Robinson v. Commissioner of Internal Revenue, 7386.

• Decision Date: 19 November 1934
• Docket Number: No. 7386.,7386.
• Parties: ROBINSON v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

73 F.2d 769 (1934)

ROBINSON v. COMMISSIONER OF INTERNAL REVENUE.

No. 7386.

Circuit Court of Appeals, Ninth Circuit.

November 19, 1934.

Robert T. Jacob, of Portland, Or., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, M. H. Eustace, and Carlton Fox, Sp. Assts. to Atty. Gen., for respondent.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

WILBUR, Circuit Judge.

Petitioner seeks a review of the decision of the Board of Tax Appeals approving the determination by the Commissioner of Internal Revenue of a deficiency of $3,597.28 in the income tax of petitioner for the year 1927.

Petitioner, a resident of Portland, Or., acquired in 1917 all of the capital stock of the Molalla Electric Company at a cost of $45,000 and sold the same to the Portland Electric Power Company in February, 1927. The selling price of the stock was $87,500, $17,500 of which was paid in cash. The deferred payments were evidenced by sixteen notes totaling $70,000, four of which, totaling $17,500, became due on March 1st of each of the years 1928, 1929, 1930, and 1931. During the year 1927, petitioner purchased some real estate and gave the eight notes due March 1, 1928, and March 1, 1929, totaling $35,000, as part payment therefor and petitioner guaranteed payment of the same.

Petitioner claims that he is entitled to return the income from the sale of his stock in the Molalla Company upon the installment basis under section 212 (d) of the Revenue Act of 1926 (26 USCA § 953 (d) and assigns as error the holding of the Board of Tax Appeals that "the petitioner, having in said taxable period received in cash and property as initial payment more than one fourth the purchase price at which he sold his Molalla Electric Co. stock, is not entitled, in our opinion and we so determine, to have his tax on the profit computed on the installment basis, as contended by him."

This holding of the Board of Tax Appeals is based upon the proposition that by giving the notes for $35,000 as part payment for the real estate during the same taxable year, the petitioner to that extent received an interest therein as part of the initial payment for his stock in the Molalla Company within the meaning of section 212 (d) of the Revenue Act of 1926, supra.

The question here involved has recently been decided by the Circuit Court of Appeals for the Second Circuit in a similar case Duram Building Corporation v. Commissioner of Internal Rev., 66 F.(2d) 253, 254 contrary to the conclusion reached by the Board of Tax Appeals. The Circuit Court of Appeals in Duram Building Corp. v. Commissioner, supra, stated:

"Therefore, as we interpret section 212 (d), the privilege of reporting upon the installment basis depends upon the transactions between the vendor and purchaser of the land during the taxable period; it is not made conditional upon what disposition the vendor may make of the purchaser's evidences of indebtedness by transactions with third parties during the taxable period in which the land was sold. Such transactions are separate and independent and will themselves be the basis for a return of profit or loss."

Respondent now concedes that petitioner is entitled under the provisions of section 212 (d), supra, to return the income from the sale of his stock on the installment basis as held in Duram Building Corp. v. Commissioner, supra. However, respondent contends that the transaction in 1927 whereby petitioner transferred...