Johnson Realty Trust v. Commissioner

JOHNSON REALTY TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Johnson Realty Trust v. Commissioner Docket No. 40492. United States Board of Tax Appeals 21 B.T.A. 1333; 1931 BTA LEXIS 2213; January 22, 1931, Promulgated *2213 The petitioner having reported income from sales of real property in 1925 and 1926 upon a basis other than the installment sales basis and the evidence failing to disclose that the method used by the petitioner does not correctly reflect its income, held that the petitioner may not now change to the installment sales basis for those years. Harry E. MacLeod, Esq., for the petitioner. Bruce A. Low, Esq., for the respondent. SMITH *1333 This proceeding is for the redetermination of deficiencies of $758.06 for 1925 and $477.73 for 1926. The petitioner alleges in its petition that the respondent erred in holding that it is taxable as a corporation in those years, and in refusing to allow it to report its income for each of the years upon the installment sales basis. At *1334 the hearing the petitioner waived its contention with respect to the first issue. FINDINGS OF FACT. The petitioner was organized under a declaration of trust dated June 15, 1924, "to hold and manage" certain real estate then transferred to it "for the purpose of improving and selling, exchanging or leasing the same, or any part or parts thereof, for the benefit*2214 of the beneficiaries hereunder." On May 15, 1925, the petitioner sold a parcel of the improved real estate for $14,000, receiving in that year a cash payment of $3,200 and further monthly payments aggregating $280, making total receipts on this sale in 1925 of $3,480. On November 23, 1925, it sold another improved parcel for $13,300, receiving a cash payment of $3,700 and further payments bringing the total amount of cash received on this sale in 1925 to $3,788.68. On June 12, 1926, the petitioner sold a parcel for $13,000, receiving a cash payment of $1,274.20 and further payments during the year aggregating $1,050, and on June 29, 1926, the petitioner sold another parcel for $13,000, receiving during the year only a cash payment of $1,500. Prior to December 31, 1926, the petitioner discontinued operations and distributed its remaining assets to the beneficiaries named in the declaration of trust. In its original returns filed for 1925 and 1926, the petitioner did not report its income from the above sales of real property upon the installment sales plan. OPINION. SMITH: The petitioner having conceded the correctness of the respondent's determination that it is taxable*2215 as a corporation in 1925 and 1926, the only remaining issue is whether the petitioner is entitled to report its income in those years upon the installment sales basis. Section 212 of the Revenue Act of 1926 provides in part as follows: (d) Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price. In the case (1) of a casual sale or other casual disposition of personal property for a price exceeding $1,000, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed one-fourth of the purchase 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 subdivision. *1335 As used in this subdivision the term "initial payments" means the payments received*2216 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. [For retroactive application of this provision see section 1208.] The above stated facts are the only material facts of record in this proceeding. While it appears that the petitioner in 1925 and 1926 made several sales of parcels of real property upon which it received initial payments of less than one-fourth of the total sales price, it will be noted particularly that the petitioner has failed to show the amount of the profit realized or to be realized upon any of the sales. We are therefore without any means whatever of computing the amount of the payments to be returned as income by the petitioner in the taxable years. We held in , that: Where the petitioner fails to prove facts from which we can determine the true deficiency by the installment sales method, the respondent's determination of the deficiency by another method must stand, even though the facts establish the right of the petitioner to return income from installment sales by the installment sales method. *2217 See also . The respondent further contends that the action of the petitioner in reporting its income for the taxable years 1925 and 1926 upon other than the installment plan, the returns for those years having been filed after the enactment of the 1926 Act, constituted an election binding upon the petitioner and that the petitioner may not now change to the installment sales method. Upon the facts in this proceeding, where the evidence does not show that the method of reporting income used by the petitioner does not correctly reflect its income, the contention of the respondent upon this point must be sustained. ; ; . Upon the facts in this case, the respondent's determination of deficiencies of $758.06 for 1925 and $477.73 for 1926 is approved. Judgment will be entered for the respondent.