Clinton Hotel Realty Corp. v. Com'r of Int. Rev.
| Citation | 128 F.2d 968 |
| Decision Date | 27 June 1942 |
| Docket Number | No. 10237.,10237. |
| Parties | CLINTON HOTEL REALTY CORPORATION v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Philip J. Maron and Theodore Witkin, both of New York City, for petitioner.
Helen R. Carloss, J. Louis Monarch, Sewall Key, and Louise Foster, Sp. Assts. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and Roy N. McMillan, Sp. Atty., Bureau of Internal Revenue, all of Washington, D. C., for respondent.
Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.
The taxpayer, Clinton Hotel Realty Corporation, leased its fully furnished hotel in the City of Miami Beach, Florida, on June 3, 1935, for a term of ten years, for a total rental of $210,000 payable $21,000 on delivery of the lease, "Which shall be credited upon the rental for the last year of the term of this lease on the 3rd day of June, 1944, upon the terms and conditions hereinafter set forth"; and other sums of $21,000 annually as scheduled through February 15, 1944. The last year's rent is listed as due June 3, 1944, $21,000. During the fiscal tax year ending May 31, 1936, the taxpayer being on the accrual basis returned as income the $21,000 rent which accrued and was paid for the first year of the lease, but did not return as income the $21,000 paid at the execution of the lease, considering it to be a deposit for the security of the tenth year's rent and for other provisions of the lease. The Commissioner held it was income when received, and the Board of Tax Appeals upheld him. 44 B.T.A. 1215. Additional taxes were determined accordingly.
It is not denied that if the $21,000 was paid and received as rent in advance, it was taxable, though not yet earned. United States v. Boston & Providence R. R. Corp., 1 Cir., 37 F.2d 670; Renwick v. United States, 7 Cir., 87 F.2d 123; Commissioner v. Lyon, 9 Cir., 97 F.2d 70. On the other hand, if it was paid and received as security, with no present right or claim of full ownership, it would not be presently income, although it was expected finally to be applied in payment of the last year's rent if nothing happened to prevent. Barker's Estate v. Commissioner, 13 B.T.A. 562; Warren Service Corp. v. Commissioner, 2 Cir., 110 F.2d 723. In the latter situation, though the money is rightfully received, and if the parties so intend may be freely used, yet because of the acknowledged liability to account for it, there is no gain; just as in borrowing there is none. The case of North American Oil Consolidated v. Burnet, 286 U.S. 417, 424, 52 S.Ct. 613, 76 L.Ed. 1197, has no application, for the recipient of the money there claimed it was fully his, he acknowledged no right in another, and the holding was that a contrary claim by that other which might prove good would not prevent the receipt of the money being present income. We must consider what the acknowledged terms were on which this $21,000 was paid and received.
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...construction contract prior to final determination of work specifications and amount due for work); Clinton Hotel Realty Corp. v. Commissioner, 128 F.2d 968, 969, 970 (5th Cir.1942), revg. 44 B.T.A. 1215 (1941) (lease security deposits, where “If the only agreement was that it should apply ......
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