*2143 ACCOUNTING PERIOD. - For many years prior to the taxable year the petitioner closed its books and determined its income for an accounting period of a fiscal year ending May 31. This regularly established custom was continued in 1921 and the books were closed as of May 31. Returns, however, were filed under the 1918 Act and also for 1921 upon the basis of calendar years. Held, these returns were not in accordance with the statutes, see sections 232 and 212(b) of the Revenue Acts of 1918 and 1921; the deficiency having been determined by the respondent from the books and for the accounting period ended May 31, 1921, and there being in the record no proof that the computation of the deficiency was erroneous, it may not be disturbed.
*346 The petitioner seeks a redetermination of a deficiency in income tax for 1921 determined by the respondent in the amount of $4,049.57, claiming (1) that the accounting period should be the calendar *347 year 1921 and not a fiscal year ended May 31, 1921, as determined by*2144 the respondent; (2) reasonable deductions for depreciation have been disallowed; (3) unwarranted deductions from invested capital have been made; (4) the proposed deficiency is barred by the statute of limitations; and (5) conditions affecting income are abnormal. At the hearing the petitioner abandoned all of the issues save (1) respecting the accounting period to be observed.
FINDINGS OF FACT.
The petitioner is a Minnesota corporation with principal office at Minneapolis, and was engaged in the business of general job printing. It was incorporated in 1913, and commenced business on November 24, 1913. In accordance with the articles of incorporation and the by-laws, annual meetings of the stockholders and of the board of directors were regularly held in June or July of each year. At the stockholders' annual meetings held in 1918, 1919, and 1920, financial statements were presented, accepted, and spread upon the minutes, reporting the profits for fiscal years ending May 31. The regular annual meeting of the stockholders for 1921 was held on July 5 and a statement was presented, accepted, and spread upon the minutes, reporting the net profits for the year ended May 31, 1921, in*2145 the amount of $21,343.65. The regular annual meeting of the board of directors was held immediately thereafter, upon the same day, at which meeting it was voted that the salary of the secretary-treasurer should "remain the same for the coming year." A dividend of 20 per cent was declared with provision for the transfer of the balance of the net profit to the surplus account.
The business annually experienced a slack period extending from June until the middle of September. The books were kept upon the accrual method. During the period beginning December, 1913, and ending June, 1927, allowances for depreciation were accrued upon the books monthly. The petitioner maintained a card record perpetual inventory of its supplies and raw materials. Physical inventories were taken as of May 31 of each year and the ledger account reflecting the book value of the inventory was regularly adjusted as of that date to conform with the physical inventory. Physical inventories were taken as of December 31, 1919, and 1920, but no adjustments were entered upon the books with respect to these inventories and they can not be produced by the petitioner. Beginning in 1921 physical inventories were*2146 taken twice a year, as of May 31 and of December 31 and the book value of the inventory was adjusted twice a year to conform with the physical inventory. The net profits were determined upon the books as follows: at the end of each month during the period beginning December, 1913, and ending May, *348 1914; for six-month periods ended November 30, 1914, and May 31, 1915; for fiscal years ended May 31, during the period beginning June 1, 1915, and ending May 31, 1921; for fiscal periods ended December 31 and May 31 during the periods beginning June 1, 1921, and ending December 31, 1924. The several net profits were transferred to the surplus and undivided profits account.
The petitioner filed its return for 1918 upon the basis of a fiscal year ended November 30, and it filed its returns for 1919 and 1920 on the calendar year basis.
The examination of the books and records by a revenue agent was made in September, 1921, for the taxable years 1917 to 1920, inclusive. This examination resulted in a report by the revenue agent, of which the petitioner was advised, that the books were kept upon the basis of an accounting period ending May 31 in each year, and a recommendation*2147 that the tax liabilities be determined for 1918, 1919, and 1920, upon the basis of a fiscal year ending May 31.
A strike of the printers occurred in the summer of 1921, greatly handicapping the petitioner's business.
The petitioner filed returns on the calendar year basis for 1921, 1922, and 1923.
The books and records were examined by revenue agents in September, 1925, for the fiscal year 1922, and on or about March 1, 1926, for the fiscal years 1923 and 1924.
The tax liabilities of the petitioner have been determined by the respondent for the years 1918 to 1924, inclusive, upon the basis of a fiscal year ending May 31. Deficiencies thus detemined for 1919, 1920, 1923, and 1924 have been paid by the petitioner and a refund tendered for 1922 has been accepted by the petitioner.
OPINION.
TRUSSELL: The petitioner having abandoned at the hearing all other claims set out in the petition, there remains for determination here only the question of the proper accounting period for 1921. The petitioner filed a return on the calendar year basis. The respondent has determined the deficiency for an accounting period of a fiscal year ended May 31, 1921.
An examination of*2148 the books of account which are in evidence develops the fact that beginning in 1915, the petitioner regularly closed its books and determined its income for accounting periods ended May 31. With respect to the accounting procedure adopted we are satisfied the books clearly reflected the income. The petitioner, therefore, was definitely established upon the basis of a fiscal year ending May 31 within the purview of sections 232 and 212(b) of the Revenue Act of 1918, and it accordingly closed its books and *349 determined its income for 1918, 1919, and 1920 for such fiscal years. Under the 1918 Act the tax liabilities were required to be determined upon the said fiscal year periods as in fact they have been determined by the respondent, and accepted by the petitioner. Clearly the returns filed by the petitioner on the calendar year basis were not in accordance with the statute and they can have no effect upon the issue before us.
Again in 1921, following its long established custom, the petitioner closed its books and determined its income for the accounting period of the fiscal year ended May 31. The deficiency before us has been determined from the books and for the*2149 said fiscal year, exactly as provided in section 232 and 212(b) of the Revenue Act of 1921. These facts are conclusive of the issue. Under the statute the determination must be approved. It is not material what accounting innovations the petitioner introduced in the subsequent period of seven months ended December 31, 1921.
Our conclusion is thoroughly consistent with the course followed by the parties with respect to the several years immediately prior and the several years immediately subsequent to the taxable year; by the respondent in determining the tax liabilities for accounting periods of said fiscal years and by the petitioner in paying the several deficiencies thus determined, and in accepting the refund tendered for the fiscal year 1922, which year, of course, is inclusive of the seven-month period ended December 31, 1921, which the petitioner seeks to inject into the issue here.
Judgment will be entered of a deficiency in the amount of $4,049.57 as determined by the respondent.