Commissioner of Internal Revenue v. Kenneth H., Susan L., Fred F., and Corinne B. Van Raden

The Commissioner of Internal Revenue (Commissioner) issued notices of deficiency against the Van Radens showing $206,539 additional personal income tax due for calendar year 1972. The deficiency notices were based on a determination that the deduction of prepaid cattle feed expense in 1972 constituted a material distortion of income. See I.R.C. § 446(b). The Tax Court held that the deduction did not result in a distortion of income and set aside the deficiencies. We affirm, although not for the reasons stated by the Tax Court.

I. INTRODUCTION

In July of 1972, Kenneth and Fred Van Raden and their wives sold corporate stock and realized long-term capital gains totalling $4,636,959. On December 26 of that year, the Van Radens invested $300,000 in Western Trio-VR, a limited partnership engaged in cattle feeding. On the same day, the partnership purchased a one-year supply of feed corn and silage for $360,400, purchased 149 head of cattle for $56,673, and borrowed $1,688,900 secured by the livestock, feed, and other assets.

None of the feed purchased in December 1972 was consumed during that year. Almost all of the feed was consumed during 1973 (98 percent of the corn and 91 percent…