
    Appeal of BAUMANN RUBBER CO.
    Docket No. 6745.
    Decided July 31, 1926.
    
      Albert Marmheimer, Esq., for the petitioner.
    
      Arthur H. Fast, Esq., for the Commissioner.
    Before Phillips and Trammell.
   Trammell:

This is an appeal from the determination of deficiencies in income taxes for the years 1919 and 1921 in the amounts of $626.08 and $6,246.38, respectively. The deficiencies result from the disallowance of depreciation claimed by the taxpayer (decrease made by the Commissioner in the opening inventory in 1919), and the disallowance of bad debts in 1921.

FINDINGS OP PACT.

The taxpayer is a Connecticut corporation organized in 1891, having its principal office at New Haven. ' It is engaged in the manufacture and sale of rubber specialties.

A building, part frame and part brick, in which petitioner conducted its business, was erected in 1895 — with some additions made a short time thereafter — at a total cost of $50,000.

In 1917 a new brick building was erected and both buildings were used by the taxpayer in carrying on its business. In 1918 a portion of the new building was leased to. the McTal Rubber Co., a corporation. This company also used part of the equipment and some of the supplies of the Baumann Rubber Co. The rent for the building and the equipment and the goods obtained from the taxpayer were not paid for when due. The amount due for rent and for the goods obtained by the McTal Rubber Co. was reported as income each year and carried as merchandise sales. At the close of the j^ear 1921 the McTal Rubber Co. was indebted to the taxpayer in the amount of $10,232. This amount was taken as a deduction by the taxpayer as a bad debt in 1921, because the president of the McTal Rubber Co. claimed that his company was financially embarrassed and unable to pay its creditors. The McTal Rubber Co. had not ceased doing business in 1921, but continued as a tenant and used the building and equipment of the taxpayer. In the early part of 1922 it turned over to the taxpayer machinery of the value of $800 to apply on account.

’ The taxpayer claims depreciation on the old building for the years in question at the rate of 5 per cent on depreciated cost. The Commissioner has allowed 3 per cent depreciation. There was no proof whether such allowance was on original cost, on depreciated cost, or on the March 1, 1913, value.

After the taxpayer had entered its opening inventory for 1919, it discovered that it had more crude or raw rubber on hand than the actual inventory disclosed, and added $7,500 to its opening inventory. The Commissioner allowed $3,813.46 to be added, which was all that could be substantiated by vouchers or other evidence, and disallowed such part as was based on unsubstantiated estimates.

The deficiencies are $626.08 for 1919 and $6,216.38 for 1921. Order of redetermination will he entered accordingly.  