Lord v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 59385.
| Decision Date | 18 April 1934 |
| Docket Number | Docket No. 59385. |
| Citation | 30 BTA 425 |
| Parties | ROBERT H. LORD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ralph H. Cake, Esq., for the petitioner.
Warren F. Wattles, Esq., for the respondent.
The respondent has determined a deficiency in petitioner's income tax for the year 1928 in the amount of $3,996.68. The only matter in controversy is whether a certain sum received by petitioner in 1928, representing the proceeds of the sale of corporate stock, was separate or community income.
FINDINGS OF FACT.
Petitioner entered the employ of Deere & Co., a corporation, in 1911 or earlier, and was thereafter continuously employed by that company, or its subsidiaries, until on or about January 10, 1925. For some years prior to January 10, 1925, he was manager of the company's branch at Portland, Oregon.
On November 1, 1911, and on June 26, 1914, petitioner entered into contracts with Deere & Co. setting forth the compensation he was to receive for his services. Both contracts provided that: "In further consideration of the services so to be rendered" by petitioner, Deere & Co. "agrees to sell" and petitioner "agrees to buy" common stock (50 shares under the first contract and 250 shares under the second) of Deere & Co. at $50 per share. The contract price of the stock was payable in installments.
On April 8, 1918, petitioner and Deere & Co. entered into a contract reciting that all agreements in the contract of June 26, 1914, or any modification thereof "respecting the purchase to be made by the second party petitioner of the first party's common stock * * * are hereby canceled." The contract then provided as follows:
The first party now agrees to sell and the second party to buy 250 shares of said Deere & Company's Common Stock of the par value of $100.00 per share, at $50.00 per share, upon the following terms and conditions:
(a) Said stock shall be paid for (except as hereinafter provided) by first party crediting upon the purchase price thereof, a sum equivalent to the dividends which may be declared upon a like number of shares of Deere & Company's outstanding Common Stock.
Other provisions were that when the credits to be made amounted to $12,500 the stock was to be delivered to petitioner, but if they did not amount to that sum by June 1, 1925, the petitioner nevertheless would receive 100 shares of the stock on that date, and if by June 1, 1928, the credits did not equal the contract price for the remaining 150 shares, those shares would be delivered to him at that time and no further payments would be required. Under the contract petitioner had the option of paying for the stock at any time. It was further provided that in the event of the discontinuance of petitioner's services with the company prior to the time the stock was paid for, he would have the option of either paying the balance due on the stock and receiving it, or receiving from the company the amount credited on the contract price, plus interest.
By letter of November 20, 1924, Deere & Co. notified petitioner that after January 10, 1925, his services would no longer be required. The letter contained the following paragraph:
In view of the fact that you have been with this organization many years and in case, in our opinion, your attitude toward this organization and the members thereof continues to be above board and fair in the future the same as in the past, it is our idea to continue your common stock contract in force, and to give you and your family the benefits which accrue thereunder just the same as if you continued indefinitely in the employ of the company.
On or about January 10, 1925, petitioner and his wife left Portland, Oregon, and established their domicile at Mt. Vernon, Washington, where they resided until some time in 1930.
In 1928 petitioner received from Deere & Co. $50,259, representing the proceeds of 150 shares of the common stock of the company. In their returns for 1928 petitioner and his wife treated the amount so received as community income, each reporting one half. In determining the deficiency the respondent treated the entire sum as petitioner's separate income.
We have no question here as to whether or not the amount received by petitioner from Deere & Co. constituted income. The question presented is whether such income was the separate income of petitioner or community income divisible between petitioner and his wife, they being residents of the State of Washington at the time of receipt.
Petitioner's view is that the contract of April 8, 1918, and all his rights under it, expired when he left the service of Deere & Co.; that there was no consideration on his part for the offer contained in the letter of November 20, 1924, hence it was a mere offer and not a contract; and that such offer did not ripen into a contract until he performed the conditions thereof by maintaining the prescribed attitude towards Deere & Co. In other words, there was no contract until 1928, when he was a resident of Washington, and the income under such contract was then community income.
The respondent urges that the substantial consideration furnished by petitioner for the sum he received was the services he had previously rendered; that his receipt of the proceeds of the stock relates back to his contract of employment, which, being entered into in Oregon, makes the proceeds his separate income, under the rule that in determining the property rights of spouses the property is deemed to be acquired as of the time of acquisition of the initial right of which it is the development.
We are unable to accept petitioner's theory that the contract of April 8, 1918, and all his rights under it completely expired when he left the service of his employer, and that a new contract — completed by performance in 1928 — was substituted for it. We recognize the rule that where there are two contracts complete in themselves relating to the same subject matter, but of different dates, the later one supersedes the earlier. But that is not the situation here. The later one does not say what constituted "the common stock contract" therein mentioned, from which it is obvious that any attempt on the part of petitioner to enforce any rights under the later one would have necessitated his establishment of the prior agreement. Clearly it...
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