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JOHN E. REED and ELIZABETH G. REED, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTReed v. CommissionerDocket No. 3662-79.
United States Tax Court T.C. Memo 1982-734; 1982 Tax Ct. Memo LEXIS 14; 45 T.C.M. 398; T.C.M. (RIA) 82734;December 23, 1982; Reversed December 5, 1983 1982 Tax Ct. Memo LEXIS 14">*14John C. Klotsche andJohn M. Peterson, Jr., for the petitioners.Anita N. Gottlieb, for the respondent.WILBURMEMORANDUM FINDINGS OF FACT AND OPINION
WILBUR,
Judge: Respondent determined a deficiency of $71,412.68 in petitioners' 1973 Federal income tax. The sole issue for our determination is whether capital gain from the sale of petitioners' stock was realized and recognized in 1973 or 1974.FINDINGS OF FACT
Some of the facts have been stipulated. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
The petitioners, John E. and Elizabeth G. Reed, resided in Westfield, Massachusetts when the petition herein was filed.
ShareholderNumber of Shares OwnedJoseph M. Cvengros105John E. Reed80John E. Reed, Trustee20Elizabeth C. Reed20Stewart B. Reed20Lucile H. Thomee35William W. Stifler10E. Herbert Burk25Edward F. Bridgman35350 1982 Tax Ct. Memo LEXIS 14">*15 In 1967, petitioner and several other shareholders (the sellers), Electromech, and Joseph M. Cvengros entered into an agreement which, inter alia, gave Cvengros an option to purchase the sellers' stock, or to cause the sellers to purchase his stock, in Electromech. The parties to the agreement amended it on November 10, 1972, and again on October 16, 1973. The agreement, as amended, provided in relevant part. 1982 Tax Ct. Memo LEXIS 14">*16 shall be taken and shall be deemed to have occurred simultaneously:
On November 23, 1973, Cvengros exercised his option to purchase the Electromech stock.
Selling Number of Total Amount Shareholder Shares Sold to be Paid Payment Date John E. Reed 80 $264,000 1/ 3/74 John E. Reed, Trustee 20 66,000 1/ 3/74 Elizabeth C. Reed 20 66,000 1/ 3/74 Stewart B. Reed 20 66,000 1/ 3/74 Lucile H. Thomee 10 33,000 12/27/73 Lucile H. Thomee 25 82,500 1/ 3/74 William W. Stifler 10 33,000 1/ 3/74 E. Herbert Burk 25 82,500 12/27/73 Edward F. Bridgman 35 115,500 1/ 3/74 Total 245 $808,500 At the time of closing on December 23, 1973, the following events occurred simultaneously:
(2) The selling shareholders delivered their stock in Electromech to Cvengros; and
(3) Cvengros endorsed and delivered the $808,500 check to the escrowee.
Petitioner is correct that 1982 Tax Ct. Memo LEXIS 14">*19 ordinarily a cash basis taxpayer can effectively postpone recognition of income through the use of a bona fide agreement providing for deferred payment. See, e.g., , on appeal (5th Cir. Sept. 14, 1981); , affd. ; . This is true even if the taxpayer's objective in entering into the contract is to minimize taxes. . Moreover, an existing agreement which has been modified to provide for deferred payment of amounts not yet due generally will also be effective to postpone recognition of income. See, e.g., and cases cited therein. Nevertheless, when, upon receipt of the goods, the buyer deposits the full purchase price in an escrow account to be paid to the seller at a later date and no condition other than the passage of time is placed on the seller's right to receive the escrow funds, courts have held that the seller recognizes income when the1982 Tax Ct. Memo LEXIS 14">*20 buyer deposits the funds with the escrowee. See, e.g., ; ; ; ; , affd. . Kuehner:
Similarly, we are not persuaded that, as urged by petitioner, , requires a contrary result here. In
Johnston, the amount deposited with the escrowee in 1942 was less than the taxpayer's basis in his stock. Accordingly, taking into account only the escrow funds, the taxpayer realized no gain in 1942. . As to that part of the purchase price which in 1942 had not been deposited with the escrowee and was still due from the buyer, we held that a cash basis taxpayer does not recognize income based on an unsecured promise to pay at a later date. . "Cases in which there was not merely a simple contract, but some property * * * or other security * * * are * * * distinguishable" from . 1982 Tax Ct. Memo LEXIS 14">*23 Accordingly,Footnotes
2. All references to the agreement will be to the agreement as amended on October 16, 1973.↩
3. In the instant case the escrow agreement made no provision for the payment of interest from December 27, 1973, to January 3, 1974, to either petitioner or Evengros. Contrary to petitioner's assertions, the fact that petitioner did not receive interest on the escrowed funds is not fatal to respondent's case. See .↩
4. Petitioner has called our attention to , wherein the Fifth Circuit reversed the district court's grant of a judgment n.o.v. We think the court in
Busby↩ was concerned merely with the degree of evidence necessary to support a jury verdict and is thus distinguishable from the issue facing us here.
Document Info
Docket Number: Docket No. 3662-79.
Citation Numbers: 45 T.C.M. 398, 1982 Tax Ct. Memo LEXIS 14, 1982 T.C. Memo. 734
Filed Date: 12/23/1982
Precedential Status: Non-Precedential
Modified Date: 11/20/2020