Commissioner of Internal Revenue v. Saunders

HOLMES, Circuit Judge.

This appeal involves the income tax of respondent for 1926. The question presented is whether the respondent, having elected to report, on the installment basis, income that was received in 1925 from a sale of real estate in that year, was required by Section 212(d) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 162, to report the second payment from the sale on the same basis in 1926.

In 1925 the taxpayer agreed to sell certain land for $400,000, of which $1,000 was to be paid in cash, $9,000 was to be paid within fifteen days from the time of delivery of the abstract of title, and $10,000 per month for seven months after the closing date. The remainder, of $320,000, was to be paid in four equal annual installments of $80,000. $30,000 was paid on the contract in 1925, as made and later modified, and $40,000 in 1926.

The taxpayer’s income tax return for 1926 contained the following statement (R. 25) : “In 1926 taxpayer received a principal payment of $40,000.00 of the purchase price of the property sold in 1925 for originally $400,000.00 and price reduced to $320,000.00, but this 1926 payment added to the $30,000.00 received on negotiating the sale in 1925 did not equal the cost of the property, so there was no income to report, the purchaser’s obligation being totally without any fair market value, and the property having been repossessed in 1927, and results of repossession to be reported for that year. The interest received in this transaction is reported as income under Item 3 of this return.”

In Saunders v. United States, 5 Cir., 101 F.2d 133, we dealt with respondent’s income tax for 1925, which involved initial payments aggregating $30,000 from the sale here involved. Therein the district court had held that it had no jurisdiction, because the suit was not filed in time; but that, if timely filed, appellant was not entitled to rescind her original election to report the gain on the installment basis; and that, if wrong on both these issues, nevertheless appellant was not entitled to recover, because she had not proven her case on the merits. We affirmed the case on the merits, but did not hold that the court below was wrong on the other two issues decided by it.

In the case now before us, we agree with the Board that the taxpayer repossessed her property in 1927, but we think the Board erred in failing to hold that the taxable income on the 1926 installment was 77.84 per cent of $40,000, or $31,136, and that the resulting deficiency for 1926 was $4,051.79. The taxpayer, having elected to file her return on one basis, cannot change to another merely for the sake of deriving some reduction of the tax due by her.¹

The decision of the Board'of Tax Appeals is affirmed in part and reversed in part, and the cause remanded to it for further proceedings not inconsistent with this opinion.

1 Pacific National Co. v. Welch, 304 U.S. 191, 58 S.Ct. 857, 82 L.Ed. 1282; Louis Werner Saw Mill Co. v. Helvering, 68 App.D.C. 267, 96 F.2d 539; Marks v. United States, 2 Cir., 98 F.2d 564, certiorari denied, 305 U.S. 652, 59 S.Ct. 245, 83 L.Ed. 422; Elmwood Corp. v. United States, 5 Cir., 107 F.2d Ill. Cf. Buttolph v. Commissioner, 7 Cir., 29 F.2d 695; Rose v. Grant, 5 Cir., 39 F.2d 340, certiorari granted, 282 U.S. 821, 51 S.Ct. 28, 75 L.Ed. 733, and dismissed, 283 U.S. 867, 51 S.Ct. 342, 75 L.Ed. 1471; Lucas v. St. Louis National Baseball Club, 8 Cir., 42 F.2d 984; Anderson v. United States, 5 Cir., 48 F.2d 201; Radiant Glass Co. v. Burnet, 60 App.D.C. 351, 54 F.2d 718; Dr. Pepper Bottling .Co. v. Commissioner, 5 Cir., 69 F.2d 768; Ross B. Hammond, Inc. v. Commissioner, 9 Cir., 97 F.2d 545; Riley Inv. Co. v. Commissioner, 311 U.S. 55, 61 S.Ct. 95, 85 L.Ed. 36.