The variations in the aforementioned two statements as to unit sales price is accounted for by virtue of the facts that buttons were sold to jobbers at discounts ranging from 15 to 20 per cent, buttons were sold to better customers at less than regular selling prices, odd lots and mismatched buttons were sold at less than cost, and the greatest quantity of buttons sold was represented by the lower priced items.

The unit sale prices in the schedule were the established regular net selling prices, while the unit selling prices for 1940 and 1941 averaged the prices shown in the classified statement for the aforementioned reasons.

The following schedule shows the loss which would have been sustained had the vegetable ivory buttons, which were supplanted by Robulith buttons, been produced during the fiscal year 1941:

The loss figure is derived by multiplying the standard cost of comparable vegetable ivory buttons by the actual sales of Robulith buttons. In computing the cost of mottling operations eliminated in the amounts of $20,524.55 for the fiscal year 1940 and of $81,358.09 for the fiscal year 1941, as appearing on the schedule attached to excess profits tax return, petitioner multiplied the standard cost of spraying operations eliminated by the new development and the actual sales of Niesac mottled buttons for the periods involved to arrive at the figures. A schedule showing the computation of the 1941 figure is as follows:

In computing the comparable profiit it would have derived in the fiscal year 1941 on the sale of the product supplanted by the domestic Duo Horn buttons, which product was the button made from imported sheets or blanks, petitioner multiplied the standard cost of comparable imported Duo Horn buttons and the actual sales of domestic Duo Horn buttons, and this sum was subtracted from the net sales of domestic Duo Horn buttons, as appears from the following schedule:

In computing the cost of drilling operations eliminated in the manufacture of Technoid wash buttons, petitioner multiplied the standard cost of the operation eliminated and the gross buttons sold, as appears from the following schedule:

Gross buttons sold__--

2,858,585

Standard cost of drilling operation eliminated by new development in processes: Labor $.0116

Burden .0123_

Gross sold, 2,858,585 times $.0239_.

$.0239 $68, 320. 18

Petitioner's gross sales of buttons for the fiscal year ended October 31, 1942, amounted to $3,079,766.19, composed of the following items:

Statements prepared by the Bureau of Census, United States Department of Commerce, show that during the calendar year 1941 "the total number of men's and youths' suits cut from all materials amounted to 19,689,032, as compared with 15,924,840 during [the

calendar year] 1940, an increase of approximately 24 per cent." Only 15,722,174 were cut in the calendar year 1942.

In addition, in both 1941 and 1942, a large amount of clothing was cut for the armed forces.

From 1937 or 1939 the button industry expanded from approximately 12 plastic button manufacturers to many more than that in 1941. There has been a greater expansion of button manufacture than there has been an expansion of the civilian button business. However, there was an increased demand for buttons in 1941 over 1939 and 1940.

OPINION.

OPPER, Judge: As in W. B. Davis & Son, Inc.,1 W. B. Knight Machinery Co., and Southwestern Oil & Gas Co.,3 this proceeding involves the application of section 721 (a) (2) (C), dealing with income in excess profits tax years resulting "from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months."

Petitioner asserts that under section 721 (b) part of its income was "net abnormal income" "attributable to" "previous" "taxable years" by reason of the program of investigation and development of new types of buttons and button material which it carried on during earlier periods. It does not claim this as an abnormal type of income, but as exceeding by more than 25 per cent the income of base years. From these premises it concludes that under section 721 (c) its tax should be so reduced as not to exceed the tax computed without the inclusion of such net abnormal income except to the extent of the increase in tax which would have resulted if the income had been received in the prior years to which it is attributed.

15 T. C. 1195. 26 T. C. 519.

36 T. C. 1124.

SEC. 721. ABNORMALITIES IN INCOME IN TAXABLE PERIOD.

(a) DEFINITIONS.-For the purposes of this section.

(1) ABNORMAL INCOME.-The term "abnormal income" means income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years

'SEC. 721.

(c) COMPUTATION OF TAX For Current TAXABLE YEAR.-The tax under this subchapter for the taxable year, in which the whole of such abnormal income would without regard to this section be includible, shall not exceed the sum of:

(1) The tax under this subchapter for such taxable year computed without the inclusion in gross income of the portion of the net abnormal income which is attributable to any other taxable year, and

(2) The aggregate of the increase in the tax under this subchapter for the taxable year (computed under paragraph (1)) and for each previous taxable year which would