*1046 Before IVINS and MARGUETTE.
This appeal came on for hearing on March 26, 1925, upon the pleadings. The taxes in controversy are income and profits taxes for 1919, 1920, and 1921, and are less than $10,000. Upon the pleadings the Board adopts the following findings of fact submitted by counsel for the Commissioner:
FINDINGS OF FACT.
1. That the taxpayer was, during the years 1919, 1920, and 1921, a corporation engaged in business in Grand Rapids, Mich.
*1047 2. That it was engaged in the purchase and sale of automobiles, automobile accessories, etc.
3. That in its business it followed the practice of accepting second-hand cars as partial payment of the sales price of new automobiles which it sold.
4. That on December 31, 1918, 1919, 1920, and 1921, respectively, it inventoried its cars, including the second-hald cars, upon the regular established method of inventorying, which appears to have been cost.
5. That on its original returns for the years 1919, 1920, and 1921, it claimed no adjustment on account of "unearned profit reposing in used car inventory."
6. That subsequently to*2699 the filing of the original returns, it caused an examination to be made of its books and records, after which it set up and claimed as deductions on amended returns certain amounts designated by it as "unearned profit reposing in used car inventory."
7. That the amounts were computed by the taxpayer in the following manner:
The sum represented by the amount in the used car inventory at the close of each year plus the cost of used cars sold is divided by the sum represented by the sale price of new cars sold, plus sale price of used cars sold. The quotient thus arrived at represents the percentage of gross profit earned on new cars which have been sold on which used cars have been received as part payment. Gross profit is determined by subtracting the sum represented by the cost of new cars sold plus cost of used cars sold from the sum represented by the sale price of new cars sold plus sale price of used cars sold. The percentage of gross profit earned applied to gross profit represents the amount of gross profit earned. Total gross profit minus this amount represents the amount of gross profit unearned and for the sake of convenience has been labeled "Skeleton Reserve." The*2700 percentage of this skeleton reserve to total sales of new cars is then determined and this percentage is applied to overhead expense. The amount obtained is then added to the skeleton reserve and the sum is the completed reserve for rediscounts which represents that portion of profit on sales of new cars which has not yet been earned. The entry is made by a debit of sales of new cars and a credit to reserve for rediscounts and the entry is reversed in the following year.
8. That the Commissioner disallowed all deductions for "unearned profit reposing in used car inventory."
9. That on October 15, 1921, the taxpayer purchased certain real property from the Grand Rapids Land Contract Co.
10. That the consideration expressed in the contract was $123,160.
11. That the taxpayer set up the property purchased on its books and records at $108,000.
12. That the remaining $15,160 was set up to be amortized as financing charges, for the reason that the Grand Rapids Land Contract Co. sold the bonds which were secured by a mortgage on the land purchased by the taxpayer at a discount of $15,160. The taxpayer was not the obligor under the bonds.
13. That the Commissioner*2701 disallowed the deduction claimed by the taxpayer as amortization on this account and restored the $15,160 to the asset account in which the real property purchased by the taxpayer was carried; and
14. That the taxpayer filed amended returns for 1919, 1920, and 1921, in which depreciation of $1,404.35, $2,080.21, and $4,433.31, respectively, was claimed. The Commissioner in his audit allowed as a deduction from the gross incomes of 1919, 1920, and 1921, respectively, *1048 the amounts of $1,583.14, $2,122.87, and $3,426.07. No evidence has been introduced by the taxpayer.
DECISION.
The determination of the Commissioner is approved.