*1069 Before IVINS, 1 KORNER, and MARQUETTE.
This is an appeal from the determination of a deficiency in income tax for the year 1918 in the amount of $1,255.89.
FINDINGS OF FACT.
The Tower Gasoline Co., of Oklahoma City, is a corporation organized during the year 1916. In 1917 the company constructed plants at Cushing, Dilworth, and Blackwell, Okla., and upon completion *1070 plants at Cushing, Dilworth, and Blackwell, Okla., and upon completion thereof, on September 22, 1917, these three plants were transferred to certain individuals, of whom the taxpayer was one. These individuals thereupon formed three separate corporations, known as the Tower Gasoline Co. of Cushing, the Tower Gasoline Co. of Dilworth, and the Tower Gasoline Co. of Blackwell, and put into each corporation the plants theretofore constructed, receiving therefor the stock of the said corporations. The accounts of the taxpayer and of the other participants were thereupon charged on the books of the Tower Gasoline*2176 Co. of Oklahoma City with their pro rata part of the cost of construction of the various plants above mentioned.
On September 24, 1917, the Tower Gasoline Co. of Blackwell, the Tower Gasoline Co. of Dilworth, and the Tower Gasoline Co. of Cushing entered into certain contracts with the taxpayer and others, whereby said corporations agreed to pay to the individuals a certain royalty on each and every gallon of gasoline which the company should make or extract from the oil used and treated by it, such payment to be made quarterly, beginning on the 1st day of January, 1918. On December 31, 1917, there were accrued on the books of said subsidiaries as royalties to the taxpayer the following amounts:
| Tower Gasoline Co. of Blackwell | $4,597.32 |
| Tower Gasoline Co. of Dilworth | 1,254.72 |
| Tower Gasoline Co. of Cushing | 1,218.30 |
| 7,070.34 |
As the royalties were earned the said corporations would charge royalties payable, and, under the taxpayer's instructions, credited the Tower Gasoline Co. of Oklahoma City. The latter corporation would in turn credit the taxpayer's account with the amount of such royalties. This was done as a short cut, instead of the subsidiary companies*2177 paying the money to the taxpayer and the taxpayer in turn paying it to the parent corporation in cancellation of a part of his account representing advances for construction of the plants.
The first quarterly payment for royalties in the amount of $7,070.34, accrued on the books of the subsidiary corporations at December 31, 1917, was credited to the taxpayer's account upon the books of the Tower Gasoline Co. of Oklahoma City on March 27, 1918, and each credit thereafter to his account was made on the last day of each quarter, that is to say, on March 31, June 30, September 30, and December 31.
The taxpayer makes his returns upon the basis of cash receipts and disbursements, and the Commissioner has included as income for the year 1918 the amount of royalties accrued by the three subsidiaries *1071 to the taxpayer to December 31, 1917, and credited to his account on the books of the Tower Gasoline Co. of Oklahoma City on March 27, 1918.
DECISION.
The determination of the Commissioner is approved.
Footnotes
1. This decision was prepared during Mr. Ivins's term of office. ↩