1971 U.S. Tax Ct. LEXIS 204">*204
Petitioner sold to A corporation property consisting of land and building for $ 500,000 in the following manner: A would assume a $ 400,000 mortgage and execute a $ 100,000 purchase-money mortgage due in 11 years. No payment on the purchase price was made in the year of sale and the only payment called for was the one 11 years hence of $ 100,000. Both petitioner and A were owned solely by the same individual.
55 T.C. 593">*593 The Commissioner determined a deficiency in petitioner's Federal income tax for the taxable year ending June 30, 1961, in the amount of $ 25,806.83. Due to a concession by petitioner, there are only two issues remaining for our decision. The first is whether petitioner is entitled to report the gain on the sale of real 55 T.C. 593">*594 property under the installment method of
FINDINGS OF FACTS
The facts are fully stipulated and are found accordingly. Briefly summarized they are as follows. Petitioner is a corporation under the laws of the State of New York, having been incorporated on July 16, 1951. At the time of the filing of the petition herein, its principal place of business was 1501 Broadway, New York, N.Y. Petitioner filed its Federal income tax returns for the taxable years ending June 30, 1960 and 1961, with the district director of internal revenue, Manhattan District, New York. Petitioner's principal business at all pertinent times has been the rental and management of real property.
By contract dated July 1, 1960, petitioner sold to the Tenth Avenue Corp. (hereinafter referred to as Tenth) property consisting of land and building, used as rental 1971 U.S. Tax Ct. LEXIS 204">*207 property located at 627-629 West 50th Street and 622-630 West 51st Street, New York City. The sales price was $ 500,000 payable as follows: Tenth would assume a $ 400,000 mortgage which was then a lien and execute a $ 100,000 purchase-money mortgage due on July 1, 1971. The mortgage note called for payment of the principal sum of $ 100,000 on July 1, 1971, with interest from date of execution at the rate of 6 percent per annum and to be paid on January 1, 1961, and semiannually thereafter. There is no provision in the contract of sale for multiple payments of the purchase price and no payment applicable towards the purchase price was received in the year of sale. At all times relevant hereto, Irving Maidman was the sole stockholder of both petitioner and Tenth.
On its tax return for taxable year ended June 30, 1960, petitioner reflected a net long-term capital gain of $ 96,833.24 from the above sale, and on Schedule D of that return indicated an election to use the installment method of reporting the gain. The parties agree that since the sale occurred on July 1, 1960, it is properly reportable on petitioner's Federal income tax return for the year ending June 30, 1961.
The Commissioner1971 U.S. Tax Ct. LEXIS 204">*208 determined in his notice of deficiency that petitioner could not use the installment method to report the gain on the sale and that the total gain was reportable in petitioner's return for the year ended June 30, 1961, as a capital gain. Subsequently, by an amendment to his answer the Commissioner determined that the gain 55 T.C. 593">*595 was reportable as ordinary income by virtue of the provisions of
OPINION
We have two issues confronting us. The first is whether petitioner can avail itself of the installment method of reporting income where there is no payment in the year of sale and the sales contract calls for one lump-sum payment
As to the first issue,
(a) Dealers in Personal Property. 1971 U.S. Tax Ct. LEXIS 204">*209 -- (1) In general. -- Under regulations prescribed by the Secretary or his delegate, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit, realized or to be realized when payment is completed, bears to the total contract price. (2) Total contract price. -- For purposes of paragraph (1), the total contract price of all sales of personal property on the installment plan includes the amount of carrying charges or interest which is determined with respect to such sales and is added on the books of account of the seller to the established cash selling price of such property. This paragraph shall not apply with respect to sales of personal property under a revolving credit type plan or with respect to sales or other dispositions of property the income from which is, under subsection (b), returned on the basis and in the manner prescribed in paragraph (1).
(b) Sales of Realty and Casual Sales of Personalty. -- (1) General rule. -- Income from -- (A) a sale or other disposition of real1971 U.S. Tax Ct. LEXIS 204">*210 property, or (B) a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year) for a price exceeding $ 1,000, may (under regulations prescribed by the Secretary or his delegate) be returned on the basis and in the manner prescribed in subsection (a). (2) Limitation. -- Paragraph (1) shall apply -- (A) In the case of a sale or other disposition during a taxable year beginning after December 31, 1953 (whether or not such taxable year ends after the date of enactment of this title), only if in the taxable year of the sale or other disposition -- (i) there are no payments, or (ii) the payments (exclusive of evidences of indebtedneses of the purchaser) do not exceed 30 per cent of the selling price.
55 T.C. 593">*596 Petitioner contends that when Congress, in enacting the 1954 Code, eliminated the "initial payments" 2 requirement of the 1939 Code it also eliminated any requirement that there be more than one payment in order for a taxpayer to avail himself of the installment method.
1971 U.S. Tax Ct. LEXIS 204">*211 The Commissioner counters by saying that the requirement for multiple payments is clear from the relationship between
Petitioner counters by arguing that the words "basis and in the manner" of
An examination of the legislative history behind
The question of what is an installment has been answered by this Court in
An "installment" is defined in Webster's Dictionary as "A portion of a debt or sum of money which is divided into portions that are made payable at different times. The system of making sales, as in conditional sales, for a sum made payable in portions at stated intervals is often called the installment plan." An "installment payment" is defined in Corpus Juris, vol. 32, p. 939, as:
"A partial payment on account of a debt due; the arrangement of a payment of a sum of money by fixed portions at stated times; the
This definition adequately covers the situation herein. To hold otherwise would allow a closed transaction properly reportable in a given year to be postponed contrary to express legislative intent. S. Rept. No. 52, 69th Cong., 1st Sess., p. 19 (1926), states that the only deferred-payment contracts1971 U.S. Tax Ct. LEXIS 204">*214 to be granted deferred-recognition treatment were installment contracts, thereby implying that there must be more than a single
The second issue confronting us is the application, if any, of
The Commissioner contends that
The Commissioner's position would equate the word "individual" with "corporation" in
55 T.C. 593">*598 Once again we have found it necessary to delve into the legislative history behind this provision.
1971 U.S. Tax Ct. LEXIS 204">*217 We do not say that what the Commissioner desires is without merit. He recently took the position for which he contends in
1. All statutory references are to the Internal Revenue Code of 1954 unless otherwise stated.↩
2. The 1939 Code required that in the year of sale, payments, i.e., initial payments, could not exceed 30 percent of the selling price.↩
3. (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren;↩
4. In point of fact, the legislative history shows that Congress intended a restricted application of
