Williams v. United States, 15212.

• Decision Date: 11 February 1955
• Docket Number: No. 15212.,15212.
• Citation: 219 F.2d 523
• Parties: H. O. WILLIAMS and Mrs. Ada L. Williams, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

219 F.2d 523 (1955)

H. O. WILLIAMS and Mrs. Ada L. Williams, Appellants, v. UNITED STATES of America, Appellee.

No. 15212.

United States Court of Appeals, Fifth Circuit.

February 11, 1955.

Thomas Y. Minniece and Maurice F. Kahlmus, Meridian, Miss., for appellants.

Robert B. Ross, Ellis N. Slack, Grant W. Wiprud, Sp. Assts. to Atty. Gen., Dept. of Justice, Washington, D. C., H. Brian Holland, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Edwin R. Holmes, Jr., Asst. U. S. Atty., Robert E. Hauberg, U. S. Atty., Jackson, Miss., for appellee.

Before HUTCHESON, Chief Judge, and RIVES and TUTTLE, Circuit Judges.

HUTCHESON, Chief Judge.

The suit was for the refund of income taxes for the year 1947, which the plaintiffs alleged had been overpaid by them.

The claim was that plaintiffs had correctly reported on the installment basis, as provided in Sec. 44(b), I.R.C.,¹ the capital gain received from a timber sale in 1947, and the commissioner had incorrectly required the whole of the gain to be included as income in that year.

The answer, admitting the assessment and payment of the deficiency, denied that plaintiffs were entitled to report the gain in installments and that the assessment and collection were wrongful.

Tried to the district judge on evidence² furnished entirely by taxpayer and presenting no conflict, the judge, finding and concluding that in fact and in law,³ the entire purchase price of $60,550 was available to and received by plaintiffs in the year 1947, and no refund was due them, dismissed the complaint with prejudice, and plaintiffs have appealed.

Stating, "The evidence in the case is undisputed and appellants believe that the legal effect of the so-called escrow agreement governs this case entirely", appellants, quoting from Treasury Regulation 111, Sec. 29.42-2⁴ and citing many cases⁵ in support of their position, are here insisting that they "have no quarrel with the district judge's findings of fact" but that he erred, in "holding that they constructively received the full purchase price of timber in 1947", and, in dismissing their suit on the basis of that holding. Pointing out that under the statutes, the regulations, and the decisions, the determinative fact in cases of constructive receipt is that, brought within the control and disposition of taxpayer, the income is available to him that it may be drawn upon by him without substantial limitation or restriction at any time, they insist that the provisions of the escrow agreement preclude the finding and conclusion of the district judge that the escrowed portions of the purchase price were in 1947 constructively available to them.

Appellee, citing many cases,⁶ points to the undisputed facts: that the purchaser was not only ready to pay, but desirous of paying, the entire purchase price in cash; and that the escrow was invented by appellants and employed by them not as a part of an installment sale but as a device to reduce the taxes which were due on the cash sale.

In support it quotes Williams' own testimony,⁷ as showing beyond dispute: that, after its bid was accepted, the Lumber Company desired and offered to pay the full purchase price in cash without any limitation of restriction of any kind; that, accepting and taking full advantage of the offer, Williams, of his own volition, devised the escrow agreement and in and by it imposed upon himself limitations binding him, as to stated amounts and for stated periods, not to take within his control and disposition and make fully available to himself the full purchase price which, except for the self imposed limitations, would have been fully and completely his to do as he pleased.

In reply to these arguments and authorities, the appellants, insisting that what and all that the United States is endeavoring to do is, when one method of doing business will produce less and another more taxes, to require the taxpayer to take the course which will produce the most taxes, cites as directly opposed Jones v. Grinnell, 10 Cir., 179 F.2d 873 and Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 267, 79 L.Ed. 596, where the Supreme Court said:

"The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."

Proceeding from this premise, they argue that none of the cases cited by appellee really supports its position under the facts of this case.

We agree with the taxpayers' general proposition and have often declared,⁸ as other courts have, that the taxpayers may conduct their business so as to minimize their taxes, provided only that the arrangements are real, not sham arrangements, and are legally effective to accomplish the desired result, and that, in determining whether the means used are, or are not, effective, the fact that tax reduction is a moving cause in the choice is not a material factor.

We cannot agree with them, though, that the means adopted here had the legal effect claimed for them. This is so for two reasons. The first is that we agree with the district judge, that when the lumber company's bid was accepted, and it desired and offered to comply with it by paying the full purchase price, the taxpayers were then in constructive receipt of it, and that the self imposed limitation of the escrow device did not in fact and in law change the situation so as to make the funds any less available to, and constructively received by them. Cf. Kuehner v. Commissioner, note 6 supra.

The second reason is that the use of the escrow agreement did not make the sale an installment sale, within the meaning of Sec. 44, and the taxpayers were under Section 42, in receipt of the whole purchase price. Section 44, designed as it is to enable persons who make true installment sales, to report the income from them as and when the installment payments are made, is without application, for the payments under the escrow were not installment payments. Under the undisputed facts, the timber deed conveyed the timber to the purchaser without reservation of any kind for the benefit of the sellers, and the purchaser, without reservation of any kind for its benefit, paid the full purchase price.

The judgment was right. It is affirmed.

1 "(b) Sales of realty and casual sales of personalty. In the case (1) of a casual sale or other casual disposition of personal property * * * for a price exceeding $1000, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed 30 per centum of the selling price * * *, the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, be returned on the basis and in the manner above prescribed in this section. As used in this section the term `initial payments' means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made." 26 U.S.C. § 44(b). (Emphasis supplied.)

2 The facts material to this appeal, as found by the District Court and as revealed by taxpayer's evidence may be summarized as follows:

In 1947 taxpayer let it be known that he was willing to sell the timber on some land he then owned, without indicating what terms he would accept. He received bids from several interested parties, the highest being a bid of $60,550 from the C. Blankinship Lumber Company, Inc. (hereafter referred to as the lumber company). Taxpayer was willing to sell the timber to the lumber company for $60,550, and the lumber company desired and was ready and able to make immediate payment in full of that sum; but taxpayer declined to accept immediate payment in full, and arranged with the company that $48,440 of the purchase price be put in escrow with a bank for disbursement to taxpayer in four annual installments. His purpose in doing this was to save federal taxes by reporting as income in each of the five years beginning with 1947 one-fifth of the purchase price.

To effectuate his purpose, taxpayer had a form of escrow agreement prepared, naming as escrow agent the Citizens National Bank of Meridian and secured the Bank's approval of the arrangement. No representative of the lumber company was involved in these preliminaries. On Nov. 19, 1947, taxpayer and Mr. Blankinship of the lumber company appeared together in the offices of the president of the Bank with the escrow agreement and timber deed. Mr. Blankinship delivered to the Bank's president a cashier's check for $48,440, and the escrow agreement was...