Arnwine v. Comm'r of Internal Revenue , Docket No. 9348-76.
| Decision Date | 02 April 1981 |
| Docket Number | Docket No. 9348-76. |
| Parties | BILLY E. ARNWINE and SHIRLEY S. ARNWINE, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In March 1973, petitioners, before they planted their 1973 cotton crop, sold that crop to cotton buyers through a cotton gin which contacted them seeking to purchase their cotton. Contracts of sale described petitioner-husband as grower, the gin as seller, and the buyers as buyers, and specified the price to be paid for various grades and staples of cotton, delivery terms, and the cotton gin which would gin the cotton. The contract contained no provision as to time of delivery of the cotton or time of payment therefor. In November 1973, petitioner-husband and the gin executed a deferred payment contract which provided for delivery of the cotton covered by the earlier contracts, with payment therefor to be made after 1973. Petitioners delivered the cotton to the gin in December 1973, and the gin paid them from funds of the purchasers in January 1974. Held, petitioners did not constructively receive the proceeds from the sale of cotton in 1973. Held, further: The gin was the agent of the purchasers, not petitioners, especially in connection with payment for the cotton. Accordingly, petitioners did not receive payment for their cotton through an agent in 1973, and the proceeds from the sale of their cotton are not taxable to them in 1973. Schniers v. Commissioner, 69 T.C. 511 (1977), followed; Warren v. United States, 613 F.2d 591 (5th Cir. 1980), distinguished. William Norton Baker and Karl Norman Clifford, for the petitioners.
Thomas G. Potts and Kenneth A. Little, for the respondent.
The Commissioner determined a deficiency in petitioners' Federal income tax for their taxable year 1973 in the amount of $11,656.65. After concessions by petitioners, we need only determine the appropriate taxable year in which amounts obtained by petitioners from the sale of cotton should be included in their gross income.
Some of the facts have been stipulated. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Billy E. Arnwine (herein petitioner) and his wife, Shirley E. Arnwine, filed a joint Federal income tax return for their taxable year 1973, during which they maintained their books and records and reported their income and expenses based upon the cash receipts and disbursements method of accounting. When they filed their petition herein, petitioners resided near Levelland, Tex.
During 1973 petitioners were primarily involved in the business of cotton farming in the Levelland, Tex., area. Petitioners rented from Joe Mears the land on which the cotton in question was grown, and they paid, as rental for such use, every fourth bale of cotton produced from the rented land.
During 1973, Owens Independent Gin, Inc. (herein the Gin), an independent cotton gin, was owned and operated by Fred Owens (herein Owens). Petitioner was not a director or employee of the Gin in 1973.
W. A. Wadlington (herein Wadlington) was a cotton buyer in the Levelland area representing several large cotton purchasers. He was designated as an agent for such purposes by these purchasers and was paid on a commission basis for cotton that he purchased on their behalf. In 1973, he represented two cotton purchasers, Dan River Cotton Co., Inc. (herein Dan River), and C. Itoh & Co. (America), Inc. (herein C. Itoh).
Early in 1973, Wadlington contacted Owens and informed him that his principals were willing to purchase a specified number of acres of cotton to be grown and harvested in 1973. Wadlington outlined the price his principals would be willing to pay for cotton of varying grades and staples. Wadlington approached Owens with this information because he knew that Owens might be helpful in finding cotton growers who would be willing to contract for the sale to Wadlington's principals of the cotton grown on their acreage during 1973. Utilizing a cotton ginner in this manner was the usual practice in the area. Because the ginner foresaw an opportunity to clinch some ginning business, he would help cotton buyers locate potential cotton sellers.
Owens contacted petitioner to see if he would sell some of his yet-to-be-planted 1973 cotton crop under the terms given to Owens by Wadlington. After considering this opportunity for a day or two, petitioner informed Owens that he would be willing to make such sales.
As a result of these discussions, the following contract was executed on March 5, 1973:
+---------------------------------------------------------+
¦Seller —Owen Gin Co. ¦Buyer —Dan River Cotton Co., Inc.¦
+----------------------+----------------------------------¦
¦P.O. Box V ¦49 Union Avenue ¦
+----------------------+----------------------------------¦
¦Levelland, Texas 79336¦Memphis, Tennessee 38103 ¦
+----------------------+----------------------------------¦
¦ ¦ ¦
+----------------------+----------------------------------¦
¦Grower—Bill Arnwine ¦ ¦
+---------------------------------------------------------+
The Dan River Cotton Co., Inc. does herewith confirm the purchase of the entire production on 250 acres of Dunn 118 and/or 119 variety cotton. Cotton shall be of the coming crop year (season of 1973-74) and will be stored on the Levelland Compress, Levelland, Texas.
The cotton to be ginned at the Owen Gin Co., Levelland, Texas. If the gin is destroyed by fire or any other reason a mutually acceptable gin will be designated.
It is mutually understood and agreed that the prices that are herein made are based on F.O.B. car terms, Levelland, Texas. Original compress NET weights are to apply. T.C.A. rules to apply for Light or Heavy Weights. Following prices are for 3.5 thru 4.9 micronaire.
+-----------------------------------------------------+
¦Grade and Staple ¦Price ¦Grade and Staple ¦Price ¦
+------------------+-------+------------------+-------¦
¦ ¦ ¦ ¦ ¦
+------------------+-------+------------------+-------¦
¦(3134) Middling ¦30.00 ¦(3234) MLtSp ¦29.00 ¦
+------------------+-------+------------------+-------¦
¦(4034) SLM Plus ¦29.00 ¦(4234) SLMLtSp ¦28.00 ¦
+------------------+-------+------------------+-------¦
¦(4134) SLM ¦29.00 ¦(5234) LMLtSp ¦26.00 ¦
+------------------+-------+------------------+-------¦
¦(5034) LM Plus ¦28.00 ¦(3334) MSp ¦26.00 ¦
+------------------+-------+------------------+-------¦
¦(5134) LM ¦28.00 ¦(4334) SLMSp ¦24.00 ¦
+------------------+-------+------------------+-------¦
¦(6034) SGO Plus ¦25.00 ¦(5334) LMSp ¦23.00 ¦
+------------------+-------+------------------+-------¦
¦(6134) SGO ¦25.00 ¦(3434) MTg ¦23.00 ¦
+------------------+-------+------------------+-------¦
¦(5134) GO ¦23.00 ¦(4434) SLMTg ¦21.00 ¦
+------------------+-------+------------------+-------¦
¦(2234) SMLtSp ¦29.00 ¦(5434) LMTg ¦18.00 ¦
+-----------------------------------------------------+
The above prices are based for 11/16 inch and longer staple. Cotton is to be delivered down through inch staple at government loan differences. Government loan differences are to apply for other micronaire groups but nothing lower than 3.0 micronaire can be applied. Government loan differences for Barks or Grass are to be applied. No Rood harvested cotton is to apply. It is agreed that the Growers will not irrigate beyond the date of August 20, 1973.
It is understood that the foregoing prices are for cotton harvested before January 1, 1974. Harvested is to mean actually removed from the stalks in the Grower's field. The cotton may be stored in seed cotton form awaiting ginning and be applied on this contract. For such cotton that has not been harvested the following penalties are to be applied. For cotton harvested Jan. 1 thru Jan. 15, 100 points; Jan. 16 thru Jan. 31, 200 points and cotton harvested after Jan. 31, 1974, 300 points. The seller is to keep records of harvesting dates on all fields and will supply the buyer information as to the Grower's compliance to this feature of this contract.
The seller is to make available to the buyer copies of contracts of the participating Growers which is [sic] to list their individual acres and the farm serial numbers. The buyer shall be afforded the opportunity, at his request, to examine any and all records as pertains [sic] to his interest concerning this acreage. It is understood that permission is given by the Grower for the buyer to have access to ASCS records.
The cotton will be invoiced to Dan River Cotton Co., Inc. by the Gin as soon as it is ginned and placed on the compress. The drafts are to contain green card invoices and warehouse receipts. A copy of the invoices to W. A. Wadlington. The Cotton Board assessment shall be paid by the Gin.
On March 13, 1973, another contract was executed. The only significant differences between this contract and the March 5, 1973, contract are: (1) The “Buyer” is C. Itoh; (2) the acreage covered by the document is different; (3) 360, as opposed to 250, acres are covered by the document; (4) Wadlington signed the document “for C. Itoh & Co., (America) Inc.” instead of “for Dan River Cotton Co., Inc.”; (5) no...
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