Peterson v. Comm'r of Internal Revenue (In re Estate of Peterson)
| Decision Date | 07 July 1980 |
| Docket Number | Docket No. 2405-78. |
| Citation | 74 T.C. 630 |
| Parties | ESTATE of CHARLEY W. PETERSON, DECEASED, DELLA E. PETERSON and CHARLES R. PETERSON, COEXECUTORS, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Decedent contracted to deliver to buyer “approximately 3,300” head of calves at 49 cents per pound. Those calves at ranches in Brown County, Nebr., were to be weighed and delivered at a delivery date selected by decedent not later than Nov. 1, 1972. The remaining calves were to be delivered by Dec. 15, 1972. On Nov. 1, 1972, one-third of the Brown County calves were still too young for weaning and, apparently by waiver, the delivery date was deferred. The calves gained about one-half pound to 3 pounds per day per animal. Decedent died on Nov. 9, 1972. His estate continued the feeding and care of the calves and made delivery thereof between Dec. 8 and Dec. 15. Held: The estate's receipts on delivery of the calves were not income in respect of a decedent. While the bulk of the work needed to bring the calves to the condition in which they were delivered had been completed by the date of death, the work which remained for the estate made an economically significant contribution and was essential to the successful delivery of the calves. John E. North and John A. O'Malley, for the petitioners.
Albert B. Kerkhove, for the respondent.
Respondent determined a $225,208.33 deficiency in petitioners' 1973 taxable year income tax. Due to concessions by petitioners, the sole issue for decision is whether the sale of cattle by the Estate of Charley W. Peterson constituted “income in respect of a decedent” within the meaning of section 691(a)(1). 1
Some of the facts have been stipulated and are found accordingly.
Charley W. Peterson (hereinafter referred to as the decedent) died testate on November 9, 1972.
Della E. Peterson and Charles R. Peterson, the petitioners herein, are the coexecutors of the Estate of Charley W. Peterson. Petitioners resided in Atkinson, Nebr., when they filed their petition in this case.
Della E. Peterson signed the estate's fiduciary income tax return (Form 1041) for the taxable year beginning November 9, 1972, and ending October 31, 1973.
The decedent raised and sold cattle for at least 45 years prior to his death. On July 11, 1972, the decedent and the Max Rosenstock Co. entered into the following livestock sales contract (Rosenstock contract):
LIVESTOCK SALES CONTRACT
THIS AGREEMENT, made and entered into this 11 day of July, 1972, by and between Charley W. Peterson, Atkinson, Nebraska, as party of the first part, Owner, and Seller, and Max Rosenstock Company, of Sioux City, Iowa, party of the second part, and Buyer, WITNESSETH:
That the party of the first part has this day agreed to sell and deliver to the second party, and the second party has agreed to purchase, receive and pay for the livestock hereinafter described, upon the terms and conditions set forth following, viz:
The livestock consists of approximately three thousand three hundred head of calves, primarily of Angus and Angus Charolais cross breeding, raised by the first party.
Second party agrees to pay to first party a price of Forty-nine Cents (49 $) per pound, live delivery weight, for both Steers and Heifers, computed on the total weight of the whole lot of cattle.
As an earnest payment, second party has this day paid to first party, the sum of.$46,500.00, which shall be applied as a credit against the whole sum of money which may be due.
The described calves are now situated on ranches in Brown County and Holt County, in Nebraska. Second party acknowledges that it has personally inspected and examined the calves the subject of the contract, and is informed concerning the type, quality, breeding, size and approximate ages of the calves.
At the time of weighing, and computation of the total sale money, second party is to be allowed an additional credit against the purchase price in the amount of Two Thousand One Hundred Sixty dollars as a compensation for the number of heavier than average calves which may be included in the lot.
Simultaneously with the final weighing and delivery of the calves, and the determination of the net remaining balance of the sale moneys due to first party, second party in discharge thereof, agrees to execute and deliver to first party, its promissory note in the amount of such balance, which shall be due and payable January 5, 1973, which shall draw no interest until January 5, 1973, and thereafter shall draw interest at the rate of nine per centum per annum until paid. For the security of said note, second party also agrees to execute and deliver to first party a Security Agreement, and a financing statement covering the livestock sold, which shall be in conformity with the Uniform Commercial Code of Nebraska, and grant to first party a continuing first lien upon such livestock until such note is paid. Second party shall furnish first party with an accurate list of the locations and places where said livestock will be kept after delivery.
Second party shall not be entitled to sort or size such livestock, but shall not be required to accept any livestock which have obvious defects or infirmities, or such as may be sick or crippled, or fail to pass health certification requirements.
First party shall have the right to designate the delivery dates of lots of cattle, which in the case of cattle now located on Brown County ranches shall not be later than November 1, 1972, and as to cattle on Holt County ranches shall not be later than December 15, 1972. First party agrees to notify Second party five days in advance of selected delivery dates.
As to the cattle which are located in Brown County, the same will be assembled in corrals at the ranch, and trucked directly to weigh stations in Ainsworth, Nebraska, and weighed off-truck, without allowance for shrink, which weights shall constitute the basis of payment. Transportation from ranch corrals shall be at expense of Second party.
As to the cattle which are located in Holt County, the same will be assembled for delivery in corrals at one or more locations of P & P Farms within a radius of 15 miles of Atkinson, Nebraska, and calves will then be removed from Cows and immediately weighed, without allowance for shrink, upon scales at such locations, which weights shall constitute the basis of payment. Second party will take delivery of the cattle at these locations after weighing, and all transportation thereafter shall be at expense of second party.
It is understood and agreed that the calves located in Holt County, will be moved from pasture to Corn Stalk fields, and remain with Mother Cows until delivery time.
Second party shall have made available to it, the use of any P & P Farms corrals at the various locations, for purpose of sorting and sizing any livestock prior to trucking.
All calves originating in Holt County will be branded, vaccinated and castrated. All calves with (sic) carry the registered Lazy F Brand, and will be the produce of Charley W. Peterson, excepting approximately 400 head of the total lot, which will be of the production of Willis Peterson.
First party will furnish all brand clearances and necessary health inspections and certification.
All communications having to do with this contract to first party shall be made through Charles R. Peterson, mailing address Amelia, Nebraska, and to second party through Emmet Brickley, Valentine, Nebraska, respective agents for the parties.
IN WITNESS WHEREOF, the parties have affixed their signatures the day and year first above written.
+-------------------------------+
¦(S) ¦Charley W. Peterson ¦
+-------+-----------------------¦
¦ ¦___________________ ¦
+-------+-----------------------¦
¦ ¦CHARLEY W. PETERSON ¦
+-------+-----------------------¦
¦ ¦ ¦
+-------+-----------------------¦
¦ ¦ ¦
+-------+-----------------------¦
¦ ¦MAX ROSENSTOCK COMPANY ¦
+-------+-----------------------¦
¦ ¦______________________ ¦
+-------+-----------------------¦
¦By: (S)¦R.E. Brickley ¦
+-------+-----------------------¦
¦ ¦_____________ ¦
+-------+-----------------------¦
¦ ¦R.E. BRICKLEY ¦
+-------------------------------+
On July 13, 1972, R. E. Brickley (Brickley), the agent for the Max Rosenstock Co., mailed to the decedent a $46,500 check as provided for in the sales contract.
Brickley first met the decedent in 1927 or 1928 and their first business transaction occurred the following year. A solid and satisfactory business relationship existed between these two individuals. Out of these prior dealings evolved the following understanding: (1) The decedent would deliver only calves that were old enough to wean but not yet yearlings, i.e., between 3 months and 11 months old; and (2) the decedent would allow Brickley to turn down any calves that he considered unmerchantable, diseased, too young, or too old. Because of the decedent's familiarity with Brickley's requirements, he generally culled those calves he thought would be unsatisfactory to Brickley prior to making any deliveries.
The Rosenstock contract provided for the sale of approximately 3,300 head of calves. The contracting parties used an approximation due to the difficulty of determining the number of acceptable calves that would be available at the time of delivery. The 3,300 head of calves represented the decedent's estimate of what he thought he could supply to Brickley.2 Because of this situation, Brickley knew that the number of calves eventually delivered might be less than the approximation contained in the Rosenstock contract.
The terms of the Rosenstock contract permitted the decedent to select the dates for delivering the calves so long as those dates were prior to November 1, 1972, for the calves raised in Brown County and prior...
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