Madigan v. Commissioner , 43 B.T.A. 549 ( 1941 )

E. P. MADIGAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

CHARLOTTE MADIGAN, PETITIONER, ^{v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.}

Madigan v. Commissioner

Docket Nos. 101308, 101309.

United States Board of Tax Appeals

43 B.T.A. 549; 1941 BTA LEXIS 1489;

February 11, 1941, Promulgated

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One on the cash basis under contract with another to perform services for a fixed salary plus a percentage of certain receipts which could not be determined until an accounting in the following year and who in the tax year received a check from the employer with an express understanding that he hold the amount in trust until after the accounting for the tax year could be completed, which accounting was completed in the next year, held, not taxable upon the percentage amount in the tax year.

Clyde C. Sherwood, Esq., and Albert H. Davidson, Esq., for the petitioners.

T. M. Mather, Esq., for the respondent.

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STERNHAGEN

The Commissioner determined deficiencies of $1,038.06 in the income tax of each petitioner for 1936. He included in community income an amount which petitioner contends was not his own and unrestricted in that year.

FINDINGS OF FACT.

Petitioner and Charlotte, his wife, are residents of California. Petitioner was coach and athletic director of St. Mary's College under a written contract of March 31, 1933. His compensation was $7,000 a year plus 10 percent of St. Mary's share of the football receipts computed upon certain prescribed adjustment.

* * * Said moneys to be paid by the party of the first part annually, such annual payments to be paid in three installments, on November first of sum that is then due and payable, on December first the additional sum that is then due and payable, on February first the balance of the total annual sum due from the ten per cent of St. Mary's College share of the receipts. The party of the second part agrees not to demand payment from the party of the first part of any percentage on any game played under the management of other colleges until such a time as these other colleges pay the amounts due St. Mary's College.

His share of the receipts of 1934 and 1935 amounted to $21,690.62, but no payment thereof had been made to him before the receipt of the Fordham check hereinafter mentioned.

St. Mary's played a game with Fordham University on October 24, 1936, at New York. In November 1936 a check for $38,324.15 was received from Fordham by petitioner. The check was payable to the St. Mary's College Athletic Association. The president of St. Mary's endorsed the check to petitioner, with the stated understanding that petitioner was to take the $21,690.62 due him for 1934 and 1935 and was to hold the balance in trust until the accounting could be completed for the 1936 season. Always the accounting for the season was completed after the end of the calendar year because the net results of some of the games could not be immediately determined and an accounting before the end of the year was not possible. The accounting for the 1936 season was in March 1937. The petitioner on November 25, 1936, deposited the check in a joint savings bank account of him and his wife and left the amount untouched until after the final accounting in March 1937, during which time he made no withdrawals from the bank.

The accounting in March 1937 showed that the amount from the Fordham check which he was to return to St. Mary's was $1,339.71.

In petitioner's return for 1936, he included as income the $21,690.62 due him for the 1934 and 1935 seasons and omitted any amount of the Fordham check attributable to the 1936 season.

OPINION.

STERNHAGEN: The Commissioner's determination is based on the view that the receipt and deposit by the petitioner of the entire Fordham check in 1936 was a receipt by him not only of the 1934 and 1935 commissions, as he admits, but also of the 1936 commission. The evidence is clear, however, that the amount in excess of the 1934 and 1935 commissions, while actually taken into petitioner's possession, was received by him not for his own use or subject to his dominion and control but subject to the express instructions of the president of the college when he endorsed and delivered the check, that petitioner "was to hold the balance in trust until the accounting could be completed for the 1936 season." These were not empty words, for there were circumstances which gave them sound reason. No one could tell until after the 1936 accounting whether petitioner would be entitled to any commission for the season, and certainly not what the amount, if any, would be. Prior to the accounting determination of the amount, petitioner had and claimed no right to use or enjoy any of the check except the amount of his 1934 and 1935 commissions which had been fixed and determined. This much he returned for tax in his 1936 income. The Commissioner was in error in adding any additional amount of the Fordham check. ; cf. ; ; certiorari denied, ; .

Decision will be entered for the petitioner.

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Footnotes

• 1. Charlotte Madigan is the wife of E. P. Madigan in a community property state, and for convenience the term petitioner will be used in this report to mean only E. P. Madigan. ↩