Opinion
Docket No. 110145.
1943-03-10
W. A. SLOPER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Herbert L. Swett, Esq., for the petitioner. E. A. Tonjes, Esq., for the respondent.
Where a partnership complied with the Commissioner's regulations in making its election under section 123(a) of the internal Revenue Code and section 223(d) of the Revenue Act of 1939, as amended by section 154(b) of the Revenue Act of 1942, so that an amount received as a Commodity Credit Corporation loan could be considered as income and included in gross income for the taxable year in which received, held, under the particular facts, that the partnership, on a cash basis, received such amount in the year 1939 when it received the proceeds of the loan. Petitioner, a member of the partnership, should have included his share of such loan in his gross income for the year 1939. Herbert L. Swett, Esq., for the petitioner. E. A. Tonjes, Esq., for the respondent.
Respondent determined a deficiency for the year 1939 in the amount of $1,627.82. He determined that petitioner understated his share of income from a partnership in the amount of $11,214.60, under the theory that the partnership, of which petitioner was one of two members, received income in 1939 from a commodity credit loan in the total amount of $22,429.20, and that one-half represented petitioner's income in 1939. The only question is whether the proceeds of the loan in the above amount were received in 1938 or 1939 for income tax purposes under section 123 of the Internal Revenue Code.
Petitioner filed his return with the collector for the district of Oregon.
The facts have been stipulated.
FINDINGS OF FACT.
Petitioner resides in Independence, Oregon. Petitioner and C. O. Sloper were equal partners in the copartnership doing business under the firm name of Sloper Bros. The business of the partnership was raising hops. The partnership kept its books and reported income on the cash basis. Petitioner did the same.
The Pacific Coast Hop Stabilization Corporation, a nonprofit corporation, was organized to assist hop growers in stabilizing returns to such growers in Oregon, Washington, and California, and to secure the benefits of a loan through the Commodity Credit Corporation, an agency of the United States. The partnership entered into an agreement with the Stabilization Corporation on December 27, 1938, which is incorporated herein by reference. The agreement is called a ‘Growers' Marketing Agreement.‘ Under the agreement the partnership delivered to the Stabilization Corporation, at a warehouse in Salem, Oregon, 556 bales of hops of the 1938 crop. The partnership had obtained a loan from the Ladd & Bush Bank in Salem, Oregon, and the bank had a lien on the hops delivered to the Stabilization Corporation.
The partnership, through the Stabilization Corporation, applied to the Commodity Credit Corporation in 1938 for a loan of $22,429.20, and tendered warehouse receipts for 556 bales of hops, duly endorsed in blank, as security.
Under date of December 30, 1938, the Commodity Credit Corporation accepted the loan application and the security thereunder, to wit, the said warehouse receipts, and on that day mailed, by regular mail, from its Portland, Oregon, office a check in the amount of $51,655.06 to Pacific Coast Hop Stabilization Corporation, at the latter's address in Oakland, California. This check included the $22,429.20 net loan proceeds to Sloper Bros., as well as hop loans to certain other growers, as itemized in said transmittal letter, which stated:
We are enclosing the following transmittal letters reflecting advances as indicated as of Dec. 30, 1938, accompanied by a check in amount of $51,655.06, being payable to Pacific Coast Hop Stabilization Corporation, Oakland, California. * * *
There followed numbers of the various producers, grade, number of bales, pounds, gross advances, amount of 3 cents per pound withheld to reach the net loan figure, and net advances for each producer, including Sloper Bros. in the amount of $22,429.20. Said letter and check were received in the office of the Pacific Coast Hop Stabilization Corporation on January 3, 1939.
On or about January 3, 1939, the Pacific Coast Hop Stabilization Corporation forwarded its check payable jointly to Sloper Bros. and the Ladd & Bush Bank in the sum of $22,429.20, representing said loan proceeds. This check was mailed to the Salem, Oregon, office of the Pacific Coast Hop Stabilization Corporation, where it was delivered to Sloper Bros., who on January 9, 1939, having endorsed the check, delivered same to the Ladd & Bush Bank, together with other moneys aggregating in all the approximate sum of $36,000, being the full amount then owed by Sloper Bros. to the bank.
Under the loan arrangement Sloper Bros. had the right at any time before June 1, 1939, to redeem the hops transferred as aforesaid by way of security to the Commodity Credit Corporation, by repaying the loan plus interest at the rate of 4 percent per annum from the date of the loan. Such interest was charged by the Commodity Credit Corporation for the period beginning December 30, 1938.
The hops were not redeemed by the partnership within the allotted period and the partnership thereby lost title to the hops.
The partnership of Sloper Bros. and petitioner individually duly and timely elected to consider the loan as income to be included in gross income in the taxable year when received. Such election is reflected by the amended partnership and individual returns filed by the partnership and petitioner for the taxable year 1938.
OPINION.
HARRON, Judge:
Section 123(a) of the Internal Revenue Code, enacted by section 223(a) of the Revenue Act of 1939, provides that:
Amounts received as loans from the Commodity Credit Corporation shall, at the election of the taxpayer, be considered as income and shall be included in gross income for the taxable year in which received.
Respondent agrees that the partnership has elected, properly, under the statute, subsection (d) of section 223 of the Revenue Act of 1939, as amended by section 154(b) of the Revenue Act of 1942, and under his regulation, to treat the loan as income. That is, the election has been made in accordance with the respondent's regulation which he promulgated on August 7, 1939, in Cumulative Bulletin 1939-2, pp. 128 to 130, T.D. 4918. The regulation provides that a taxpayer who has received a loan within any taxable year beginning after December 31, 1933, and before January 1, 1939, may include the amount of such loan in his gross income ‘for the taxable year in which the loan was received,‘ if he meets certain conditions. The question here requires determination of what year it was in which petitioner received the loan.
Respondent has determined that the loan was received in 1939. Respondent's position is that there was no constructive receipt of the loan by the partnership in 1938, as petitioner contends, even though the loan was approved and the check for the loan was mailed on December 30, 1938, and the Commodity Credit Corporation regarded the loan as made on that date and charged interest on the loan from that date. Respondent relies on Avery v. Commissioner, 292 U.S. 210.
Petitioner's argument is as follows: The loan agreement was entered into on December 30, 1938. The pledge of the warehouse receipts was accepted by the Commodity Credit Corporation on December 30, 1938. The intent of Congress was that the recipient of a Commodity Credit Corporation loan for a commodity could consider the proceeds of the loan as the equivalent of proceeds from a sale at the time the loan is made, so that such proceeds could be included in gross income in the same year the deductions for expenses of production of the commodity involved are available. The correct view, therefore, according to petitioner's theory, is to regard the transaction as a contract of sale by the partnership of the hops which were pledged and which were not redeemed, which was entered into on the date that the loan was approved and the check was mailed by the Commodity Credit Corporation, i.e., on December 30, 1938. Petitioner contends that in taking such view of the transaction it is not material that the proceeds of the loan were not received until January 9, 1939. Petitioner contends that the partnership, through its agent, the Stabilization Corporation, could have obtained the check for the loan from the Commodity Credit Corporation at its office in Portland, Oregon, on December 30, 1938, merely by asking for it. Petitioner contends that all of the steps which were required to be taken to complete the making of the contract with the Commodity Credit Corporation were completed on December 30, 1938, even though the cash was not received until in January of 1939. Petitioner contends that the proceeds of the transaction were, in fact, credited to the partnership on December 30, 1938, by Commodity Credit, and that under respondent's regulation income so credited or set apart to a taxpayer is subject to tax for the year so credited or set apart, though not then actually reduced to possession. Regulations 101, p. 176, section 42-2. Petitioner contends that the Avery case is distinguishable, because Commodity Credit had the intention to make actual payment of the loan proceeds on December 30, 1938, which is the date from which interest ran, whereas in the Avery case it was established that the intention was that the dividend was not to be received by the stockholder until January of the year succeeding the year in which the dividend was declared. Petitioner argues that there can be no doubt that the Stabilization Corporation were to be regarded as the principal which entered into a loan agreement with Commodity Credit, then it would follow that the partnership had no standing as a recipient of a Commodity Credit Corporation loan under section 123. Petitioner contends that respondent is foreclosed from making such argument, because he has agreed, under the stipulations of facts, that petitioner is entitled to the benefit of section 123 as a direct borrower from the Commodity Credit Corporation. Petitioner relies on Ruml v. Commissioner, 83 Fed.(2d) 257; Commissioner v. Dashiell, 100 Fed.(2d) 625; James E. Lewis, 30 B.T.A. 318.
There is no question on the point that the Stabilization Corporation was the agent of the partnership. The facts show clearly that it was. However, petitioner has failed to give proper consideration to the fact that the partnership, as well as himself, reported income on the cash basis. The statute, section 123(a) of the Internal Revenue Code, provides that ‘amounts received as loans * * * shall be included in gross income for the taxable year in which received.‘ The term ‘received‘ in the statute must be given effect in the light of the method which the taxpayer uses to report income. In our opinion, the statute places emphasis on the word ‘received.‘
Neither the Stabilization Corporation, nor the partnership, nor the petitioner received the amount of this loan either actually or constructively in 1938. The application for the loan was accepted by the Commodity Credit Corporation on December 30, 1938, at Portland, Oregon. The Commodity Credit Corporation mailed its check for the amount of the loan on that day to the agent of the petitioner in Oakland, California. Apparently that was the usual way in which the Commodity Credit Corporation did business. The check was not received by the agent of the petitioner until January 3, 1939. Under those circumstances, it seems clear that there was no receipt in 1938. The fact that Commodity Credit charged interest from December 30, 1938, is not determinative. The partnership did not report income on the accrual basis. Being on the cash basis, it could not be required to report the ‘amount received‘ as income until the income was received.
Furthermore, there is nothing to indicate that the petitioner could have obtained this money in 1938. There is nothing to indicate that it turned its back upon earlier receipt of the money. In fact, there is no indication in the record that either the partnership, its agent, or the petitioner knew the loan had been granted until the check was received. Under these circumstances, the rule of the Avery case applies here, and there was no constructive receipt of the loan in 1938.
It does not help the petitioner to treat this transaction as a sale of hops, because a taxpayer on the cash basis reporting gain from the sale of property, under the circumstances of this case, would not report the gain as income for 1938. He does not report his gain until he receives the purchase price.
It is held that 1939 was the year in which the Commodity Credit Corporation loan was received by the partnership. Respondent's determination is sustained.
Decision will be entered for the respondent.