Elmer v. Commissioner of Internal Revenue

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit
• Citation: Elmer v. Commissioner of Internal Revenue, 65 F.2d 568 (2nd Cir. 1933)
• Decision Date: 05 June 1933
• Docket Number: No. 135.,135.
• Parties: ELMER v. COMMISSIONER OF INTERNAL REVENUE.

65 F.2d 568 (1933)

ELMER v. COMMISSIONER OF INTERNAL REVENUE.

No. 135.

Circuit Court of Appeals, Second Circuit.

June 5, 1933.

Hugh Satterlee, of Washington, D. C. (Alfred S. Weill, of Philadelphia, Pa., and I. Herman Sher and Henderson Mathews, both of New York City, of counsel), for appellant.

Morton K. Rothschild and Sewall Key, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and J. E. Marshall, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The question raised by this appeal is of the taxpayer's right under section 212(d) of the Revenue Act of 1926 (26 USCA § 953(d) — which was made retroactive — to allocate part of his income from installment sales among the years when his customers actually paid for the goods. This in turn depends upon whether the transactions between him and two "finance companies," were sales or loans. If sales, he agrees that the Commissioner and the Board were right, who refused to allow the payments to be spread beyond the year in which he assigned his customers' contracts to the finance companies; if loans, the Commissioner agrees that he should have been allowed to allocate the payments to the years when the buyers actually paid.

The taxpayer was a selling agent in Hartford for Ford motorcars, which he sold upon the installment plan. His terms of sale were $50 cash down, and a series of weekly or monthly payments over a period of not more than eighteen months. As evidence of the customer's indebtedness he took one or more notes, bearing interest, secured by a contract of conditional sale, which reserved title to him, and gave him the right to retake and sell the car upon default in the payment of any installment. Being in need of ready funds, he raised money upon these notes by endorsing them to companies organized for that purpose, and assigning his interest in the contracts. For the earlier part of the period in question he dealt with a Maryland company, in which he had no interest; but later he organized a company of his own in Hartford. Although he was the prime mover in this company, and owned or controlled substantially all its shares, for the purposes of this case it is to be treated as a stranger.

The nature of the transactions with the Maryland company is left very vague in the findings and in the evidence; the taxpayer cannot ask more than that we assume them to have been of the same kind as those with the Hartford company, about which we can learn more. To this company he "sold" and assigned his customers' contracts outright, including his interest as conditional seller, and endorsed their notes. For this he received the face of the unpaid purchase price, less insurance charges which the company agreed to pay. Apparently it also deducted some "interest" charges for itself, though the notes themselves bore interest. The company agreed to tell him of any default, upon which he was at once to retake the car under the contract and sell it, probably as its agent, though that is not clear; but in any event he was to repay the amount realized. The company got all the payments from the customer direct, and was repaid in full, if he did not default. If he did, it kept all he had paid, got the proceeds from...