Watson v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 39192

• Decision Date: 21 July 1930
• Docket Number: 39193.,Docket No. 39192
• Parties: KATHERINE H. WATSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT H. K. WATSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

20 B.T.A. 270 (1930)

KATHERINE H. WATSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT H. K. WATSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 39192, 39193.

Board of Tax Appeals.

Promulgated July 21, 1930.

Robert P. Smith, Esq., for the petitioners.

A. H. Murray, Esq., for the respondent.

These proceedings, which were consolidated for hearing and decision, involve deficiencies in income taxes for 1925 as follows:

                Docket No. 39192 _______________________________ $1,042.16
                           39193 _______________________________  1,388.14
                

The issue common to both cases is whether the gain realized on the sale of a certain piece of real estate is taxable on the basis of a completed transaction or the installment basis.

FINDINGS OF FACT.

In 1923 H. K. Watson and John E. Pushee each purchased an undivided one-half interest in a tract of land situated near St. Petersburg, Fla., at a cost of $31,500 to each. During the early part of 1925 Katherine H. Watson, wife of H. K. Watson, purchased the interest of Pushee in the land for $37,500. In or about June, 1925, the petitioners sold their interests in the property for $96,300, which amount was to be divided equally between the vendors. The sale was closed on the following terms:

                Initial cash payment ______________________________________________  $24,017.50
                Mortgages assumed by purchaser ____________________________________   29,500.00
                Purchase money mortgage ___________________________________________   41,531.00
                Charges assumed by purchaser
                    Accrued interest on mortgages to date of sale ________  $847.67
                    Accrued city and county taxes on property from January
                      1, 1925, to date of sale ___________________________   230.33
                    Paving liens _________________________________________   166.80
                    Interest on paving liens _____________________________     6.70
                                                                            _______    1,251.50
                                                                                     __________
                       Total ______________________________________________________  $96,300.00
                

No additional cash was paid in 1925 on the purchase price of the property. The mortgages assumed by the purchaser were mortgages assumed by the petitioners at the time they acquired the land. At the time the sale was closed the interest on the mortgages, city and county taxes and paving liens, together with interest thereon, were adjusted as of that date in the amounts set forth in the above tabulation, and the purchaser assumed the indebtedness. No payments were made by the purchaser within the year 1925 on these obligations.

Petitioners kept their books on the cash receipts and disbursements basis of accounting.

In his determination of the deficiency respondent treated the items amounting to $1,251.50 assumed by the purchaser as part of the initial payments, and as that amount, when added to the cash received, exceeded 25 per cent of the selling price of...