Farrell v. Commissioner

J. E. FARRELL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Farrell v. Commissioner Docket Nos. 84726, 103430. United States Board of Tax Appeals 45 B.T.A. 162; 1941 BTA LEXIS 1167; September 19, 1941, Promulgated *1167 The petitioner received in 1936 income under an oil payment reserved in an assignment of oil and gas leases, payment of which income was refused in earlier years because of litigation pending in which his divorced wife claimed an interest in the moneys. Held, that the assignees producing the oil or gas were not agents, joint adventurers, or fiduciaries with reference to the petitioner, and that the proceeds of production were not available to the petitioner until 1936 because of the litigation, and were properly included in his income in 1936. Charles D. Hamel, Esq., and John Enrietto, Esq., for the petitioner. James H. Yeatman, Esq., for the respondent. DISNEY *162 The petitioner instituted these proceedings for the redetermination of deficiencies of $6,174.12 and $198,044.98 in income taxes for the years 1933 and 1936, respectively. They were consolidated for hearing and report. The question is whether certain income actually paid to the petitioner in 1936 under an oil payment is taxable to him *163 in that year or in the years 1933, 1934, and 1935, as oil and gas was sold or run. The stipulation of facts filed in these*1168 proceedings is incorporated herein by reference as part of our findings of fact. The portions thereof necessary to an understanding of the issue are set forth together with findings made from other evidence of record, all as follows: FINDINGS OF FACT. The petitioner, an individual residing and having his principal place of business in Fort Worth, Texas, filed his income tax returns in the second district of Texas. On March 11, 1931, he and his then wife, Stella B. Farrell, owned as community property an undivided one-half of the seven-eighths working interest in certain oil and gas leases, together with the physical property and equipment thereon, covering certain lands in Gregg County, Texas. The remaining interest in the leases was owned by four individuals. On March 11, 1931, the coowners transferred all of their interest in the leases to the Yount-Lee Oil Co., a Texas corporation, hereinafter referred to as Yount-Lee, for cash, deferred payments payable in 1931, and $2,000,000 "to be paid out of one-fourth (1/4) of said Yount-Lee Oil Company's working interest in the oil and/or gas produced and saved from the lands covered by this assignment, if, as and when produced*1169 and saved and only in such event, free of all cost and expense to Grantors; it being expressly understood in this connection that said Yount-Lee Oil Company shall be under no obligations to Grantors to drill upon or develop said lands, or any part thereof", except to drill offset wells under certain specified conditions. Petitioner's share of the oil payment as community property was 50 percent. In the event Yount-Lee sold the oil produced at the well, as produced, it was to account to petitioner "on the basis of the sale price at the well received by said Yount-Lee Oil Company", but in no event at less than the posted price or 30 cents per barrel. Yount-Lee was given an option to purchase the oil at the posted price (any oil run to be considered a purchase), subject to a minimum price of 30 cents per barrel. In April, May, and June 1933 there were sales at less than 30 cents per barrel and Yount-Lee accounted to petitioner on the basis of 30 cents per barrel. Payments were to be made to the grantors on the 20th day of the month next following the month in which the oil was produced and saved. On July 8, 1931, Stella B. Farrell instituted a suit for divorce from petitioner*1170 and for a partition of their community property, and agreed in writing to accept from petitioner the sum of $750 per month for the remainder of her life in lieu of a partition of the community estate. The court granted Stella B. Farrell a divorce from petitioner on August 8, 1931, and ordered that the defendant recover from the plaintiff *164 as his own separate property all of the property of the community estate of the parties. At that time only five or six wells had been drilled on the leases, and there were claims against the leases to the extent of about $1,000,000 and the value of petitioner's interest in the property was speculative and uncertain. On August 12, 1931, Stella B. Farrell was married to Albert L. Burguieres. In October 1931 she conveyed to petitioner in writing all of her interest, including community property interest, as the former wife of petitioner, in amounts paid and to be paid by Yount-Lee under the agreement of March 11, 1931, and ratified and confirmed all of the provisions of the property settlement agreement entered into with petitioner on July 8, 1931. In November 1931 she and her husband executed a like instrument. Petitioner married*1171 his present wife, Thelma B. Farrell, on June 17, 1933. On July 5, 1933, Stella B. Burguieres filed a suit in the District Court of Tarrant County, Texas, against petitioner and Yount-Lee, alleging among other things that the property settlement agreement of July 8, 1931, had been procured by certain specified fraudulent representations, and other acts, including undue influence, and was inequitable, unenforceable, fraudulent, and void. The prayer of the petition included a request that the court issue a temporary order restraining petitioner from receiving any further payments on account of the assignment of the leases. On July 5, 1933, the court issued an order in which, among other things, petitioner was restrained from disposing of any of his property or contracting any debts on account thereof and from receiving any part of the balance due him under the contract of March 11, 1931. On July 8, 1933, the court, upon application of the petitioner, modified the restraining order so as to "authorize this defendant [petitioner] to continue the transaction and conduct of his business in the usual, normal and ordinary course of business." The defendants filed general denials in*1172 the proceeding. On August 16, 1933, by stipulation of the parties to the suit, the temporary restraining order, as modified, was continued in force until the trial of the case on its merits. No other restraining orders were issued in the proceeding by the court. On May 5, 1934, a second amended petition was filed in the suit in which the plaintiff, in addition to the allegations made in the original petition, stated, among other things, that the proceeding was brought to recover of both defendants an undivided one-half interest in the $1,000,000 oil payment, the other one-half being charged with an equitable lien in her favor to secure reimbursement for the part withheld from her by petitioner and one-half of the community estate accumulated during their marriage. In the prayers to the petition, the plaintiff asked that the property settlement agreement entered into on July 8, 1931, be declared null and void; that the decree of the court *165 respecting the community estate be vacated; that a judgment be entered for an equitable partition of the community estate as of August 8, 1931; that all property then in possession of petitioner be declared to be community property; *1173 that plaintiff recover of both defendants one-half of the $1,000,000 oil payment, and that any personal judgment against petitioner for her share of the community estate be protected by an equitable lien upon the oil payment. An answer was filed by the petitioner denying, among other things, the allegations of the petition. On December 26, 1933, the collector for the first collection district of Texas seized and levied upon property, moneys, and credits in the possession of Yount-Lee and belonging to petitioner on account of alleged internal revenue tax liability of the petitioner in the amount of $11,956.41. On March 10, 1934, counsel for Mrs. Burguieres wrote a letter to counsel for Yount-Lee, reading in part as follows: I herewith enclose copy of our amended petition, and you will note in the prayer that we ask for a judgment against both defendants. As we have heretofore advised you, the plaintiff will ask no affirmative relief of your client, the Yount-Lee Oil Company. To begin with there was nothing we could do other than bring you in on the basis as set out in the original petition, but now, instead of an amendment by which we cut out the defendant Yount-Lee, Mr. *1174 Simon and I thought we could best meet your rights and requirements by having the court, either at the beginning of the trial, or wait until you come up to testify, enter an order that it is agreed by all parties, or let him find as a fact, that you are merely a stakeholder, and that you will hold the money as and when earned from oil produced, to await the final disposition of this litigation. If, on the other hand, we should now amend our petition, so as to leave the Company out entirely, would not the defendant Farrell have a right to demand of you the payment of the money? In any event this will re-assure you that we are asking no affirmative relief against the Yount-Lee Oil Company, but that we are only asking that the oil or gas payments be held up until this litigation is determined * * *. The proceeding came on for hearing on May 14, 1934, and on June 8, 1934, the court instructed the jury to find for the defendants. On the same day the court vacated "all restraining orders and/or temporary injunctions" issued in the case. The judgment of the court recited, among other things, the following: * * * it appears to the Court that the law and the facts are for the defendants, *1175 and that the facts adduced upon a full trial of the case, which has been had, show the plaintiff's asserted cause of action to be unsupported in fact and wanting in equity, and that the plaintiff is not entitled to have set aside or modified either in whole or in part the judgment which she procured to be heretofore rendered in this court on August 8, 1931, and that the defendants are entitled to judgment herein. The plaintiff appealed the judgment to the Court of Civil Appeals on September 21, 1934. In perfecting the appeal, she filed an appeal *166 bond to cover the costs, but no supersedeas or other bond and made no application for a restraining order. The judgment of the District Court was affirmed by the court on June 28, 1935. . On July 13, 1935, the plaintiff filed a motion for rehearing and to certify questions to the Supreme Court of Texas. The motion was overruled on September 6, 1935. On October 5, 1935, she filed a petition for writ of error in the Supreme Court of Texas. The court dismissed the petition on November 6, 1935, for lack of potential jurisdiction to grant it. No motion for rehearing or reconsideration was filed. *1176 On November 21, 1935, she filed in the Supreme Court of Texas a motion for leave to file petition for mandamus to require the Court of Civil Appeals to certify questions to the court. The motion was overruled without opinion on January 8, 1936. On January 23, 1936, she filed a motion for a rehearing of the motion, which motion was overruled on March 11, 1936. There were no further proceedings in the case. During 1933 and 1934 and up to August 1, 1935, Yount-Lee continued to develop and operate the leases, and either sold or ran oil and gas produced therefrom under the assignment agreement of March 11, 1931. Payments were made regularly each month to petitioner under the agreement until the commencement of the suit by petitioner's former wife. Commencing with oil runs made in June 1933 and gas runs made in April 1933, Yount-Lee discontinued making payments to petitioner under the agreement. The amount accumulated in 1933 and 1934 and in 1935 to August 1, aggregated $348,529.19. The interest of Yount-Lee in the leases was assigned to the Stanolind Oil & Gas Co. (hereinafter referred to as Stanolind), on July 31, 1935, subject to the terms of the agreement of March 11, 1931. *1177 On that date all of the stock of Yount-Lee was purchased by Wright Morrow and Yount-Lee deposited in escrow approximately $1,267,951.22, out of which there was to be paid on the joint order of Wright Morrow and Stanolind amounts including $348,529.19 payable to petitioner under the oil payment. Thereafter Stanolind or the Stanolind Crude Oil Purchasing Co., a corporation affiliated with Stanolind, operated the leases and sold or ran the oil and gas produced from the leases. Neither company made any payments to petitioner during the period from August 1, 1935, to December 31, 1935, for runs or sales of oil and gas. During that period the company accumulated $54,143.63 with respect to petitioner's interest under the agreement of March 11, 1931. Petitioner made no demands upon Yount-Lee for payment while the injunction was in effect. On July 31, 1935, counsel for Yount-Lee advised petitioner in response to demand for payment that Wright *167 Morrow had that day purchased the stock of Yount-Lee, that provision had been made for ultimate payment of the amount due petitioner, and that the demand for payment could not be complied with at that time without an investigation. On*1178 August 7, 1935, Yount-Lee was advised by its counsel, in effect, that it could not at that time safely comply with the request of petitioner for payment of the amount due him under the oil payment. On August 12, 1935, Wright Morrow informed counsel for petitioner in writing that he would be guided by this opinion of counsel for Yount-Lee. On November 15, 1935, counsel for Yount-Lee advised counsel for petitioner by letter, after a discussion of the subject with petitioner and Wright Morrow, that Yount-Lee could not pay the amount due petitioner without protection against liability to Stella B. Burguieres. The letter reads in part as follows: They [counsel for Mrs. Burguieres] claim that prior to Mr. Morrow's acquisition of the stock of the Yount-Lee Oil Company, there was an agreement entered into by the parties, including Yount-Lee Oil Company, that the money would be withheld until the final termination of the litigation. On January 8, 1935, counsel for Yount-Lee, in reply to a formal demand made by petitioner on December 14, 1934, informed counsel for petitioner, in part, as follows: We have gone into the matter in some detail and have reached the conclusion that it*1179 will not be possible for us to pay down this money, even though Mr. Farrell obtained judgment in the lower court and no supersedeas bond has been filed. It is our opinion that until the matter is finally disposed of, or until some agreement is reached between the plaintiff and defendant with reference to our paying down the money, it will be necessary for us to hold same in suspense. Subsequently in 1935, at the suggestion of the interested parties, counsel for Yount-Lee prepared and transmitted to counsel for petitioner an agreement providing for the payment of the money being withheld from petitioner, subject to the giving of satisfactory indemnity. Stanolind had not approved the contract. No agreement was, however, ever entered into for that purpose. Neither was any agreement ever reached on the character of the indemnity to be given. On September 24, 1935, counsel for Stanolind addressed a letter to counsel for Yount-Lee, reading in part as follows: We are agreeable to paying these monies [amount in escrow] over to Mr. Farrell, provided an arrangement can be worked out whereby Mr. Farrell will deposit in escrow in an approved bank in Fort Worth an amount of money*1180 equal to that paid to him, all as outlined in your letter. Our consent to this payment is of course upon the condition that any proposed escrow agreement, or other document prepared in connection with the matter shall be first submitted to us and shall be subject to our approval. Yount-Lee refused to comply with other demands made upon it in 1935 and 1936 for payment of the money being withheld from petitioner under the oil payment. *168 The filing of the suit by Stella B. Burguieres was the immediate reason for the withholding by Yount-Lee of amounts payable to petitioner under the oil payment. A further reason was a promise made by counsel for plaintiff that if the money was withheld no request would be made for the appointment of a receiver. The ultimate reason Yount-Lee withheld payments to petitioner under the oil payment was to protect itself against liability to Stella B. Burguieres in the event she prevailed in the suit. The operators of the leases rendered monthly statements to petitioner showing oil and gas runs and the amount due him under the oil payment. The amounts payable to him were credited on the books of Yount-Lee in an account headed "J. E. *1181 Farrell." Petitioner kept an account in his books styled "Yount-Lee Oil Co." in which entries were made for amounts due him on account of oil runs and for payments made to him. On or about March 16, 1936, the petitioner instituted suit against Yount-Lee, Stanolind, and Wright Morrow to recover the amount of $691,046.62 still payable to him under the oil payment. The complaint alleged that the plaintiff had made repeated demands upon the defendants for amounts due under the contract, each of which demands had been refused, and that by reason of the failure of the defendants to pay him the amounts as they accrued, petitioner would be required to pay $75,000 additional income taxes to the United States Government, and had been damaged to that extent. The proceeding was still pending at the date of hearing herein. In April 1936 the amount of $348,529.19 placed in the escrow fund in favor of petitioner was paid to him. During the same month the amount of $54,143.63 due petitioner from Stanolind was also paid to him. The amounts were paid because of the termination of the litigation instituted by Stella B. Burguieres. The petitioner did not treat any part of the amounts on his*1182 books or in his original income tax returns as taxable income to him for the years 1933, 1934, and 1935. In September 1936 petitioner filed amended income tax returns for 1933, 1934, and 1935 and included therein as taxable income the amount payable to him under the oil payment for oil and gas sold or run. In his determination of the deficiency the respondent included the payments in petitioner's taxable income for 1936. Petitioner kept his books on the cash basis for the years 1929, 1930, 1935, and 1936, and on the accrual basis for the years 1931, 1932, 1933, and 1934. The income tax returns of petitioner for the years 1929 to 1936, both inclusive, were made on the cash basis. OPINION. DISNEY: There is no controversy about the cash payments involved in the transaction. The issue relates to the proceeds of production *169 payable to petitioner under the oil payment, the contention of petitioner being that they constitute taxable income to him as earned in 1933, 1934, and 1935, and not in 1936 as respondent held in his determination of the deficiency and argues here. The contention of respondent in general is that under the prevailing circumstances the income*1183 was not available to petitioner until 1936. Petitioner did not actually receive the income until 1936 and did not include any part of it in his original returns for the earlier years. It was not until September 1936, five months after actual receipt, that he concluded that the amount received was taxable to him as earned, and filed amended returns. This treatment of the income discloses a conclusion of petitioner at the time it was earned that production under the oil payment resulted in no taxable income to him. It has been held under similar circumstances that the taxpayer was "hardly in a position to urge" to the contrary. ; certiorari denied, . Petitioner's argument upon brief includes contentions that he was a participant in a joint venture, taxable as a partnership; that Yount-Lee was in the position of a fiduciary or agent for all interested parties or for himself; and that the income was available to him as earned upon furnishing collateral. Under any of these theories it is alleged that the income was taxable in the earlier years as earned as distributable income or income constructively*1184 received. There is nothing in the agreement of March 11, 1931, disclosing any intention of the parties thereto to become associates in a business venture as the term is generally understood. The assignee was under no obligation to the assignors to drill upon or develop the lands covered by the leases except to drill such offset wells as might be necessary to protect the property from drainage and the assignors incurred no liability for expenses incurred by the assignee in developing and operating the property. No provision was made in the agreement for sharing profits and losses in the operation of the leases, the right of the assignors to participation in production being limited to the provisions of the oil payment. It is clear from the agreement entered into that the development and operation of the leases was intended to be a business of the assignee in which the economic interest of the assignors would not exceed the right to participate in gross production sufficient to pay off the oil payment. None of the assignors undertook to assume in the agreement or otherwise any of the obligations of joint venturers. The operation of the leases was the business of Yount-Lee. *1185 Except for provision made in the agreement of March 11, 1931, for a payment to the assignors of $2,000,000 only out of oil and gas produced and saved, which provision was a retention by the assignors of oil and gas in place sufficient to make the payments, , the ageement would no be otherwise than an ordinary sale of property, with the usual tax consequences. ; affd., . The peculiar law applicable to transactions of this nature makes amounts paid under the oil payment ordinary income to the recipient, with the right to deduction for depletion, instead of a return of capital. Other than , no authority is cited n this point. In that case the petitioner received in 1930 an advance from the Owen-Sloan Oil Co. with which to deal in oil property, the money advanced to be repaid from proceeds of sales of property purchased with the funds. Thereafter, after certain expenses of petitioner had been recouped, all moneys received from the leases and royalties sold or retained were to be divided between petitioner*1186 and the Owen-Sloan Oil Co. on an equal basis. In 1931 the petitioner and Jack Frost engaged in the business of dealing in and developing oil and gas leases, from which in 1931 they earned profits, one-half of which the Commissioner included in petitioner's taxable income. Petitioner contended that his share of the profits of the business relation with Frost should be reduced one-half on account of a claim asserted by the owen-Sloan Oil Co. to such share of the earnings. In deciding the question we did not find it necessary to determine whether the business dealings of Byrd and Frost were a joint venture or a partnership. The Commissioner and the petitioner appear to have proceeded under the theory that it was one or the other, although a statement appears in the opinion that the evidence was insufficient to decide whether or not it was a partnership. The case does not control the answer here. We conclude that there was no relation of joint adventure. Section 1001(a)(6) of the Revenue Act of 1936 defines the term "fiduciary" as used in the act as meaning "* * * a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity*1187 for any person." The same definition appears in section 1111(a)(6) of the 1932 Act and section 801(1)(6) of the 1934 Act. Petitioner alleges that Yount-Lee was as much a fiduciary in connection with the operation of the leases as was the receiver appointed by the court in . In that case the court appointed a receiver to lease land for the benefit of persons ultimately determined in litigation then pending to be the rightful owners of the property, about 225 persons having entered appearances in the title suit. The case of , also relied upon by the petitioner, involved similar litigation in which about 75 individuals claimed to be heirs, assignees, or vendees, but the interested parties agreed that the proceeds from the sale of *171 royalty oil be impounded and held in trust for the persons finally held to be entitled to it. In each case it was held that the income earned prior to the termination of the litigation was taxable to the receiver or trustee as money being accumulated for unascertained persons. *1188 Here petitioner held as his own separate property the right to receive out of production an amount sufficient to pay his one-half interest in the oil payment. Petitioner was an ascertained person whose right to receive payments under the oil payment was being contested by his former wife. The controversy was between two ascertained persons, a fact that serves to distinguish this proceeding from the Owens and Goforth cases. ;; ; affd., . Here the court did not impound the proceeds from production payable to petitioner; it enjoined petitioner from receiving the money. This injunction was vacated in 1934, when the District Court entered judgment in the case in favor of the defendants, and thereafter the refusal of the holders of the leases to make payments was due entirely to their desire to protect themselves against possible liability to petitioner's former wife. We do not find in the agreement of March 11, 1931, any terms usually found in instruments creating trusts. Petitioner had title to*1189 oil and gas in place, and except for such amount as exceeded, when produced and sold, $1,000,000, did not transfer it to Yount-Lee. . Thus title to oil and gas sufficient to pay petitioner's interest in the oil payment was at no time in Yount-Lee. . No authority is cited by petitioner to support his assertion that Yount-Lee in receiving petitioner's share of oil runs was acting as his agent. We find none. The agreement of March 11, 1931, discloses no intention on the part of the assignors to appoint the assignee of the leases their agent to develop and operate the property and sell their proportionate share of the oil produced. The assignee was not, as already pointed out, under any obligation to develop the property except to drill offsetting wells. Neither was it required to sell production to pipe line companies. The contract provided that if Yount-Lee sold the oil produced it "shall account to Grantors for their proportion of the oil * * * on the basis of the sale price" and if the sale price was less than the posted price or the minimum price of 30 cents per barrel, *1190 the grantee was to account to the grantors on the basis of the posted price or minimum price, as the case might be. It then provided that Yount-Lee "shall have the option of purchasing said oil (and if said Yount-Lee Oil Company runs the oil it shall be considered a purchase) at the average price posted" by *172 four of six designated pipe line companies, Yount-Lee, in any event, to "account" to the grantors at the minimum price of 30 cents per barrel. Thus Yount-Lee could have purchased all of the oil at the posted price or at the minimum price of 30 cents per barrel in the event the posted or selling price was less than that amount. In April, May, and June 1933 oil sales were made at less than 30 cents per barrel and Yount-Lee made up the difference. The term "account" used in the contract does not have any great weight under the circumstances in establishing the relationship of principal and agent under the contract. The assignee was to "account" to petitioner, whether the oil and gas was sold to third parties or taken over by the assignee at prices fixed by the agreement. Obviously, if the assignee accepted the production, thereby making it liable to petitioner, it, *1191 as a purchaser, would not be acting as an agent of petitioner. Such a transaction would create a debtor and creditor relationship. The willingness of petitioner to look to Yount-Lee alone for his proportionate share of the proceeds of the oil runs, and not to pipe line companies, does not make Yount-Lee an agent of petitioner. The intent of the contract was to make Yount-Lee liable to the grantors for their proportionate share of the proceeds of oil runs as part of the consideration for the assignment. This liability was not made contingent upon receipt by Young-Lee of the selling price from the pipe line companies. The receipt of the selling price was a responsibility assumed by Yount-Lee. A run of oil or gas made Yount-Lee liable to petitioner for his proportionate share of the selling price and we think the liability was that of a debtor, not agent. Assuming that Yount-Lee was agent for petitioner in the sale of the oil and gas, the facts here do not warrant an application of the rule that receipt by an agent is receipt by his principal. The doctrine rests in the constructive receipt theory and has its limitations. *1192 In , we declined to include in a return filed on the cash basis the amount paid to and retained by the taxpayer's agent, an attorney, to secure the balance of his fee and expenses. In , affirming , the court pointed out that cases like , hold that "receipt by an agent, on behalf of his principal, of income to which the principal is personally entitled without limitation or qualification, constitutes constructive receipt by the principal." The theory of constructive receipt must be sparingly applied. . Here there was no actual receipt by petitioner until 1936. Prior thereto the amount in question was always subject to the outcome of the suit instituted by petitioner's former wife. Until May 1934, a court order expressly forbade petitioner from receiving the income. The alleged agent was made a party to the proceeding and until *173 the termination thereof declined to turn the money over to petitioner on account of possible liability*1193 to plaintiff as a party defendant. This liability was real at all times important. She not only asked the court to declare all property then in possession of petitioner to be community property, but that the property be equally divided and partitioned by the court and that she recover "of both defendants an equal one-half part of the $1,000,000 oil payment which the defendant Yount-Lee Oil Company has agreed to pay" and that any judgment against petitioner for the difference in value of the community estate on August 8, 1931, and at the time of filing suit, be protected by an equitable lien upon the oil payment. She claimed that the community estate had a value on August 8, 1931, of approximately $1,750,000. She claimed a one-half undivided interest in the oil payment payable to petitioner and asked the court for an equitable lien on the other one-half to secure payment of the portion of her alleged interest which had been withdrawn by petitioner. Recovery of his undivided one-half interest in the assignment of petitioner to Yount-Lee and the proceeds accrued under the oil payment was found by the court to be the chief purpose of the suit. *1194 ; . Thus the proceeds of production received by Yount-Lee were at all times important subject to the demands made by Stella B. Burguieres in her suit, including the prayer for a lien upon the entire interest of the petitioner, and to that extent qualified his right to receive money from his alleged agent. A further contention of petitioner is that he could have obtained possession of the funds upon furnishing collateral and accordingly the proceeds of oil runs constituted taxable income to him in the years earned, citing . In that case the court authorized withdrawals of funds impounded by its order upon the giving of a bond and permitted future collections to be withheld from impounding upon substituting a bond or securities. The court held that the funds were taxable when earned and not in the year in which the suit, on account of which the money was impounded, was terminated. No like situation prevails here. Prior to June 8, 1934, a court order prevented petitioner from receiving the money as earned. Thereafter he*1195 made demands upon Young-Lee for payment of the amount being withheld from him and in 1935 there was some discussion about paying over the money upon giving satisfactory security. Stanolind's only suggestion on the subject required petitioner to deposit in bank moneys equal in amount to those drawn down - which obviously would have been of no benefit to petitioner. No agreement was ever entered into on the subject. Under the circumstances it can not be said that petitioner was at any time important in a position to receive the fund by giving satisfactory security therefor. *174 In , prior to 1916 the United States instituted suit to oust petitioner from possession of oil lands being operated by it, and in February 1916 secured the appointment of a receiver to operate or supervise the operation of the properties and hold the net income thereof. Income from the properties was paid to the receiver as earned and in 1917, after entry of the final decree by the District Court dismissing the bill and vacating the receivership, the accumulated money was paid by the receiver to the operator. The Government*1196 appealed from the decision and in 1922 the litigation was terminated. The question was whether the income earned in 1916, but not paid to the operator until 1917, was income to the petitioner in 1916, 1917, or 1922. The Supreme Court held that the income was not taxable until received in 1917, whether the petitioner filed its return on the cash or accrual basis. In reaching its conclusion the Court said, among other things: The net profits were not taxable to the company as income of 1916. For the company was not required in 1916 to report as income an amount which it might never receive. * * * There was no constructive receipt of the profits by the company in that year, because at no time during the year was there a right in the company to demand that the receiver pay over the money. Throughout 1916 it was uncertain who would be declared entitled to the profits. It was not until 1917, when the District Court entered a final decree vacating the receivership and dismissing the bill, that the company became entitled to receive the money. * * * The Court pointed out that the income in question was not taxable in 1922 because the company became entitled to receive it and actually*1197 received it in 1917 and thereafter held it as under a claim of right. A like case is , where proceeds from the sale of oil were impounded pending the outcome of litigation between two states on the location of property. In , a check was received which was payable to the order of two payees who could not agree as to the amount to which each was entitled for services rendered by them to the payor. Thereafter the check was deposited in a joint bank account, subject to withdrawal only by checks bearing the signature of petitioner and the other payee. This Board held in effect that the money represented by the check did not constitute taxable income to the petitioner reporting on the cash basis until litigation to determine the extent of the interest of the parties in the check was terminated. Another case alleged by the respondent to be on all fours is ; affd., *1198 . In that case the petitioner in 1933 made sales of ore produced from properties being operated by it. Thereafter in the same year the petitioner filed suit for the collection of the purchase price and the defendant *175 deposited with the court the full amount due. At the same time the Mosquito Gold Mines filed a motion in the proceeding, claiming that the ore sold had been mined from its property. Sales were made by the petitioner to another corporation in 1933 and 1934, but it refused to pay until the suit between petitioner and the Mosquito Gold Mines was finally decided. In 1934 the court decided that the ore and the money in the registry of the court belonged to petitioner. The court's decision was affirmed by appellate court and litigation was terminated in 1935. It was held that the income in question was not accruable and therefore not taxable to petitioner until 1935, when the litigation was finally terminated. We think the principle of these cases controls the answer here. Throughout 1933 and during part of 1934 petitioner was in no position to demand the money and thereafter, until payment in 1936, payment was refused because*1199 of the claims asserted by petitioner's former wife. It was not until termination of the litigation in 1936 that it became known who would receive the fund. It was then paid to petitioner. Prior thereto he had no use or enjoyment of the income or a right to use and enjoy it. It was not error for the respondent to treat the amount paid in 1936 as taxable income of that year. Accordingly, pursuant to the stipulation, an order will be entered finding an overpayment of $22,502.46 for 1933 and that there is a deficiency of $198,044.98 for 1936.