69 T.C. 511 (1977), 10225-75, Schniers v. C.I.R.
|Citation:||69 T.C. 511|
|Opinion Judge:||FEATHERSTON, Judge:|
|Party Name:||CHARLES B. SCHNIERS and DOROTHY M. SCHNIERS, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT|
|Attorney:||William Norton Baker and Karl Norman Clifford, for the petitioners. Charles R. Billings, for the respondent.|
|Case Date:||December 27, 1977|
|Court:||United States Tax Court|
Held, petitioners did not constructively receive income in 1973 from the sale of their cotton in that year but realized income in 1974 when they were actually paid for it. Held, further, the gin with which petitioner dealt in selling the cotton was the purchaser's agent, not petitioner's agent, in handling the transaction. Held, further, petitioner's sale of cotton grown in 1973 under agreements calling for him to be paid for such cotton in 1974 did not constitute a change in his method of accounting or a distortion of his 1973 income.
Respondent determined a deficiency of $22,000.11 in petitioners' Federal income tax for 1973. Concessions having been made by petitioners, the sole issue presented for decision is whether petitioners realized income of $45,376.48, representing the proceeds of the sale of their cotton crop, in 1973 even though they did not receive checks in payment for the cotton until 1974.
FINDINGS OF FACT
Petitioners Charles B. Schniers and Dorothy M. Schniers, husband and wife, were legal residents of Slaton, Tex., when they filed their petition. They timely filed a joint Federal income tax return for 1973, employing the cash receipts and disbursements method of accounting. For convenience, Charles B. Schniers will be referred to as petitioner.
During 1973, petitioner was engaged in cotton farming in the vicinity of Slaton, Tex. Part of his operations covered Farm No. B-360, consisting of 156 acres which he owned, and Farm No. B-233, consisting of 187 acres which he rented from A. H. Buxkemper. Under the rental arrangement, three-fourths of the proceeds from the sale of cotton from the rented property belonged to petitioner and one-fourth to A. H. Buxkemper.
On March 13, 1973, petitioner entered into two contracts entitled " Confirmation of Purchase" in which he agreed to sell, and the Idris Traylor Cotton Co., " Purchaser, or his agent," (sometimes hereinafter Traylor) agreed to buy, at a price keyed to the Government loan values, all cotton harvested and ginned from Farm Nos. B-233 and B-360. The contracts provided that all such cotton would be ginned at the Slaton Co-op Gin (sometimes hereinafter the gin). All cotton was to be delivered to the purchaser promptly upon receipt by the seller of Government classing cards and warehouse receipts. The contracts contained no provision as to when and in what manner the seller would be paid for the cotton. Each contract form was completed by a gin employee, Ethlyn Akin, and signed at the gin on behalf of Traylor by another employee, W. H. Adkins. The contract covering the cotton grown on Farm No. B-233 included the landlord's share as well as that of petitioner. These standardized agreements were developed and printed by Traylor and were placed in several gins through which it contracted to buy cotton.
Subsequent to signing these contracts, petitioner planted and cultivated cotton on Farm Nos. B-360 and B-233. In November and early December 1973, petitioner harvested the cotton from these farms and had it ginned as provided in the March 13, 1973, contracts. The gin delivered the cotton to a warehouse and obtained a warehouse receipt, a negotiable bearer instrument which evidenced title, and a Government classing card for each bale so delivered.
The gin maintained a separate box or drawer for each farmer for which it ginned cotton. In that box, the gin placed the farmer's warehouse receipts and Government classing cards. It is common practice for farmers to leave these documents in their respective boxes at the gin until their cotton is sold.
The gin placed the warehouse receipts and Government classing cards for petitioner's cotton covered by the March 13,
1973, contracts in his box at the gin. On or about December 4, 1973, petitioner met with gin employee Ethlyn Akin, and discussed the sale of his cotton, the delivery of the warehouse receipts to Traylor, and the possibility of deferring the receipts from the sale of his cotton. On December 4, 1973, prior to turning over his warehouse receipts and Government classing cards, petitioner entered into five deferred payment contracts, executed in the name of the gin, calling for the sale of the following amounts of cotton at the price indicated from the farm specified:
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