Hamilton Nat'l Bank v. Commissioner

THE HAMILTON NATIONAL BANK OF CHATTANOOGA, AS ADMINISTRATOR OF THE ESTATE OF S. STRANG NICKLIN, DECEASED, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hamilton Nat'l Bank v. Commissioner Docket No. 66833. United States Board of Tax Appeals 29 B.T.A. 63; 1933 BTA LEXIS 1005; October 3, 1933, Promulgated *1005 The amount of the principal of a promissory note payable on or before July 7, 1930, representing profit on a sale returnable on the installment basis, and interest thereon, is held to have been constructively received in 1929, where the agent of the maker in 1929 tendered payment in cash, and, upon refusal of the holder to accept payment, of his own volition deposited the amount in a savings account in his own name as trustee, and delivered to an officer of the bank the passbook and a check drawn to the order of the payee dated January 10, 1930, for the amount deposited and bank interest to that date, with instructions to deliver the check and passbook to the payee on January 10, 1930. Albert W. Taber, Esq., for the petitioner. Hartford Allen, Esq., for the respondent. MURDOCK *63 The Commissioner determined a deficiency of $2,751.85 for the calendar year 1929. The errors assigned are that the Commissioner *64 erroneously included in the petitioner's income for 1929, $2,531.25 representing interest on a note payable to S. Strang Nicklin, executed by the Chattanooga Baseball Co., and $17,707.50 representing an installment of profit*1006 on the sale by S. Strang Nicklin of a baseball franchise, players' contracts, etc., the profit being embraced in a note for $18,750 due July 7, 1930. FINDINGS OF FACT. The Chattanooga Baseball Co., a corporation, was organized in the summer of 1927 for the purpose of purchasing from S. Strang Nicklin the franchise, players' contracts, and everything that he owned in connection with the Chattanooga ball team of the Southern Baseball League. The purchase was made and the purchaser gave the seller its promissory notes for a part of the purchase price. Nicklin reported his profit from this sale on the installment basis. The last installment was secured by a note for $18,750 due July 7, 1930, bearing 6 percent interest. On September 30, 1929, a contract was entered into whereby Joe W. Engle agreed to purchase all of the stock of the Chattanooga Baseball Co. The selling stockholders were represented in this agreement by attorneys in fact. The contract provided that the sellers would cause every indebtedness of the corporation to be paid so that when the stock was delivered to Engle the corporation would be free from debt, except for certain items not material hereto. S. Strang*1007 Nicklin was one of many selling stockholders and he was also a party to the agreement for conveying a ball park to the corporation and for lending the corporation some money, but not for other purposes. Edward Finlay, a lawyer and secretary of the corporation, was active in carrying out the details of the transfer, although he was not employed by any of those interested and received no compensation for his services. He knew Nicklin, but not intimately, and was never in his employ. Nicklin was advised by his accountant and tax consultant not to accept payment of the note in 1929, in order to avoid reporting that installment of his profit in 1929. In attempting to comply with the contract, Finlay, in the early part of October 1929, tendered payment of the principal and interest on the note to October 7, 1929, in cash, to Nicklin. Nicklin told Finlay that he did not want the note paid until 1930 because he did not want to report that installment of his profit in the year 1929. He refused at that time to take the cash tendered into his own hands. The principal and interest on the note to October 7, 1929, amounted to $21,281.25. After Nicklin refused this amount Finlay, on his*1008 own initiative, deposited this cash in the American Trust & Banking Co. on October 10, 1929. The deposit was in a savings account *65 bearing 4 percent interest and was in the name of "Edward Finlay, Trustee." Finlay then drew a check dated January 10, 1930, payable to Nicklin for the amount of the deposit plus interest at 4 percent to January 10, 1930. On October 10, 1929, Finlay delivered the check and the passbook for the savings account to an officer of the bank, together with a letter in which he instructed the official to deliver the check and the passbook to Nicklin on January 10, 1930. He explained the whole situation in this letter which was in part as follows: This [$21,281.25] is an amount that the Chattanooga Baseball Company owes Strang Nicklin on a note which does not mature until July 1930, and Strang Nicklin has refused to allow us to anticipate it before 1930. However, our agreement with the new owners of the Chattanooga Baseball Company provides that all debts should be paid; therefore, the handling of the matter in this manner. He asked that his letter be acknowledged and that Nicklin be furnished with a copy of the acknowledgment. Finlay received*1009 the acknowledgment dated October 11, 1929. His instructions were carried out and Nicklin accepted the passbook and check in January 1930. On October 10, 1929, Finlay wrote a letter to Nicklin which was in part as follows: You hold a note of the Chattanooga Baseball Company for $18,750.00, dated July 7, 1927, and payable July 7, 1930. You have refused to accept payment of this note, but, inasmuch as our deal with Joe Engle required that all indebtedness of the Company be satisfied, I have handled the matter in this manner: Your note, with accumulated interest at 6% to October 7, 1929, amounted to $21,281.25. I have deposited this amount in the Savings Department of the American Trust & Banking Company of Chattanooga, Tennessee, in the name of Edward Finlay, Trustee. I have delivered this bank book to Mr. D. H. Griswold, Vice-President of the American Trust & Banking Company, same to be delivered to you on January 10, 1930. I have also given to Mr. Griswold my check, as Trustee, against this account but payable to you in the sum of $21,494.06. This check represents the amount deposited, plus three months accumulated interest. Mr. Griswold will give this check to you on January 10, 1930. *1010 * * * You have been without representation all through our Baseball transactions, leaving your affairs largely to me. I would, therefore, appreciate it if you would O.K. copy of this letter, so that I will have a clean bill of health all the way through, and this letter will also serve as a receipt in full for all amounts of every kind and character that the Chattanooga Baseball Company owes you. Finlay never received any written response to this letter from Nicklin, but does not remember whether or not Nicklin ever orally indicated his approval. Nicklin never made any objection to the steps taken by Finlay after their meeting at which the cash was *66 tendered and refused. The other parties to the contract of September 30, 1929, knew what Finlay had done and made no objection. In reporting his income for 1929 Nicklin did not include interest on the note to October 7, 1929, and he did not report an installment of profit from his 1927 sale, represented by payment of the note for $18,750 due July 7, 1930. The Commissioner added to the income reported $2,531.25 as interest on the note to October 7, 1929, and $17,707.50 as an installment of profit on the 1927 sale*1011 resulting from payment of the note. He held that payment of this note and interest was constructively received in 1929. Nicklin died in March 1932, and his duly qualified and acting administrator instituted this proceeding. OPINION. MURDOCK: Both parties agree that the use of the installment method of reporting the profit from the sale in 1927 is proper. There is no difference between them as to any figures. The sole question is, When was the decedent in receipt of the principal and interest on the note for income tax purposes? He died before this proceeding was instituted and his testimony is not available. The note was not produced and we do not know its precise terms or the date of cancellation. However, the petitioner concedes that it was payable "on or before" July 7, 1930. The petitioner makes several arguments based upon an absence of proof, apparently forgetful of the fact that the proof is its burden. It must show that there is no basis for the Commissioner's action, if the latter is to be reversed. The petitioner argues that the savings account was not unqualifiedly subject to the decedent's demands upon the bank in 1929, that the account was not that*1012 of his agent, and that it was not in trust or in escrow for the decedent. We need not decide any of these questions. There was an unqualified tender of payment before the money was placed in the bank. The total amount which he accepted from the bank on January 10, 1930, was not the equivalent of the principal of the note with interest thereon to January 10, 1930. It was the principal of the note with interest thereon to October 7, 1929, plus bank interest on that total sum from October 10, 1929, to January 10, 1930. Thus, he finally accepted $68.44 less than would have been due on the note had it remained unpaid until January 10, 1930. Nicklin had no right to refuse payment in 1929. The debtor was not only willing, but it wished to pay. Apparently it was desirous of paying at all times during the remainder of 1929. At least the contrary does not appear. That which was done in lieu of actual payment into the hands of the decedent in 1929 was done without objection from Nicklin in an effort to accommodate him and to have the cash available for him pending the time when he chose to accept *67 it. Thus it seems clear that had he changed his mind at any time during the*1013 latter part of 1929 and asked for the cash, he could have had it. Furthermore, if the account in the bank belonged to him as a principal, or if he was a cestui que trust, there was obviously receipt for income tax purposes in 1929. Nor is the petitioner aided by its argument that the fund was not in escrow and could have been withdrawn by the debtor. If the debtor could have withdrawn the money, we must assume that it would have done so in order to comply with any demand of Nicklin for payment. "It was not that the corporation would not pay, but rather that he would not receive." . Thus, upon any theory that has been suggested, there was receipt in 1929 of the principal of the note with interest thereon to October 7, 1929. A taxpayer may not deliberately turn his back upon income and thus select the year for which he will report it. Cf. ;; ; *1014 ; ; ; ; ; ; affirming, on this point, ; . Yet, that is exactly what this decedent tried to do. Decision will be entered for the respondent.