
    Appeal of GAUKLER & STEWART.
    Docket No. 62.
    The allegations of a petition must be supported by competent evidence.
    Submitted January 14, 1925;
    decided February 10, 1925.
    
      
      J. Marvin Haynes, Esq., for the taxpayer.
    
      Willis D. Nanee, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.
    Before James, Sterni-iagen, Trammell, and Trussell.
    This is an appeal from an excess-profits tax for the year 1917, determined by the Commissioner to be due from the partnership of Gaukler & Stewart, in the sum of $10,842.08, and a penalty for failure to file a return in the sum of $5,421.04.
    FINDINGS OE FACT.
    The taxpayer, during the year 1917, was a partnership located in the city of Pontiac, Mich., composed of two members, Henry P. Gaukler and Elisha Stewart.
    The balance sheet set up by the Commissioner as of the beginning of the taxable year and used by him in determining the invested capital of the partnership is as follows:
    Assets. January 1,1917.
    Cash-.-$12,759.33
    Accounts receivable__ 15, 642. 69
    Inventory- 13,166. 94
    Fixed assets_ 25,571. 33
    Deferred charges- -
    67,140.29
    Liabilities.
    Accounts payable- 51, 983.11
    Reserve for depreciation_ 7,168. 63
    13,151.74
    Net worth.
    Excess of assets over liabilities_ 53,988.55
    67,140.29
    The closing balance sheet of the partnership for 1917, as set up by the examining revenue agent and agreed to by the taxpayer, is as follows :
    Assets. December 31,1917.
    Cash- $10,734.49
    Accounts receivable_ 13,301.19
    Inventory- 16,458. 68
    Fixed assets_ 52,872.25
    Deferred charges_ 1,540. 86
    94,907. 47
    Liabilities.
    Accounts payable- 10,461.40
    Reserve for depreciation_ 10,430.83
    20, 892.23
    Net worth.
    Excess of assets over liabilities_ 74,015.24
    94,907.47
    
      The Commissioner computed the net income of the taxpayer at $30,872.94, as follows:
    Sales_$202,146.47
    Deductions—
    Labor_$23,925.78
    Merchandise purchased_ 88, 384. 84
    Freight_ 32,140. 06
    Salaries_ 2, 210. 00
    Rent_ 300. 00
    Interest_ 64. 67
    Taxes_ 913.18
    Other expenses_ 10, 582. 80
    ^ - 158,521.33
    Net income_ 43, 625.14
    Income as disclosed by books (agent’s figures)- 43, 625.14
    Deduction — ■
    Depreciation allowed_$3,262. 20
    Addition — •
    Repair charges disallowed_ 300. 00
    - 2, 962.20
    Income as corrected_ 40, 662.94
    Less-
    Additional salary allowance_ 9, 790.00
    Net income as shown in Department letter dated March 29,1922— 30,872.94
    The examining revenue agent reconciled the net worth of the partnership between the two foregoing balance sheets as follows:
    BECONCIEIATION OF NET WOBTH.
    1916. Dec. 31, Gaukler & Stewart, net worth_$53, 988. 55
    1917. Gaukler & Stewart, profits — - 40, 662. 94
    Total_ 94, 651. 49
    Gaukler & Stewart, withdrawals_ 20, 636.25
    Dee. 31 (E. Stewart & Sons), net worth- 74,015.24
    The taxpayer introduced photostat copies of ledger sheets of the personal accounts of the partners during the year hi question.
    DECISION.
    The Board determines that there is a deficiency in the sum of $16,263.12, and the determination of the Commissioner is approved,
   OPINION.

James :

The question here presented turns upon the correctness of the balance sheets set up by the revenue agent, primarily to ascertain invested capital, and admittedly estimated, the correctness of his computation of net income, and the correctness of the accountants’ theory of computing the net income in the following manner:

COMPUTATION Off NET INCOME.
Net worth December 31, 1917_$74,015. 24
Less net worth December 31, 1910_ 53,988.55
20, 026.69
Add withdrawals oí partners during 1917_ 10,359.53
Net profit_ 30,386.22
Less additional salaries allowed by Treasury Department letter dated March 29,1922_ 9,790.00
Net income as corrected_ 20, 596.22

Manifestly the above computation rests upon comparisons of surplus between two balance sheets, both admittedly inaccurate, and upon the correctness of an alleged sum of partners’ withdrawals, computed from evidence which is clearly inadequate. The ledger sheets introduced in evidence are incapable of analysis without reference to journal entries or the knowledge of persons familiar with the accounts. The books of .original entry were not introduced in evidence. The persons familiar with the accounts were not produced as witnesses. In lieu of such testimony, taxpayer’s counsel has undertaken to analyze the ledger sheets and to show the amounts of withdrawals, setting forth such analysis in his brief. The Board is unable to determine whether this analysis is correct by comparison with any of the testimony and evidence in the case.

The taxpayer claims special relief under section 210 of the Revenue Act of 1911. No evidence was introduced in support of this claim and the Commissioner moved for the dismissal of this portion of taxpayer’s petition. This motion was at that time taken under advisement. It must now be granted upon the ground and for the reason alleged by the Commissioner.  