16 T.C. 1456">*1456 Deficiencies in income taxes for the calendar years 1945, 1946, and 1947 in the respective amounts of $ 888.96, $ 1,232.59 and $ 3,171.16 are involved1951 U.S. Tax Ct. LEXIS 138">*139 in these cases which are consolidated by agreement. After concessions made the single question presented is whether the income involved (from contracts with book publishers) is ordinary income or capital gain.

FINDINGS OF FACT.

The stipulated facts are so found.

The petitioner resides at 6947 Pershing Avenue, St. Louis, Missouri. His Federal income tax returns for the periods here involved were filed with the collector for the first district of Missouri at St. Louis, Missouri.

Petitioner is a professor of mathematics at Washington University, located in St. Louis, Missouri. He has been a professor of mathematics since 1917, and has been engaged in the teaching profession since that date. He has devoted all the time necessary in connection with his duties as a regularly employed, full time professor. During the same period he has taught at night school an average of one night a week, and has taught almost every summer. He was exchange professor under the Buenos Aires Convention in Mexico, during the academic years 1942 and 1943, and taught, during the War, in the Army university in England. During the War he consulted with Government agencies pertaining to mathematics. At the1951 U.S. Tax Ct. LEXIS 138">*140 present time he is doing some consulting work for the Office of Air Research for the U. S. Air Force.

16 T.C. 1456">*1457 In his spare time from his duties as teacher and professor of mathematics at Washington University, petitioner has composed and written a number of books based upon notes which he had made from time to time, and on his experience as a teacher at the university. His first textbook was used before sale in litho-printed form in the classrooms at Washington University. He had an idea that he could improve on some of the textbooks which were being used at that time and he wanted to put in writing and print some of the methods he had used in the classroom. He sold it to Macmillan Company in 1923. Since that time and after about 1935 he has written about eight books, including different editions of a college algebra. Some were copyrighted by him, others by the publishers. From 1923 to 1935 he was accumulating material, but not writing. In order to get a manuscript published petitioner would work over his notes which he had used in the classroom, prepare a manuscript, send it to a publishing company which would look it over and decide whether or not they would purchase it. 1951 U.S. Tax Ct. LEXIS 138">*141 This was done as to each manuscript here involved. On the average, he required about three years to get a manuscript ready, not counting teaching experience and notes taken on methods of presentation of topics. One of the biggest helps in promoting a teacher and getting his promotion approved is the fact that he has written a book or written some articles for publication.

The petitioner in the taxable years maintained an office in his home, which he used in his writing and in preparation of his lectures at the university. The university furnished him an office, but he found it more convenient to work at home.

On July 15, 1937, petitioner entered into a contract with Farrar & Rinehart, Incorporated. On the 6th day of January 1938, petitioner entered into a contract with John Wiley & Sons.

On January 13, 1939, July 31, 1940, May 13, 1942, July 19, 1943, December 8, 1943, and February 13, 1947, petitioner entered into seven contracts with the Macmillan Company. The three companies are all publishing companies of New York City and the contracts concerned publishing of petitioner's work. All contracts specifically provide that the consideration thereunder be paid only as, if and1951 U.S. Tax Ct. LEXIS 138">*142 when the books are sold.

The contract with Farrar & Rinehart recites, in part, that petitioner, being author and proprietor of a work entitled "Essentials of the Mathematics of Investment," "hereby grants and assigns" to Farrar & Rinehart, Inc., called publishers, the "world book publishing rights of the above mentioned work"; also:

The Publishers shall have the exclusive right to take out copyright for the said work in the name of the Author, and to take steps to obtain all renewals of copyright in the Author's name and to hold said copyrights and renewals, and 16 T.C. 1456">*1458 to have the exclusive right to print, publish and sell said work during the terms thereof. Unless specifically agreed in writing, the Publishers shall not be responsible for taking out any copyright outside of the United States.

The publishers agree to pay certain "as a royalty" a percentage of each copy of the work sold. Repeated reference is made to "royalty," to the "percentage to be paid to the Author as royalty," to "royalties," and to publication "on a royalty basis." Provision is made for cancellation of "this contract" by the publishers, with reversion of "all rights under this agreement" to the author, 1951 U.S. Tax Ct. LEXIS 138">*143 under stated conditions, also that "All other rights not specified herein and any other rights that may arise, shall remain solely the property of the Author," also that in case of publishers' bankruptcy or liquidation, author has "the right to buy back the rights of publication" at stated terms. The agreement was assignable by both parties as a whole, but not in part.

The contract with John Wiley & Sons recites, in part, that Rider agrees to supply Wiley & Sons with the manuscript of a work called "Modern Statistical Methods," of which he is author, he to correct the galley proof, and any alterations by him, after the manuscript is in type, exceeding 20 per cent of cost of composition, to be "charged against the royalty due said Author". It is also provided as follows:

* * * And said Author further agrees that, in consideration of the copyright for said work being taken in his name, he will grant, and by these presents doth grant, to said John Wiley & Sons the exclusive right of printing and publishing said work and revisions of the same, during the entire continuation of such copyright, together with any renewal thereof which the said Author or his legal representatives or assigns1951 U.S. Tax Ct. LEXIS 138">*144 shall obtain therefor.

and

The said John Wiley & Sons, in consideration of the foregoing agreements of said Author, hereby agrees, on its part, that it will, on the delivery to it of the said Manuscript and Illustrations, proceed at once to set in type, engrave, print, and publish the same, at its own expense, in such editions, as to numbers, as it may deem best, and in such styles as to size of paper, printing, binding, etc., as may be agreed upon by the contracting parties; it also agrees to use its best endeavors to promote the sale of said work using all ordinary methods therefor; and it further agrees to pay the said Author a royalty of ten (10) per cent of the catalogue retail price on the first 1500 copies of the said work sold by it, and fifteen (15) per cent on all copies sold thereafter. * * *

Author authorizes John Wiley & Sons to take out copyright in his name, and "during the existence of this contract, to keep subsequent editions of the said work up to date." Author is to receive "a royalty" of a percentage of retail price of copies of the work sold. Reference is made to "royalty," "reduced royalty" and "reduction in royalty."

The contracts with the Macmillan Company1951 U.S. Tax Ct. LEXIS 138">*145 are all upon the same printed form, as to two pages, and each contains a third page or part of page in typewriting. The printed form includes:

16 T.C. 1456">*1459 In consideration of the mutual covenants and agreements herein contained the parties hereto agree as follows: 1. The Author hereby grants, assigns, and transfers to the Company a work the subject or title of which is [name of work] together with all translations and abridgements thereof and selections therefrom and the sole right to make the same, with exclusive power and authority to take out copyright on said work and renewals thereof in the name of the Company or of the Author, and to print, publish and sell said work during the term or terms of such copyright and the renewals thereof in all languages. * * *

Macmillan Company agrees to print and publish at its own expense and to pay the author 10 per cent on the price of each copy of the work sold by it. Reference is made to "the royalty provided for as above," to "royalty," and "royalties." Provision is made that author may not use the subject of the work as basis for another work intended for students of the same grade "during the existence of this contract," without1951 U.S. Tax Ct. LEXIS 138">*146 consent. It is also provided that the company may cancel under certain stated conditions, that the author should then have a right to take over the plates of the work at half cost and all copies at cost, and that if he does not the plates should be destroyed and copies sold at any price obtainable, in which case copyright shall revert to author. The contracts of May 13, 1942, July 19, 1943, December 8, 1943, and February 13, 1947, provide for author's right to terminate "this contract" under stated conditions, referring to postponement of publication. The contract of February 13, 1947, provides that any proceeds from arrangements for publication of translations into foreign languages shall be shared equally by author and publisher.

From the publishing companies under the above contracts, petitioner received in the taxable years income as follows:

The petitioner, 1951 U.S. Tax Ct. LEXIS 138">*147 in his Federal income tax returns, reported income, other than from the above publishers, as follows:

Of the $ 7,183.98 for 1945, $ 3,030 is recited to be from Washington University and $ 4,153.98 from the War Department, with place of employment as "Europe." Of the $ 7,716.59 for 1946, $ 2,681.63 is 16 T.C. 1456">*1460 recited to be from Washington University and $ 5,034.96 from the War Department, with place of employment "Europe." The $ 6,202.50 for 1947 is all recited to be from Washington University.

From the time his first book had gone out of print to 1935 the petitioner had no income from writing. From 1935 to time of trial slightly less than 50 per cent of his income has been from writing and from 1945 on more than 50 per cent has been from writing. He deducted office expenses as follows: 1945, $ 450; 1946, $ 581; and 1947, $ 627.06. The deductions were allowed as ordinary and necessary expense of business.

The petitioner reported the income from publications as long term capital gain, but the Commissioner treated it as ordinary income.

In the years 1945, 1946, and 1947 petitioner was in the trade or business of teacher-writer.

1951 U.S. Tax Ct. LEXIS 138">*148 OPINION.

It is the petitioner's contention that in the publishing of his books he sold, on the installment basis, all of his rights in the manuscripts, that is, capital assets held more than 6 months, therefore properly reported the income received therefrom as capital gains. He was not, he argues, engaged in the business of selling or writing manuscripts. Contra, the respondent's view is that the income was ordinary, either because from royalties received or because, even if the contracts were not for royalties and property was sold, it was held primarily for sale to customers in the ordinary course of petitioner's trade or business, and was, therefore, not in the category of capital assets, therefore that the proceeds could not properly be reported as capital gain.

We have found the facts in all pertinent detail and they need not be repeated at length here. The petitioner recognizes that the question is factual. Further, he states: "Perhaps the most important question presented in this case is whether or not the manuscripts held by petitioner were capital assets within the meaning of the Internal Revenue Code." As basis for the contention that they were such, and obviously1951 U.S. Tax Ct. LEXIS 138">*149 for the reason that he says that they were not property held by him "primarily for sale to customers in the ordinary course of his trade or business" within section 117 (a) (1) of the Internal Revenue Code, he contends and requests a finding as follows:

The petitioner contends that his writing of mathematical text books is not his trade or occupation, but is nothing more nor less than a hobby to which he devotes his spare time.

Regardless of whether petitioner made sales, and not royalty agreements, he is not entitled to application of the capital gains provisions 16 T.C. 1456">*1461 unless the sales were of capital assets, and under the statute this means unless the property was not primarily held by him for sale to customers in the ordinary course of his trade or business. This, therefore, should be our first inquiry since the answer may render superfluous further inquiry, into the question whether the contracts were contracts of sale. That the petitioner was a teacher is not to be questioned. But whether his writing of books was a mere hobby, as he terms it, is another question. It is well established that one may have more than one trade or business -- even if we separate teaching1951 U.S. Tax Ct. LEXIS 138">*150 and writing books. Petitioner's writing has been done in his time not required for teaching, but we do not think that this demonstrates that writing books is a mere hobby with him. This is not a case of an isolated invention or book written in pursuance of what may be realistically seen as a hobby. Rather, we think, petitioner's profession or trade and business was that of a teacher-writer, his writing being in connection with his teaching. It can hardly be seen as recreation from teaching. That his activity is not limited to teaching is indicated by the fact that he also, during the war and at the time of trial, has been a consultant for the United States Government. Though the evidence indicates that writing a book or articles for publication is of important assistance in the promotion of a teacher, it is clear to us that the issuance by the petitioner of nine volumes from and including 1923 to about 1947 goes much beyond merely writing to assist promotion in teaching. He did not in his testimony state that he wrote books to assist promotion, and did not refer to promotion, nor did he testify that any publication, after the first one, about 1923, was with the idea of improving1951 U.S. Tax Ct. LEXIS 138">*151 on textbooks or due to desire to put into print his classroom methods. His last contract, so far as the record here is involved, with Macmillan Company, was made on February 13, 1947. From his writings he had received approximately $ 4,280 in 1945 and approximately $ 7,108 in 1946, and in 1947 he received approximately $ 15,900 therefrom. The record indicates that slightly less than half of his income had been received from such writings since 1935, and more than half from 1945 on. On his income tax returns for 1945, 1946, and 1947 petitioner deducted and the Commissioner allowed expenses averaging roughly $ 550 per year and incurred in maintaining an office which, under the evidence, he maintained in his home and used in the production of his various writings.

Under all of these facts we have come to the conclusion that the petitioner had a trade or business including not only teaching but writing the books involved here. His livelihood was clearly from both. In contending that the manuscripts were sold outright he agrees that they were property. He contends that he had held his manuscripts for more than 6 months prior to contract in each case. We 16 T.C. 1456">*1462 think they were1951 U.S. Tax Ct. LEXIS 138">*152 property held by him primarily for sale to customers in the ordinary course of that trade or business. He did not merely develop notes or material for teaching but put his work into form for publication as books; and from such publication he derived a profit under contracts with the various publishers. In the contracts with Farrar & Rinehart, Incorporated, and with John Wiley & Sons he agreed, in substance, to put the material into publication form, as a part of the contract. Since 1935 as above seen his income has been almost 50 per cent from writing, and since it appears that no book was published from 1935 to 1937, when the first contract here involved was made, it seems to follow that since 1937, when the first contract involved was made, and through the years when the alleged sales of manuscripts were made, more than half of his income was from publications. He so admits as to the period since 1945, which covers the time of the last contract here involved. Under all of these circumstances, here involved, we conclude and hold that the petitioner was at the time of the contracts involved here holding his manuscripts primarily for sale to customers in the ordinary course of1951 U.S. Tax Ct. LEXIS 138">*153 his trade or business. Petitioner, therefore, did not derive income from the sale of capital assets.

This conclusion renders unnecessary examination of the question as to whether the contracts provided or entailed sale of the manuscripts, or were royalty contracts as respondent contends.

Decisions will be entered for the respondent.