Appeal of J. Van Lindley Orchard Co. , 2 B.T.A. 1084 ( 1925 )

OPINION.

James:

We are convinced by the testimony in this appeal that the J. Yan Lindley Orchard Co. sold its orchard in the taxable year in question, at less than its actual value, for the purpose of providing funds for the settlement of the J. Yan Lindley estate, and for the further purpose of consolidating the work in the Nursery Company and abandoning the peach orchard, which Yan Lindley’s son, Paul C. Lindley, felt himself unable to manage properly. We are not convinced that the cost of the property was as great as its value on March 1, 1913, and from all the evidence have fixed the cost at $80,000. A loss of $20,000 should, therefore, be allowed the J. Van Lindley Orchard Co. in the year in question.

Upon the second point the position of the Commissioner must be sustained. The taxpayer has made returns upon the basis, virtually, of receipts and disbursements, and prior to 1918 deducted as expenses of business the entire cost of developing to a marketable condition the nursery stock then on hand. It is proved from the testimony of Paul C. Lindley that the inventory value of $23,000 was entirely arbitrary and in its very nature could not be the subject of exact estimates.

While an inventory method in connection with a nursery or other agricultural operation would doubtless result in reflecting profit and loss more equally from year to year, we are not convinced that such a method would more clearly reflect the income. Such a method, if properly carried out, would necessitate increasing the inventory when the stock increased upon an estimated cost of production of such nursery stock and would show a decrease under such circumstances as those here existing at the close of 1918, or under circumstances resulting from losses of stock due to any of the accidents which normally surround the growing of agricultural produce. Such a method would introduce into the accounting estimates of gains and estimates of losses, neither of which would actually have been realized. In the instant case we are dealing, however, not with an accurate attempt at estimates but with a mere guess on the part of Mr. Lindley that his nursery stock was depleted approximately one-third, unsupported by any evidence of even the most general nature as to the cost of producing the nursery stock on hand at the beginning or close of the year. The action of the Commissioner in disallowing the claimed deduction of $7,000 is, therefore, sustained.