Commissioner of Internal Rev. v. North Jersey T. Ins. Co., 5741.

• Decision Date: 13 September 1935
• Docket Number: No. 5741.,5741.
• Citation: 79 F.2d 492
• Parties: COMMISSIONER OF INTERNAL REVENUE v. NORTH JERSEY TITLE INS. CO.
• Court: U.S. Court of Appeals — Third Circuit

79 F.2d 492 (1935)

COMMISSIONER OF INTERNAL REVENUE v. NORTH JERSEY TITLE INS. CO.

No. 5741.

Circuit Court of Appeals, Third Circuit.

September 13, 1935.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and Louise Foster, Sp. Assts. to Atty. Gen., for petitioner.

Louis E. Spiegler and N. Norman Mayer, both of Washington, D. C., for respondent.

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

THOMPSON, Circuit Judge.

This is a petition for review of a decision of the Board of Tax Appeals. In 1927, the respondent, an insurance company, entered into a written contract for the sale of its office building. $2,000 down money was paid upon execution of the contract. On October 1, 1927, the respondent, in accordance with the agreement, tendered a deed and offered to deliver possession of the property, but the purchaser refused to accept delivery. The respondent thereupon instituted suit in a New Jersey Court of Chancery and on April 16, 1928, that court entered a decree for specific performance, interest to run from October 1, 1927. The purchaser then paid the amount of the decree in full. The respondent kept its books on the accrual basis of accounting. The record discloses that the respondent failed to make an entry in its books in 1927 of the profit derived from the sale of the property. The Commissioner ruled that the sale was consummated in 1928, and that the profit therefrom was subject to tax. He assessed a deficiency for 1928. The Board of Tax Appeals held that the sale was consummated in 1927, that the profit therefrom was accrued income in that year, and that the sale did not give rise to taxable income in 1928. This is an appeal by the Commissioner.

The amount of the profits from the sale is not in dispute. The question is whether the profits were returnable in 1927, the year in which the agreement of sale was executed, or in 1928, the year in which the purchase money was received by the respondent. If the profits were returnable in 1927, section 246 (b) (1) of the Revenue Act of 1926, 44 Stat. 9, 49 (26 USCA § 204 note), applied and no tax was due because the amount earned was not from investment income or underwriting income within the meaning of that act. If the profits were returnable in 1928, they were taxable as gains resulting from "the sale or other disposition of property" within the meaning of section 204 (b) (1) of the Revenue Act of 1928, 45 Stat. 791, 844 (26 USCA § 204 note). To support his contention that the sale was not consummated until 1928, the petitioner cites Lucas v. North Texas Lumber Company, 281 U. S. 11, 50 S. Ct. 184, 74 L. Ed. 668. In that case, the taxpayer, on December 27, 1916, gave the Southern Pine Company a ten-day option to purchase the taxpayer's timber lands. On the same day title was examined and approved. On December 30, 1916, the Southern Pine Company sent a notice to the taxpayer that it would exercise its option and pay the purchase price as soon as the requisite papers were prepared by the taxpayer. No papers were prepared and no tender of title or of possession was made until January 5, 1917. The Supreme Court held that the contract was consummated in 1917. That case may be distinguished from the case here. In the instant case the agreement was an executed contract of sale, while in the cited case, the court was dealing with an executory contract of sale, as is shown by the following excerpt from the opinion of the Supreme Court: "An executory contract of sale was created by the option and notice, December 30, 1916. In the notice, the purchaser declared itself ready to close the transaction and pay the purchase price `as soon as the papers were prepared.' Respondent did not prepare the papers necessary to effect the transfer or make tender of title or possession or demand the purchase price in 1916. The title and right of possession remained in it until the transaction was closed. Consequently unconditional liability of vendee for the purchase price was not created in that year."

Whereas no...