Littleton, Judge,
delivered the opinion:
The first question is whether the plaintiff is entitled to recover the amount of $456,896.67 sued for on the ground that the 1917 tax in that amount was collected after the expiration of the statute of limitation. It contends that the total amount sued for constitutes an overpayment for 1917, as defined in section 607 of the revenue act of 1928, and bases this claim upon the contentions, first, that the abatement claim filed by it did not stay the collection of the additional tax for 1917; that the additional assessment was premature and, in order to avoid the effect of the assessment upon the plaintiff, the collector filed his claim in abatement which had the effect of canceling the plaintiff's abatement claim and that it was the collector's claim that stayed the collection and was the claim which the commissioner considered and rejected; and, secondly, that as to the additional tax for 1917, in the amount of $24,475.35 assessed February 19,1924, and collected April 15, 1924, no abatement claim was filed which stayed collection.
The plaintiff insists therefore that under these circumstances section 611 of the revenue act of 1928 is inapplicable. It further contends that its appeal from the decision of the Income Tax Unit was decided by the Committee on Appeals and Review, June 26,1923; that it did nothing further which stayed collection of the tax assessed or assessment of a further additional tax; that the statute in force at the time prohibited further delay by the taxpayer after decision on appeal and that the delays in collecting the additional assessments of $433,398.61 and $24,475.35 for 1917, until after April 1, 1924, were due to the delay of the commissioner in proceeding promptly in the matter.
We are unable to agree with the claim of the plaintiff that the provisions of section 611 of the revenue act of 1928 are not applicable to the tax of $456,896.67, represented by the additional assessments of $433,398.61 made June 2, 1924, and $24,475.35 made February 19, 1924. Both of these assessments were made within the period of limitation properly applicable thereto and the facts show that collection thereof was stayed by the claim for abatement filed by plaintiff against the additional assessment of $433,398.61.
The ground of plaintiff's claim for abatement of the additional assessment was that the corporation was entitled to have its profits tax for 1917 determined and computed under the provisions of section 210 of the revenue act of 1917. The facts establish that it was the plaintiff's abatement claim that caused the delay in collecting the additional assessment and the delay in collecting the further additional tax beyond the limitation period. The facts further show that it was the plaintiff's abatement claim the commissioner considered and finally rejected. The collector's abatement claim was prepared pursuant to the instructions of the commissioner only for the purpose of relieving the plaintiff from the payment of the interest imposed by the statute upon the delayed payment of such portion of the additional tax for 1917 finally determined to be due. But for the filing of plaintiff's abatement claim, the additional tax of $433,398.61, assessed June 2, 1922, would have been collected on or before July 7, 1922, and the further additional tax of $24,-475.35 proposed in the bureau letter of January 5, 1923, would have been assessed and collected prior to the expiration of the statute of limitation on April 1, 1924. The fact that no claim in abatement was filed by the plaintiff directed specifically against the additional tax of $24,475.35, after it was proposed or assessed, is immaterial in view of the language, and the evident purpose and intent of section 611. The claim in abatement which the plaintiff filed in fact delayed the collection of this item for 1917, and the appeal by the plaintiff to the commissioner from the decision of the Income Tax Unit denying its application for relief, as claimed in its abatement claim, was directed as-well to the proposed additional assessment of $24,475.35 as to the additional assessment of $433,398.61 theretofore made.
We are of opinion that there is no merit in the claim of the plaintiff that section 611 is not applicable, on the ground that the delay in collecting the entire additional tax of $456,896.67 was the result of the failure of the commissioner promptly to act after the Committee on Appeals and Review had made its decision on the appeal. The commissioner approved the recommendation of the committee on or about October 9, 1923. So far as appears the matter of officially notifying the taxpayer of the action taken on its abatement claim, the preparation of the assessment list, the making of the assessment of the further additional tax of $24,475.35 and the preparation of the schedule of rejection of the abatement claim proceeded through the Bureau of Internal Revenue in the usual way. The fact that the decision to reject plaintiff's abatement claim was reached some time before the expiration of the period within which collection of the additional tax could be made does not render the provisions of section 611 inapplicable. In Graham & Foster v. Goodcell, 282 U. S. 409, the court said " In No. 36, Graham v. GoodceTl, however, the claim in abatement was rejected in December, 1922, and the period of limitation did not expire until March, 1923. It is urged that, for this reason, that case falls outside the purview of section 611. The statute makes no such exception, and we are not warranted in implying one. The claim in abatement had been filed and was pending for nearly three years. Th&re is room for the inference that, had it not been for Ms delay, the tax would have been collected before the statute ran. The tax teas collected later and the statute, by its terms, is applicable." [Italics ours.]
In the case of this plaintiff the. commissioner officially rejected the claim for abatement March 19, 1924, and the tax in question was collected on different dates between April 15 and June 25,1924. The plaintiff is therefore not entitled to recover on its claim that the additional tax of $456,896.67 collected and paid in 1924 constituted an overpayment within the meaning of section 607 of the revenue act of 1928.
The next question is whether the plaintiff is entitled to recover on the ground that its inventories at January 1 and December 31, 1917, were correctly stated in its original return filed for 1917 and that the commissioner was in error in requiring the plaintiff to state its inventories in accordance with the method prescribed in article 1582, regulations 45, which provided in part that " Goods taken in the inventory which have been so intermingled that they can not be identified with specific invoices will be deemed to be the goods most recently purchased."
inventories used in determining its income for that year were priced " at a figure or value that would in its opinion be realizable under any conditions foreseeable." The exact manner in which this was done does not definitely appear, other than that it was based on the theory that the stock on hand was practically the same as had been on hand for several years and therefore the cost of such goods would be their cost when acquired regardless of the fact that many times that amount had been purchased and sold in the meantime. Plaintiff kept on hand about a four-months' supply of a given article. The trend of the market was upward and therefore, if recent purchases had been considered, the inventory values would have been greater than those used. Plaintiff contends, however, that the replenishing of its supply did not affect its normal supply, since the goods most recently purchased were first sold, thus leaving the old goods on hand.
Subsequent to the filing of the original return for 1917, the commissioner in the latter part of October or the first of November, 1919, rendered a decision which was adopted as the ruling of the Bureau of Internal Revenue in which methods similar to that followed by the- plaintiff in the original return were disapproved. This decision and ruling was published in 1919, being T. B. R. 65,1. C. B. 51. After the publication of this ruling and after the plaintiff's attention had been called to the fact that the Government regulations required a different method of preparing its inventories from that which it had pursued, the plaintiff on January 20, 1922, voluntarily filed an amended return for 1917 in which the inventories were prepared in accordance with article 1582, regulations 45, which provides, so far as material here, that " Inventories must be valued at (a) cost or (b) cost or market, as defined in article 1584 as amended, whichever is lower. Goods taken in the inventory which have been so intermingled that they can not be identified with specific invoices will be deemed to be the goods most recently jrarchased."
The foregoing regulation, which was promulgated pursuant to the authority granted in section 203 of the revenue act of 1918, merely provides for the pricing of inventories in a manner generally recognized in good accounting practice, that is, the inventories may be priced at either "cost" or " cost or market, whichever is lower," and in carrying out whichever method is adopted, where fungible goods are involved which can not be identified' by specific invoices, the cost of such goods will be computed upon the basis of -the most recent purchases. The revenue act of 1916, as amended by the revenue act of 1917, did not specifically contain the authority granted by section 203 of the revenue act of 1918, but the same rule as to pricing inventories was applicable to 1917. Chicago Frog & Switch Co. v. United States, 68 C. Cls. 186. The contention of plaintiff is that the method prescribed by the regulations and followed by it in its amended return leads to an arbitrary and capricious result, and that the inventories as reflected in the original return should be accepted. More specifically, the plaintiff objects to the use of inventories which places thereon costs on the principle that the first goods purchased were the first goods sold and therefore the goods on hand at a given inventory date were those most recently purchased. It insists that the principle should be reversed and that the inventories should be prepared on the basis that the sales were always made from the most recent purchase's and therefore the goods on hand at a given date Were those first purchased. How far back the plaintiff would go in having us arrive at the " first purchases " does not definitely appear, though a witness for plaintiff testified that "We considered our stock was practically the same stock we had for several years." This is little more than another way of expressing the idea of a " base stock " method of inventories where a given quantity of goods on hand' at all times is assigned the same price year after year. The reasons for rejecting such a system of valuing or pricing inventories is sufficiently stated in the commissioner's ruling referred to above, T. B. R. 65, as well as in Lucas v. Kansas City Structural Steel Co., 281 U. S. 264, and Chicago Frog & Switch Co. v. United States, supra. But even if we should examine plaintiff's inventories, as it. urges we should, in an attempt to fix inventories based on actual cost, we are unable to see wherein it avails the plaintiff anything. The testimony of one of its it had no accounting system which would enable it to identify particular goods and affix thereto their particular cost. To meet this deficiency in its system, the plaintiff introduced proof to show that its sales were made from the top of bins in which the articles were stored and that when it became necessary to replenish its supply, new articles were placed on top or in front of the old stock. Plaintiff therefore contends that the goods on hand in 1917 were those purchased long prior to 1917, and that it should have its inventories priced at these old costs. We find little merit in this position.
The plaintiff was a dealer in hardware and related merchandise of various kinds, including builders' hardware, mechanics' tools, stoves, mining and railway supplies, cutlery, sporting goods, automobile supplies, and heating and plumbing supplies. The number of items was from 45,000 to 60,000. It was necessary to replenish the stock about three times each year, the average stock being sufficient for approximately four months' business. It may be that in some isolated instances the old stock remained on hand to the extent that the sales were made entirely from new purchases, but in large inventories, such as that with which we are here concerned, it would be going further than we think we would be justified to say that any substantial part of the original supply remained undisturbed over a long period of years. That some part of the original goods remained unsold is not equivalent to saying that the entire stock of goods on hand at a given inventory date represented purchases made many years prior thereto where the equivalent of such stock had been replenished over and over again. Such a situation is not comparable with that considered in Ozark Mills, Inc., 6 B. T. A. 1179, in which the actual cost of goods on hand were shown and therefore it was unnecessary to resort to a principle of presumption as to what goods were on hand. In the present case the original inventories which we are asked to accept do not purport to represent actual costs, but rather some kind of an approximation based on the cost of the original supply of the various articles sold.
In these circumstances we can not adopt the inventories used in the original returns for 1917 as representing inventories acceptable for income-tax purposes. The plaintiff has the burden of showing that the method prescribed by the commissioner's regulation and followed by him in the inventories accepted and used did not correctly reflect in- . come and was not in accordance with good accounting. Chicago Frog & Switch Co. v. United States, supra. We are of opinion that this burden has not been sustained by plaintiff and that it has not been shown that an arbitrary or capricious result has followed from the commissioner's action. The claim of plaintiff for a revised income based upon the inventories used in its original return is therefore denied. The petition is dismissed. It is so ordered.
Whaley, Judge; Williams, Judge; Green, Judtge; and Booth, Chief Justice, concur.