
    Appeal of WAVERLY COTTON MILLS.
    Docket No. 5632.
    Decided September 24, 1926.
    
      E. S. Parker, J't\. Esq., and J. L. Elliott, O. P. A., for the petitioner.
    
      Arthur E. Fast, Esq., for the Commissioner.
   Littleton :

This appeal is from the determination of a deficiency of $9,748.76 for the calendar year 1918. The claim advanced by petitioner is that, although the Commissioner approved its claim that abnormalities existed within the meaning of section 327 of the Revenue Act of 1918, he did not use proper comparatives in determining the profits tax under the provisions of section 328 of that Act.

FINDINGS OF FACT.

The petitioner is a North Carolina corporation, engaged in the manufacture of cotton cloth and yarn, with principal office at Laurin-burg.

With the exception of a few bales, all of the cotton used by petitioner during 1918, consisting of 2,871 bales, was furnished to it by J. F. McNair, one of the largest producers of cotton in the vicinity of petitioner’s plant, who, together with other members of his family, owned 968 shares of a total of 2,500 shares outstanding. He was a director of the corporation and his son, J. L. McNair, was its president and treasurer. All cotton used by petitioner was delivered-to-its warehouse without brokerage, transportation, or carrying charges. Petitioner did not pay for the cotton as received, but used the same as needed and paid J. L. McNair and others who were closely related to the McNair family therefor as payments were received for the manufactured product:-

Petitioner’s gross income for 1918 amounted to $655,915.11, and its net income amounted to $168,560. It paid officers’ salaries totaling only $1,516.68. Its invested capital computed under the provisions of section 326 of the Revenue Act of 1918, was $223,285.88. During the year 1918, it used and employed in its business in addition to its statutory invested capital, an average borrowed capital of $298,839.61. The Commissioner determined a profits tax of $96,769.-82 and advised the petitioner that “ your profits tax is based upon a comparison with a group of representative concerns which in the aggregate may be said to be engaged in a like or similar trade or business, to that of your company.”

Judgment for the Commissioner.  