Amend v. Comm'r of Internal Revenue, Docket Nos. 18860

• Decision Date: 08 August 1949
• Docket Number: 18861.,Docket Nos. 18860
• Citation: 13 T.C. 178
• Parties: J. D. AMEND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.EVA AMEND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

13 T.C. 178

J. D. AMEND, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.EVA AMEND, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 18860

18861.

Tax Court of the United States.

Promulgated August 8, 1949.

Petitioner J. D. Amend is a wheat farmer and his custom since 1942 has been to sell his wheat in the year when produced, for delivery and payment in January of the following year. He followed this practice in the years 1944 and 1946 and received payment for his 1944 wheat in January 1945 and payment for his 1946 wheat in January 1947. Petitioners were on the cash basis and returned the amounts received for taxation in the year when received. The Commissioner has applied the doctrine of constructive receipt on the ground that petitioner could have sold his wheat for cash to the same buyers in the years when the contracts of sale were made and he contends that the deferring of payment in the following year was at petitioner's own request. Hold, that the contracts of sale were bona fide arm's length transactions and petitioner had no legal right to demand and receive payment for his wheat until in January of the year following the contract of sale and the doctrine of constructive receipt is not applicable Dorothy Ann Kinney, Esq., and Walter G. Russell, C.P.A., for the petitioners.

Allen T. Akin, Esq., for the respondent.

Docket No. 18860, J. D. Amend, petitioner, involves deficiencies in income tax of $15,389.03 for the year 1944 and $4,034.68 for the year 1946.

Docket No. 18861, Eva Amend, petitioner, involves deficiencies in income tax of $8,716.23 for 1944 and $2,237.55 for 1946.

Upon audit of petitioner J. D. Amend's 1944, 1945, and 1946 income tax returns, the Commissioner adjusted income for the years 1944 to 1946, inclusive, with the following explanation in the notice of deficiency:

For the year 1944 . . .

(a) Profit from business has been increased by * * * (2) the inclusion in 1944 income of wheat sales credited to your account on August 25, 1944 and which you reported as 1945 income because you received and cashed the check therefor in January 1945— $40,164.08.

For the year 1945 . . .

(a) Profit on a sale of grain in 1945 was reported by you in 1946 instead of in 1945 because the check on the sale was not deposited until January 3, 1946. Since the amount was constructively received in 1945, the profit is included in 1945 income. Amount $7,721.59.

(b) The profit on the sale of wheat constructively received in 1944 is here eliminated from 1945 income. See Schedule 3-A(a)(2). Amount $40,164.08.

For the year 1946 . . .

Wheat sales in 1946 reported in 1947 (when check cashed) are held to have been reportable in 1946 when the proceeds were constructively received.

+-----------------------------------------------+
                ¦Amount                              ¦$17,774.28¦
                +------------------------------------+----------¦
                ¦Less: Sales in 1945 reported in 1946¦7,721.59  ¦
                +------------------------------------+----------¦
                ¦Net adjustment on wheat             ¦$10,052.69¦
                +-----------------------------------------------+
                

Similar adjustments were made with respect to the returns of Eva Amend, she and her husband having filed their returns on the community property basis.

Petitioners contest the foregoing adjustments for 1944 and 1946 by appropriate assignments of error. The year 1945 is not before us because the Commissioner determined an overassessment of $2,672.64 as to J. D. Amend and an overassessment of $2,842.64 as to Eva Amend.

FINDINGS OF FACT.

The petitioners are individuals who reside in Amarillo, Texas. J. D. Amend will sometimes hereinafter be referred to as the petitioner.

The income tax returns of the petitioners for the periods here involved were filed with the collector for the second district of Texas. All items of income in dispute, with the exception of that arising in January 1944 and prior periods, constituted community income of the petitioners, who were married June 17, 1944. Petitioners employed the cash basis method of accounting and filed their returns on that basis.

From 1942 to 1946, inclusive, petitioner, a wheat farmer, annually contracted to sell a portion of his wheat in one year for delivery and payment in January of the subsequent year. The first transaction in which petitioner or his attorney in fact, Paul B. Higgs, contracted to sell wheat for January delivery and payment originated in December 1942 with the Burrus Mill & Elevator Co. in Amarillo, Texas, sometimes hereinafter referred to as Burrus. A check in payment for the wheat in the amount of $17,012.13 was issued to petitioner on January 15, 1943. The second transaction on which petitioner contracted to sell wheat for January delivery and payment originated in December 1943 with the Barnett Grain Co. of Amarillo, Texas. A check in payment for the wheat in the amount of $12,775.30 was issued to petitioner on January 31, 1944. The third transaction in which petitioner or his attorney in fact contracted to sell wheat for January delivery and payment originated on August 2, 1944, with the Burrus Panhandle Elevator Co. in Amarillo, Texas. A check in payment for the wheat in the amount of $40,164.08 was issued to petitioner on January 17, 1945. The fourth transaction in which petitioner contracted to sell wheat and other grains for January delivery and payment originated in 1945 with the Coffee-Davis Grain Co. of Amarillo, Texas. A check in payment for the wheat and other grains in the amount of $7,721.59 was issued to petitioner on January 2, 1946. The fifth transaction in which petitioner contracted to sell wheat for January delivery and payment originated in 1946 with the Coffee— Davis Grain Co. of Amarillo, Texas. A check in payment for the wheat in the amount of $17,774.28 was issued to petitioner on January 4, 1947.

At the time the contract was made in each of the five transactions, the purchaser either had the grains in storage or received them prior to January 1, pursuant to a contemporaneous agreement as to shipping date. Under the terms of the contract made in each of the five transactions, petitioner was to receive his money for the wheat in January of the year following the contract of sale. The contracts of sale in each year were oral. These contracts were bona fide arm's-length transactions between the seller and the buyer.

Petitioner did not attempt to obtain payment, nor was it represented to him or his attorney in fact that he could obtain payment, prior to January of the following year under the contract made in each of the five transactions. The parties traded upon a ‘flat price‘ in each of the above five transactions, without any agreement for payment of storage.

The price of wheat for January delivery was determined by agreement between the parties. A price is not posted for January delivery in the grain business as the grain exchanges do not provide January as a delivery month on future contracts.

On or about August 2, 1944, Higgs, attorney in fact for petitioner, offered to sell petitioner's 1944 wheat, which consisted of approximately 30,000 bushels, for January delivery and payment to Porter Holmes, the manager of the Burrus Panhandle Elevator Co. in Amarillo, Texas. Higgs and Holmes agreed upon a price for the wheat which did not include any provision for storage in that it approximated the market price for wheat on August 2, 1944. The transaction was the only one of its type that the Amarillo office of Burrus handled in 1944. Since the transaction was unusual, Holmes called an official of the company in Dallas, Texas, and secured authority to buy the wheat upon the terms agreed upon between him and Higgs. The Dallas official approved the transaction. A confirmation letter dated August 2, 1944, was issued on the transaction by Burrus to petitioner. The confirmation specified the number of bushels, the price based on top grade, time of shipment, routing, and discounts. The confirmation was not treated by Burrus as intended to reflect all the terms of the oral contract. In the grain business the actual contract is generally oral. The time of shipment specified in the confirmation letter referred only to the date it should be transferred to the physical possession of Burrus and not to the technical delivery or closing date.

After the wheat was received and graded an amount of $40,164.08 was entered on Burrus' books as a credit to petitioner's account and a charge to purchases was made of the same amount. The credit on the books of Burrus to petitioner's account was not intended to reflect that he was immediately entitled to receive his money. The practice of Burrus generally was to issue a check to the seller within a few days after a credit was made. This procedure was followed with respect to a straight sale of wheat which was sold by petitioner, as the agent of Marshall Cator, on August 5, 1944. Cator was paid immediately for his wheat because it was sold outright to Burrus at that time for immediate delivery.

As heretofore stated, petitioner J. S. Amend was not paid for his 30,000 bushels of wheat which he sold to Burrus in August 1944 until January 17, 1945, because by agreement between the parties he was not to be paid for such wheat until some time in that month.

OPINION.

BLACK, Judge:

We have two taxable years before us for decision, 1944 and 1946. The year 1945 is not before us because the Commissioner has determined an overassessment as to each petitioner for that year.

In each of the taxable years there is one common issue and that is whether the doctrine of constructive receipt should be applied to certain payments which petitioner received from the sale of his wheat. There is no controversy as to the amounts which petitioner received or as to the time when he actually received them. Petitioners, being on the cash basis, returned these amounts as part of their gross income in the years when petitioner actually received them. As heretofore...