Alden Charles Palmer and Tena Leonora Palmer v. Commissioner of Internal Revenue

There is only one question involved in this appeal from the Tax Court. It was there decided that the Commissioner of Internal Revenue had not abused the discretion granted to him by Section 41 of the Internal Revenue Code of 1939 in determining that the method of accounting for and reporting contract income and expense used by a partnership did not clearly reflect its income. Therefore, the Commissioner ruled, under authorization of this section and Treasury Regulations, that the income from a construction contract should be reported for taxation under the percentage of completion method The Tax Court held the determination of the Commissioner was correct.

Alden Charles Palmer organized a corporation, Santa Anita Square, Inc., for the purpose of constructing certain housing projects in California. He controlled the corporation, was its president and, together with his family and relatives, owned all its stock. Thereafter, he or ganized a partnership in which he was the only general partner, with an eighty-five per cent interest, and the other partners, who were his construction superintendent, a civil engineer, the architect and an attorney, were limited in liability. All limited…