Martha A. Willging, Individually and as of the Estate of John Z. Willging v. United States

The government appeals a district court judgment, 313 F.Supp. 297 , grant ing the taxpayer a refund of part of the income taxes she paid in 1966.

Mrs. Willging and her husband were wheat farmers, owning community property, and reporting their income on the accrual basis. To determine their income for each year, they would add to the sales price of products sold during the year the value of their closing inventory and would subtract from this figure the value of their opening inventory. Treas.Reg. § 1-61-4. Inventories were valued under the “farm price” method (market price less direct costs of disposition), Treas.Reg. § 1.471-6; expenses were deducted in the year in which they were incurred. Treas.Reg. § 1.162-12.

The value of the Willging’s opening grain inventory for 1966 was $1,195. On November 15, 1966, Mr. Willging died. At that time the value of the grain inventory was $37,953.98. The grain had the same value at the end of the year.

Mrs. Willging contends that the entire increase in the value of the 1966 crop inventories between the first of the year and November 15 escapes taxation because Int.Rev.Code of 1954, § 1014, stepped up the basis of the grain to its market…