
    Appeals of ELMER R. WALLINGFORD and C. A. WALLINGFORD.
    Docket Nos. 230, 231.
    Decided July 31, 1926.
    Petitioners formed a partnership in 1920 and took over cattle at their cost to a predecessor partnership. Held, the petitioners may reflect in their 1920 returns the decrease in the value of the cattle which occurred subsequent to their acquisition in 1920.
    
      
      Stanley-Spurrier, G. P. A., for the petitioners.
    
      A. 27. Fast, Esq., for the Commissioner. ,
    These appeals are from determinations of deficiencies in income tax for the calendar year 1920 in the following amounts:
    Elmer R. Wallingford_'-$1, 503. 51
    O. A. Wallingford_-_ 1,195.42
    The only question involved in the appeals is the right of the petitioners to a deduction claimed to represent loss in inventory value of cattle.
    FINDINGS OF FACT.
    The petitioners are individuals, residing at Ashland, Kans.
    C. A. Wallingford has been engaged in' the cattle business since 1895. In September, 1918, he, with two associates, purchased about 500 head of young cows for the purpose, primarily, of feeding and marketing them. In order to make this purchase Wallingford borrowed funds from a local banker.
    The cattle were fed for a while in 1918, but it was decided not to market them that year. Again, in the fall of 1919, they were fed for the market, but it was again decided not to sell them that year. In 1920 there was a great decline in the value of cattle and the banker who had loaned money to Wallingford to purchase the cattle required him to reduce the amount of the loan by more than $13,000. In that year C. A. Wallingford’s brother, Elmer B,. Wallingford, bought out the interests of C. A. Wallingford’s two associates in the enterprise for $17,500.
    The books of C. A. Wallingford were very meagre, consisting principally of a day book or live-stock record. At the time of purchasing the cattle the cost, $35,000, was entered in this record. No change was made in this figure during 1918 and 1919. In the fall of 1920, due to the decline in value of cattle, the value of the cattle was reduced on the live stock record to $22,500.
    In Schedule D of the returns filed for 1920, each of the petitioners list cost of cattle as $17,500, to which is added $6,580, representing cost of feed, and from these items is subtracted $11,250 under the heading “ Sale price or liquidating dividend,” but claimed here to represent reduction in inventory. The Commissioner • refused to allow the claimed reduction in inventory value which gives rise to the deficiencies here involved.
   OPINION.

Arundell:

The petitioners claim the right to deduct from their gross income for 1920 the shrinkage in value of cattle in that year. They seek to take this deduction by subtracting the closing inventory from the opening inventory for the year. The Commissioner contends that, under section 208 of the Revenue Act of 1918, they are not entitled to compute income on an inventory basis, inasmuch as the inventory basis was not used in prior years.

The purchase by Elmer R. Wallingford of a half interest in the cattle in 1920 effected, at the time of the purchase, a dissolution of the partnership which had theretofore owned the cattle and the formation of a neiv partnership of which the petitioners were the members. Thus the ownership of the cattle was vested in a new entity created in 1920 which is privileged to compute its profit or loss without reference to the method of computation used by its predecessor. The income tax returns filed by the petitioners for the year 1920 show that each of them took a half interest in the cattle at $17,500 or a total cost to the partnership of $35,000, which was the same as the cost to the predecessor partnership.

The only witness in this case, C. A. Wallingford, has been engaged in dealing in cattle for thirty years or more, and we believe from his testimony that he is qualified to testify to the value of the cattle which he and his brother owned in 1920. Not only did the cattle decrease in value during 1920 from $35,000 to $22,500, but this decrease was reflected on C. A. Wallingford’s books in that year which carried the joint account of the brothers, and was also shown in the returns filed. Accordingly, we are of the opinion that the petitioners are entitled to the deduction claimed.

Order of redetermination will be entered on 15 days' notice, under Rule 50.  