Evergreen Cemetery Asso. v. Commissioner

EVERGREEN CEMETERY ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Evergreen Cemetery Asso. v. Commissioner

Docket No. 14272.

United States Board of Tax Appeals

13 B.T.A. 638; 1928 BTA LEXIS 3208;

September 28, 1928, Promulgated

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Where crypts in a mausoleum were sold, the payments therefor to be made at specified times as the building progressed, and where, in case of nonfulfillment of the contract by the purchaser, all payments made were forfeited as liquidated damages, and where the books of the seller were kept on an accrual basis, held, that all such payments constituted taxable gross income as of the date they became due or payable, irrespective of when title was conveyed or possession granted.

J. H. Amick, C.P.A., for the petitioner.

E. C. Algire, Esq., and M. N. Fisher, Esq., for the respondent.

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MILLIKEN

This proceeding involves the redetermination of a deficiency in income and profits taxes for the calendar year 1921 in the amount of $13,866.17. Petitioner asserts that respondent erred (1) in determining that certain contracts to sell mausoleum crypts and rooms at future dates constituted sales in the year 1921, (2) in refusing to hold that said sales were not taxable on the installment basis, and (3) in refusing to allow as deductions from gross income certain expenses incurred in securing sales of mausoleum crypts and rooms. Contention (2) was abandoned by petitioner at the hearing and petitioner has produced no evidence in support of contention (3) and in the brief filed in its behalf states that no consideration need be given to it.

FINDINGS OF FACT.

Petitioner is a Michigan corporation with its principal office at Detroit, Mich., and was during the year 1921 and prior thereto engaged in the operation of a cemetery in Detroit. In the year 1920 petitioner began the construction of a mausoleum, the crypts and rooms of which were to be sold to the public. In 1920 and before the construction of the building had started, petitioner, through salesmen, solicited contracts of purchase on the following form:

THE EVERGREEN CEMETERY ASSOCIATION,

DETROIT, MICH.

COMMUNITY MAUSOLEUM

EVERGREEN CEMETERY, DETROIT, MICH.

Detroit, Mich., 10/13/1920.

I, the undersigned, do hereby subscribe for and purchase from the Evergreen Cemetery Association, of Detroit, Mich., Crypts Nos. 292 in the Community Mausoleum to be erected in The Evergreen Cemetery at Detroit, Mich., plans and specifications of which are now on file with the Cemetery Trustees, and I agree and promise to pay to The Evergreen Cemetery Association, or order, for said crypts, the sum of Three hundred and fifty Dollars ($350.00) in equal quarterly payments as follows: thirty (30%) per cent of the above amount on ten day demand, but not before the foundations for the building are started; thirty (30%) per cent, on ten day demand, but not before the exterior walls are started; thirty (30%) per cent on ten day demand, but not before the roof is started; and the remaining ten (10%) per cent on ten day demand after the building is completed; it being understood that a published statement by the Cemetery Trustees in local newspapers, certifying the fulfillment of each specific part of the construction as herein mentioned, shall be considered by me as ample proof that the same has been done, and The Evergreen Cemetery Association entitled to that respective payment.

It is mutually understood and agreed that should the construction of the building not be started before May 30, 1921, this contract shall become null and void, and it is further agreed that upon any failure on my part to carry out the terms herein set forth, all payments made by me shall be forfeited to The Evergreen Cemetery Association as liquidating damages. Certificate of ownership will be given upon final payment. No agreements or verbal statements other than shown on face of this contract shall be binding, except when made in writing and signed by an officer of The Evergreen Cemetery Association.

Purchaser.

Address.

The Evergreen Cemetery Association

(Signed) per A. L. BEARCE

Solicitor

Make checks payable to The Evergreen Cemetery Association.

Upon the making of the final payment petitioner issued to the purchaser a certificate of ownership upon the following form:

CERTIFICATE OF OWNERSHIP

KNOW ALL MEN BY THESE PRESENTS that THE EVERGREEN CEMETERY ASSOCIATION, a Michigan Corporation, the GRANTOR, for and in consideration of the sum of ( ) Dollars, to it paid by the GRANTEE, does hereby grant, bargain, sell and convey to the said Grantee, heirs and assigns forever, as a place of burial for the human dead, the use of Crypt numbered in the Community Mausoleum erected by said Grantor, in the Evergreen Cemetery, situated in the City of Detroit, County of Wayne, and State of Michigan, together with all the appurtenances thereunto belonging.

TO HAVE AND TO HOLD the use of the above granted Crypt to the said Grantee, heirs and assigns forever, subject, however, to the laws of the state, and to the conditions and restrictions contained in the rules and regulations of THE EVERGREEN CEMETERY ASSOCIATION now in force, or which may hereafter be adopted and the said Grantor hereby covenants to and with the said Grantee, heirs and assigns, that it is lawfully seized of the above granted premises, and has good right to sell and convey the use of the same for the purposes above expressed.

IN TESTIMONY WHEREOF, said THE EVERGREEN CEMETERY ASSOCIATION has caused its corporate name to be signed, and its corporate seal affixed hereto by its proper officers thereunto duly authorized, this day of A.D. 192 .

Signed and Acknowledged in presence of

THE EVERGREEN CEMETERY ASSOCIATION

By

Pres.

Attest

Secy.

Before me the undersigned authority, personally appeared President, and Secretary of The Evergreen Cemetery Association, who acknowledged that they did execute the foregoing instrument in behalf of said corporation, and that the same is their free act and deed as such officers, and the free act and deed of said corporation.

WITNESS my hand and official seal this day of A.D. 192 .

Notary Public.

By the end of 1921 petitioner had sold crypts and rooms in the mausoleum under contracts on the above form of contract for a total sales price of $160,900. Of this amount contracts with a total sales price of $53,325 were entered into in the year 1920. Petitioner kept its books upon an accrual basis and credited therein during the year 1921 the total sales price of $160,900 to profit and loss. No forfeiture was incurred by any purchaser during the years 1920 and 1921. Respondent determined that the total cost of the crypts and rooms sold was $86,681.45 and that the gross profit was $74,218.55. Sales contracts totaling $44,600 were fully paid up by the end of 1921. The total cost of the crypts, which were fully paid for at the end of 1921 as shown by petitioner's books, amounted to $24,095.90. The mausoleum was completed and available to patrons in the year 1921.

OPINION.

MILLIKEN: Petitioner kept its books of account on an accrual basis and credited therein for the year 1921 the total contract price of all contracts entered into in 1920 and 1921, the amount of which was $160,900. This is a proper method of accounting provided under the circumstances of this case these various amounts so accrued became due or payable in 1921. By the terms of his contract each purchaser became bound to pay 30 per cent of the agreed price on 10 days' demand but not before the foundations were started; 30 per cent on 10 days' demand but not before the exterior walls were started; 30 per cent on 10 days' demand but not before the roof was started; and the final 10 per cent on 10 days' demand but not before the building was completed. Upon the happening of each of these events petitioner had the immediate and unrestricted right to recover the installment then due. Whether the recovery of the last installment was dependent upon the tendering of a certificate of ownership is immaterial for tax purposes, since it was within the power of petitioner to make such tender. The payments when made at once became the absolute property of petitioner.

The next question is, Did the total amount of $169,900 fall due in the year 1921? Such is the determination of respondent and petitioner so entered these items on its books. We can not say that both petitioner and respondent were in error, since we are not informed when any of the particular steps recited in the contract were taken. All we know is that petitioner began construction in 1920 and that the building was completed in 1921. We know that all installments on contracts entered into in 1921 became due and payable in that year. We do not know whether 10 days elapsed in 1920 after the foundation was started or when petitioner gave the first or any of the other notices. In the absence of evidence on these points we are compelled to approve respondent's determination, especially as it is in harmony with petitioner's accounting method. It may be that the foundation for the mausoleum was laid in 1920 and petitioner became entitled to or did receive the payments due upon the occurrence of such contingency - we have searched the record without avail to determine if any payments represented in the $160,900 were due or received by petitioner in 1920. It is also true that some of the contracts were canceled and that no sums of money were received thereon. However, if such happened in either 1920 or 1921 we were not informed. It may also be that the cost of the mausoleum determined by the respondent was too low, but petitioner has supplied us with no convincing proof in refutation thereof. We can not supply these omissions in the evidence.

Petitioner asserts that nothing received by it on these contracts became taxable income until either the title was conveyed or the purchaser placed in possession, and in support of this contention cites , and . The facts in those proceedings bear no resemblance to the facts in this proceeding, and what was said in those opinions is not applicable to the facts in this case. In , the facts, in effect, were that a contract entered into in 1916 provided for the sale of a ship then under charter party, for the immediate payment of 10 per cent of the purchase price, and the payment of the remainder after the expiration of the charter party and upon delivery of the ship, the ship to remain at the risk of the seller until delivery, with the further provision that the initial payment was to be returned to the purchaser in the event of the loss or nondelivery of the ship. The ship was delivered and the final payment made in 1917, and we held that the gain from the sale was taxable in that year. While that contract was binding and a suit in the nature of specific performance might have been maintained, it is clear that the seller could not have recovered the remaining unpaid purchase price until the delivery of the ship. In , we held that gain from a sale was taxable in 1917 and were careful to point out that no action could have been maintained in 1916 for the purchase price. A vital difference between the facts in those proceedings and this is that here petitioner had the right to retain all payments made as liquidated damages. Under petitioner's theory it would not be taxable on any payment received and which it could forever retain until it, at its own good will, tendered a certificate of ownership. Such a theory is clearly untenable.

Judgment will be entered for the respondent.