Lewis | 1,635.00 |
| To Davidson | 13,260.85 |
| To Lohman | 783.00 |
| To Pappenheimer | 325.00 |
| To Smith | $500.00 |
| To Davis | 1,417.25 |
| To Richards | 759.04 |
| 20,181.11 |
At least*2536 some of the salesmen were paid all that was due them on their 1920 commissions in 1921; some were paid in part in that year and part in the subsequent years. The delay in payment was due to petitioner's want of money to meet such obligations in 1921. The evidence justifies a finding and we so find that at least $20,181.11 was eventually paid by petitioner on the amounts accrued by him in 1920.
The petitioner, in his tax return for 1920, deducted $25,582.56. At the hearing it was stated by counsel for the petitioner that the Commissioner had allowed as a deduction a part of the $25,582.56 and disallowed the balance in the amount of $18,582.56. The error assigned disignates the latter amount as the amount disallowed. Counsel for the respondent stated that the whole amount of $25,582.56 had been disallowed.
The petitioner in 1920 owned a farm. Whether he conducted the farm operations by hired labor or by tenants does not definitely appear in the record. He claimed as a deduction for expenses $5,546.17 for 1920 and $9,157.20 for 1921. He reported no income from the farm. The Commissioner disallowed the whole amount in each year.
OPINION.
LOVE: This is a very unsatisfactory*2537 record. Petitioner claims as deductions amounts for commissions due salesmen, as accrued in *716 the taxable year, though admittedly not paid until in subsequent years. Notwithstanding the very unsatisfactory condition of the record, we are satisfied from a consideration of all the evidence that petitioner paid at least $20,181.11 on the aggregate amount of the commissions accrued by him on December 31, 1920, and he is entitled to a deduction to that extent.
With reference to the farm operations, the record is no more satisfactory than with reference to the commissions. Petitioner presented no books or records regarding his farm expenses. He testified that he had expended the amounts of money claimed by him for each of the years, and that some of it was expended in rebuilding houses and repairing other houses, wrecked or damaged by a storm. Some of it was expended for planting a field of alfalfa, and some for paying accounts due by "managers" on the farm who failed to pay. How much was paid on each item was not disclosed. He also testified that he received some income from the farm, though he could only approximate the amount. Some of the items charged in his expense*2538 account and deducted as expense, such as rebuilding houses, were evidently capital expenditures. How much was capital and how much expenses, we are unable to determine from the record. However, the record does disclose fairly clearly that petitioner expended $290 for alfalfa seed in 1920, which proved a total loss. He testified that he paid taxes on the farm property, also other expense items, but nowhere has he furnished evidence of the amount expended by him on such items.
We, therefore, approve the action of the Commissioner in disallowing the claimed deductions for farm expenses for 1920 and 1921, except as to the one item, $290.
Judgment will be entered under Rule 50.