
    Appeal of ORENTS DEPARTMENT STORES, INC.
    Docket No. 2400.
    Submitted September 24, 1925.
    Decided November 16, 1925.
    An inventory taken at cost may not be reduced by a straight percentage basis to determine market.
    
      E. M. Sclt/wafi-aenberg, Esq., for the taxpayer.
    
      F. O. Graves, Esq., for the Commissioner.
    Before Graupner and Trammell.
    This is an appeal from the determination of a deficiency in income and profits taxes for 1918 in the amount of $2,084.55. The deficiency arises from the disallowance by the Commissioner of the reduction in inventory at the end of 1918 by a straight percentage basis. The taxpayer also claims the benefit of section 328 of the Revenue Act of 1918, upon the ground that its income was abnormally affected for that year on account of the refusal of the Commissioner to accept its closing inventory on the above basis.
    BINDINGS OB FACT.
    The taxpayer was a corporation organized under the laws of Massachusetts, with its principal office at Sagamore. It operated a department store which sold women’s ready-to-wear apparel and shoes and men’s and boys’ clothing and household furniture. The taxpayer took its inventories in 1918 upon the basis of cost and reduced the amount thereof by a straight 10 per cent basis to arrive at market with respect to certain alleged shopworn and out-of-style goods. This method of arriving at market of such goods had been followed by the taxpayer in previous years as well as subsequently. The 10.,per cent reduction did not reflect either cost or market value.
    In 1921 a great part of the merchandise of the taxpayer was destroyed by fire. Its records also were destroyed, including the inventory which had been taken for 1918. A portion of the goods of the taxpayer included in thei inventory was out of style. At the end of 1918 prices on goods were on the increase, the market was on the increase, and. goods which were purchased during the latter part of the year cost more than they did in the earlier part of the year.
    No evidence was adduced to show the proportion of the goods which was shopworn or out of style or the market value of any particular goods at the end of the year.
    No abnormalities affecting income or invested capital existed during the taxable year.
    DECISION.
    The determination of the Commissioner is approved.
   OPINION.

Trammell:

The taxpayer took its closing inventory for 1918 on the basis of cost and undertook to reduce it to an alleged market by a straight reduction of 10 per cent with respect to certain goods which were claimed to have been shopworn or out of style. The Commissioner properly disallowed such a reduction. The disallowance of such a reduction in inventory for the close of 1918, if the Commissioner accepted a similar reduction in the closing inventory for the previous year which was the opening inventory for the taxable year, would cause an unwarranted shifting of income. But we have no evidence as to 'what action was taken by the Commissioner for the opening inventory for 1918, and we therefore approve his action in disallowing the reduction in the closing inventory.  