United States Supreme Court Cases & Opinions

U.S. Supreme Court

Lucas v. Commissioner, 281 U.S. 264 (1930)

Lucas v. Commissioner

Nos. 323 and 324

Argued March 13, 14, 1930

Decided April 14, 1930

281 U.S. 264

Syllabus

1. Whether, in a particular business, inventories are necessary for the determination of income is a practical question left by the Revenue Act of 1918, § 203, to the judgment of the Commissioner of Internal Revenue. P. 281 U. S. 268.

2. The "base stock" method of inventory, using a constant price for a so-called normal quantity of goods or materials in stock, is inconsistent with the annual accounting required by Congress for income tax purposes. Id.

3. A company engaged in the business of fabricating and erecting steel plates for buildings, bridges, etc., under contracts therefor, ordered the materials for each particular job from the mills, but aimed to keep an emergency stock on hand for use when mill shipments were delayed, etc., and to keep it replenished from such shipments. Although no part of the material was earmarked and set aside as a "standby" stock, but all was commingled and indiscriminately used in production, so much of it as fell within the amount on hand at the close of 1916 was inventoried each year,

Page 281 U. S. 265

until 1921 at the 1916 cost, and the excess at cost or market price, whichever was lower. The quantities in stock fluctuated from much below to much above that of 1916. In 1918 and 1920, the tax year in question, the stock inventoried at the 1916 cost was revalued by the Commissioner at the current market price in the absence of a showing of actual cost, with consequent increase of income taxes. Held that inventories were properly required, and the Commissioner's action was properly sustained. P. 281 U. S. 269.

4. A taxpayer appealing from an order of the Board of Tax Appeals sustaining an increased income tax resulting from changes made by the Commissioner in the taxpayer's inventory has the burden of proving that the Commissioner's action was plainly arbitrary. P. 281 U. S. 271.

33 F.2d 53 reversed.

Certiorari, 280 U. S. 543, to review a judgment of the circuit court of appeals which reversed a decision of the Board of Tax Appeals, 11 B.T.A. 877, sustaining increases of income taxes, based on revised inventory valuations.