OPINION.
Geaupnek:
This proceeding is governed by section 203 of the Revenue Act of 1918, which provides:
That whenever in the opinion of the Commissioner the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.
In accordance with the authority vested in him by this section, the Commissioner, in article 1583 of Regulations 45, has prescribed that inventories shall be taken either on the basis of cost or of cost or market, whichever is lower, and that, in determining cost, trade or other discounts, except strictly cash discounts, may be deducted or not at the option of the taxpayer, provided a consistent course is adopted. This regulation of inventories is an administrative power conferred upon the Commissioner by the statute. Article 1583 is in conformity with the statute. Its requirements are reasonable.
The taxpayer herein can not be said to have complied with these regulations. An arbitrary deduction of a fixed percentage each year, without regard for the actual discounts received on the merchandise inventories, can not be said to be a compliance. That such a method does not truly reflect the cost is illustrated by the fact that in one of the years there is a variation of 1 per cent of cost between the estimated deduction and the average discounts received, and in the other year an even greater discrepancy occurs— a difference of 1 y3 per cent. See Appeal of Ederheimer-Stein Co., 2 B. T. A. 711.
The deficiencies are $313.27 for the year 1919 and $602.90 for 1920. Order will be entered accordingly.