Before SCHNACKENBERG and PARKINSON, Circuit Judges, and PLATT, District Judge.
SCHNACKENBERG, Circuit Judge.
Clifton E. Baird and Violet L. Baird, husband and wife, filed a petition for review of decisions of the Tax Court of the United States in a proceeding initiated by petitions filed by them in that court. Evidence consisting of exhibits and testimony was received by the Tax Court, which entered findings of fact and filed an opinion.*fn1 The decisions now under attack determined income tax deficiencies for the years 1952, 1953 and 1954, in the amounts of $16,499.72, $23,086.16, and $7,434.72, respectively.
The facts as stipulated by the parties*fn2 and as found by the Tax Court may be summarized as follows:
Taxpayers are husband and wife residing in Salem, Indiana. They filed joint returns on a cash basis for the calendar years involved with the district director of Internal Revenue for the District of Indiana. They are equal partners, doing business under the name Baird Trailer Sales. The partnership has engaged since its organization in January, 1947, in the sale of new and used mobile homes, or house trailers, and to a lesser extent in new and used cars, parts and accessories, furniture, and real estate, in Salem, Indiana.
Partnership returns were filed for the fiscal years ended February 28, 1952, 1953, and 1954,*fn3 and an amended return for the fiscal year ended February 28, 1952. The partnership kept its books and filed its income tax returns on an accrual method of accounting. The partnership books reflect the following gross sales and costs of sales for the relevant years:
Gross sales $1,025,943.89 $1,337,385.64 $1,067,144.18
Cost of sales 859,746.75 1,141,308.59 908,027.87
During that period, the partnership sold to either of two finance companies or a bank*fn4 unpaid notes, chattel mortgages and conditional sales contracts.*fn5 The proceeds of such sales were paid by the finance companies to the partnership, with this exception: a part was withheld by each finance company and credited to the dealer's reserve account of the partnership on the finance company's books.*fn6 The partnership either endorsed with recourse retail paper sold to the finance companies or guaranteed its payment.It was agreed between the partnership and the finance companies:
(a) In the event the retail paper became due and unpaid, the finance company could charge the dealer's reserve with the unpaid balance;
(b) In the event the partnership had a matured financial obligation of any nature to the finance companies,*fn7 the amount of such obligation could be charged to the dealer's reserve account;
(c) Repossession losses of the finance companies*fn7 could be charged to the dealer's reserve account;
(d) The ultimate balance in the dealer's reserve account after payment of all notes by the partnership to the finance companies*fn7 was to be paid to the partnership; and
(e) Each finance company could look to the balance in the dealer's reserve account to satisfy any default by the partnership on its guaranties and obligations to the finance company, as well as any default by the makers of the notes.
The partnership was not required by any finance company to do business with it to the exclusion of any other company.
The partnership was not financially able to carry the contracts of sale or the floor plan and carry the inventory of trailers held for sale, but relied upon the finance companies. For its own convenience, it procured and used in its sales legal forms furnished by the finance companies.
The account on each finance company's books designated "dealer's reserve" for the partnership was reflected as a liability of the finance company and the annual balances in such account were not reflected in its income.
During the relevant years, the partnership (by way of illustration) recorded the sale of a trailer and the sale of the retail paper on its books and records as follows:
Sales Receipt Journal Entry Cash and/r Trade-In
Contracts Receivable-Finance Company ...