Kuehner v. Comm'r of Internal Revenue, Docket No. 35511.

• Decision Date: 31 July 1953
• Docket Number: Docket No. 35511.
• Citation: 20 T.C. 875
• Parties: OTTILIE B. KUEHNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

20 T.C. 875

OTTILIE B. KUEHNER, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 35511.

Tax Court of the United States.

Promulgated July 31, 1953.

CAPITAL GAIN— TIME OF RECEIPT.— The petitioner owned 50 shares of stock. On August 6, 1947, the petitioner entered into an arrangement with a trust company and a purchaser of the stock pursuant to which the petitioner transferred the stock to the trust company for delivery to the purchaser in years subsequent to 1947. When the arrangement was made the purchaser delivered the full purchase price to the trust company for the benefit of the petitioner to be paid as cash in hand as the stock was delivered.

1. Held, the petitioner received the equivalent of $65,000 in 1947 and was taxable in that year on the capital gain instead of at the times the trust company actually transferred the stock and paid cash in hand to the petitioner.

2. Also held, a release executed by the purchaser of all claims against the petitioner did not cover an advance made to the petitioner and accordingly the release of the liability to repay the advance was not income in 1947. This transaction was compromised by the parties subsequent to 1947. Christopher Del Sesto, Esq., for the petitioner.

James R. McGowan, Esq., for the respondent.

OPINION.

TIETJENS, Judge:

The Commissioner determined a deficiency of $13,808.75 in income tax for 1947. By amended answer the Commissioner has requested an increased deficiency resulting from adding from adding to the petitioner's reported income, long-term capital gain of $29,034.59 rather than $27,500 as set out in the deficiency notice.

In his original determination the Commissioner added rental receipts of $99.75 to the petitioner's income for 1947. This addition is not contested and can be reflected in a Rule 50 computation.

Two questions are presented for decision: (1) Did the petitioner realize taxable income in 1947 from a contract executed August 6, 1947, providing for the sale to Alkay Jewelry Co. of 50 shares of that company's stock? (2) Did the petitioner realize additional taxable income in 1947 from a provision in the same contract whereby Alkay Jewelry Co. released certain claims against the

All of the facts have been stipulated and the stipulation is adopted as our findings of fact. The facts necessary to decision are as follows:

The petitioner is a resident of Providence, Rhode Island. Her income tax return for 1947 was filed on the cash basis with the collector of internal revenue of Providence, Rhode Island.

On August 6, 1947, the petitioner and Lena Allin between them owned all the shares of Alkay Jewelry Co. (hereafter sometimes called Alkay) issued and outstanding. The petitioner owned 50 shares which were acquired on October 29, 1946, at a cost of $200 per share.

On August 6, 1947, the petitioner, Alkay, and the Rhode Island Hospital Trust Company (hereinafter sometimes called Trust Company) entered into an agreement wherein the petitioner was referred to as ‘the Seller,‘ Alkay as ‘the Buyer,‘ and the Trust Company as ‘the Trustee.‘ The agreement recited that the seller was desirous of selling her 50 shares of Alkay stock and the buyer was willing to purchase said shares on the terms and conditions set forth therein. Also, that to assure the buyer ‘that it will receive proper documents of title evidencing the interest of the Seller in said stock, as and when payments shall have been made as hereinafter set forth, it is contemplated that a Trustee be appointed.‘

The agreement provided further:

1. The Seller and the Buyer hereby appoint Rhode Island Hospital Trust Company as Trustee for the purposes hereinafter contained.

2. The Seller herewith delivers to the Trustee her fifty (50) shares of the common stock of Alkay Jewelry Co., together with an assignment, hereinafter referred to as ‘said assignment by the Seller,‘ of all her right, title and interest in the said fifty (50) shares of the common stock of Alkay Jewelry Co., a copy whereof is attached hereto and marked Exhibit ‘A‘.

3. The Seller herewith delivers to the Trustee a release of all claims and demands arising under this agreement which she may have against the Buyer, a copy whereof is attached hereto and marked Exhibit ‘B‘.

4. The Seller agrees to sell to the Buyer ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1948, and agrees to sell to the Buyer ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1949, and agrees to sell to the Buyer ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1951, and agrees to sell to the Buyer ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1952.

5. The Buyer agrees to buy from the Seller ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1948, and agrees to buy from the Seller ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1949, and agrees to buy from the Seller ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1950, and agrees to buy from the Seller ten (10) shares of the common stock of Alkay Jewelry Co., for the sum of Thirteen Thousand ($13,000) Dollars, payable on February 1, 1952.

6. The purchase price for each ten (10) shares of the common stock of Alkay Jewelry Co., shall be Thirteen Thousand ($13,000) Dollars and the aggregate purchase price shall be Sixty-Five Thousand ($65,000) Dollars as set forth in Paragraphs (4) and (5) hereof, provided, however, that there shall be deducted therefrom or credited thereon all dividends which may be received by the Trustee on stock of Alkay Jewelry Co., of which it shall be the holder of record. The Buyer shall deliver, on the date of the execution of this agreement, to the Trustee the sum of Sixty-Five Thousand ($65,000) Dollars, which sum shall be held by the Trustee and disbursed in accordance with the provisions of this agreement.

7. The Trustee shall have the following additional rights, powers and duties:

a) On February First of each of the calendar years 1948, 1949, 1950, 1951 and 1952, the Trustee shall:

1) Compute the total payments made to it prior to the close of business on each of such days by the Buyer whether as payments on the purchase price under Paragraphs (4), (5) and (6) hereof, or whether by way of dividends on the stock of Alkay Jewelry Co., or otherwise, the figure so computed from time to time being hereinafter called the ‘total payment by the Buyer.‘

2) Compare the total payment by the Buyer with the amount set forth in Column ‘B‘ of the following schedule, hereinafter called ‘said schedule‘, in the same numbered line as the date on which the computation is being made:

+--------------------------------------------+
                ¦          ¦COLUMN “A”  ¦COLUMN “B”  ¦
                +----------+----------------+----------------¦
                ¦Line No. 1¦February 1, 1948¦$13,000.00      ¦
                +----------+----------------+----------------¦
                ¦Line No. 2¦February 1, 1949¦26,000.00       ¦
                +----------+----------------+----------------¦
                ¦Line No. 3¦February 1, 1950¦39,000.00       ¦
                +----------+----------------+----------------¦
                ¦Line No. 4¦February 1, 1951¦52,000.00       ¦
                +----------+----------------+----------------¦
                ¦Line No. 5¦February 1, 1952¦65,000.00       ¦
                +--------------------------------------------+
                

3) If on any of the dates above set forth the total payment by the Buyer shall equal or exceed the amount in Column ‘B‘ with which it shall be so compared, the Trustee shall forthwith deliver to the Buyer certificates of stock of Alkay Jewelry Co., representing ten (10) shares of the common stock of Alkay Jewelry Co.

b) The Trustee shall, forthwith upon receipt by it of dividends on any stock of Alkay Jewelry Co., of which it shall be the record owner, pay over the same to the Seller, except that if the payments thereof to the Seller pursuant to the provisions hereinafter set forth would bring the total of all payments by it to the Seller to an amount in excess of Sixty-Five Thousand ($65,000) Dollars, it shall pay to the Seller only such amount of such dividends, if any, as shall be necessary to bring the total amount paid by it to the Seller to the figure of Sixty-Five Thousand ($65,000) Dollars, and all amounts in excess thereof it shall forthwith pay to the Buyer.

c) So long as the total payments by the Trustee to the Seller shall be less than Sixty-Five Thousand ($65,000) Dollars, it shall on February 6th of each of the calendar years 1948, 1949, 1950, 1951 and 1952 pay to the Seller from sums theretofore paid to it by the Buyer such amount, if any, as shall be necessary so that the total payments made by it to the Seller, including all amounts received and paid out by it as dividends on stock of Alkay Jewelry Co., shall be on February 6, 1948, be not less than Thirteen Thousand ($13,000) Dollars, on February 6, 1949, be no less than Twenty-Six Thousand ($26,000) Dollars, on February 6, 1950, be not less than Thirty-Nine Thousand ($39,000) Dollars, on February 6, 1951, be not less than Forty-Two Thousand ($42,000) Dollars, and on February 6, 1952, be not less than Sixty-Five Thousand ($65,000) Dollars.

d) The Trustee shall permit Lena Allin, if she is living, or the executor or administrator of the estate of Lena Allin, if she is not living, to exercise any and all voting rights with respect to any shares of stock of Alkay Jewelry Co., of which it is the record holder hereunder. In exercising the right to vote said stock, Lena Allin or her executor or her administrator shall not be liable to the...