dissenting: The majority opinion declines to follow the decision of the Sixth Circuit in Musselman Hub-Brake Co. v. Commissioner, 139 Fed. (2d) 65. With respect to that case the majority opinion says:
With due respect to the Circuit Court of Appeals for the Sixth Circuit, which decided the Musselman case, we believe its interpretation of section 24 (c) as therein given does not reflect the intent of Congress and we here respectfully record our disagreement with the holding that the facts in that case constituted payment within the meaning of such section.
I do not agree that the Musselman case was wrongly decided by the Sixth Circuit. On the contrary, it is my view that it was correctly decided and should be followed in the instant case because it is precisely in point. It seems clear that when Congress enacted section 24 (c) of the Internal Revenue Code it was endeavoring to correct an abuse which had grown up where corporations which were family corporations within the definition of 24 (b) frequently accrued certain liabilities such as compensation and interest as being owed to their stockholders, took deductions therefor, and never paid such ha-bilites, and, therefore, the stockholders on the cash basis never returned such amounts as taxable income.
That situation is not present in the instant case. It is true, of course, that the corporation is a family corporation within the definition of 24 (b) and therefore section 24 (c) (3) is applicable. It may also be assumed, as the majority report holds, that the compensation was not unconditionally credited to the account of Anthony P. Miller in 1940 so as to make the amounts taxable to him in that year under the doctrine of constructive receipt. See Michael Flynn Manufacturing Co., 3 T. C. 932. It is true that the facts show that Anthony P. Miller did actually return for taxation in 1940 the amounts of his compensation which had been accrued as a liability by the petitioner corporation. I am willing to assume, however, that the amounts of this compensation had not been unconditionally credited to Anthony P. Miller in 1940 in such a manner as to make applicable the doctrine of constructive receipt and that his return of the income in that year for taxation was error.
I, therefore, agree that section 24 (c) (2) is applicable, as the majority opinion holds. I do not agree, however, that section 24 (c) (1) is applicable to exclude the deduction, as the majority opinion holds.
The findings of fact show that on January 1, 1941, petitioner executed its demand notes payable to Anthony P. Miller for the full amounts of the compensation which had been accrued by the corporation in 1940 as a liability to him. The corporation was in ample funds to pay these notes any time Anthony P. Miller should have demanded their payment and undoubtedly as to him the compensation was paid on January 1,1941, in property which was the equivalent of cash and he was taxable on these amounts in 1941. As the court said in the Mussel'man case:
* * * Likewise, notes or other evidences of indebtedness received for services, rents, interest or royalties constitute income to the amount of their fair market value. Helvering v. Bruun, 309 U. S, 461 * * *; Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U. S. 462, * * *
Therefore, if the receipt of promissory notes payable to petitioner on demand, which were worth their face value, constituted taxable income to him when received January 1, 1941, I see no reason why the amounts represented by these notes should not be considered as “paid” by petitioner “within two and one half months” after the close of the taxable year 1940 within the meaning of section 24 (c) (1). As said by the court in the Musselman case:
To construe the word “paid” to mean that the payment must be in cash, is to distort the statute. The statute here in question is not for the purpose of classifying taxpayers but is for the purpose of bringing about uniformity among taxpayers in the matter of allowable deductions.
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As we view the applicability of the statute to the facts here, it is unnecessary to place a restrictive interpretation upon the word “paid.” Clearly under the rule of constructive payment, the notes with a readily realizable value of par were more than a mere accural of indebtedness on the books of petitioner.
There is nothing in the views herein expressed which is contrary to our decision in P. G. Lake, Inc., 4 T. C. 1; affd., 148 Fed. (2d) 898. In the Lake case the corporation owed to its stockholder, P. G. Lake, a large sum of money. In 1939 it accrued on its books as a liability the amount of interest on this indebtedness and took a deduction for such accruals on its 1939 return. The corporation did not, however, unconditionally credit the amount of this interest to P. G. Lake’s account in 1939 so as to make it taxable to him under the doctrine of “constructive receipt,” nor did it, prior to March 15, 1940, execute promissory notes worth their face value payable to him. It actually paid such interest to Lake on May 17,1940, by check, which was after the date required by section 24 (c) (1). We held that under those circumstances the corporation taxpayer was not entitled to a deduction for the accrual of interest in 1939. In that case we were careful to point out the distinction in its facts from those which were present in the Musselman case. In pointing out such distinction we said:
♦ * * Here there is nothing more than a mere accrual of the amount due upon the books of the corporation. The amount was not ordered to he paid, nor was it credited to Lake on the books of the petitioner, nor was there any other manifestation of intention on the part of petitioner to put the amount beyond its control and within the control of Lake. It may he noted that the Circuit Court of Appeals for the Sixth Circuit in the Musselman Hub-Brake case was careful to point out that “the notes with a readily realizable value of par were more than a mere accrual of indebtedness on the books of petitioner.’’
I may further say that if an unconditional crediting, within the taxable year by the corporation, of the accrued salary to the one who is to draw it so that all he has to do is to demand the money, as in the Michael Flynn case, prevents section 24 (c) (2) from applying because of the doctrine of “constructive receipt,” although no actual cash has passed between the parties, I see no reason why section 24 (c) (1) should not also be prevented from applying under the doctrine of the Musselman case when, as here, the taxpaying corporation prior to March 15 of the following year executed its “on demand” promissory notes to its officer to whom the compensation was due, and all that he had to do to get the money was to demand it. Because the majority opinion holds to the contrary, I respectfully dissent.
Another reason for my dissent to the majority opinion is because it holds that petitioner is taxable on $39,000 by reason of the receipt on July 5, 1940, of 390 shares of the capital stock of Chelsea Housing Corporation. Petitioner is claiming a deduction for $179,000 which it invested in a prior year in 1,958 shares of the Chelsea Housing Corporation stock because such stock became worthless in 1940. It also claims that it is not taxable on the 390 shares of the same stock which it received in 1940 as part of the compensation on its building contract with the corporation because such stock had no fair market value at the time it was received. The majority opinion holds that petitioner has not proved that this stock became entirely worthless in 1940, but on the contrary the evidence shows that the Chelsea Housing Corporation did not surrender possession of its property until 1941 and the mortgage on the property was not foreclosed until 1942. On these facts I am willing to go along with the majority opinion in its holding that the stock of the Chelsea Housing Corporation did not become entirely worthless in 1940. Therefore, petitioner’s claim of a deduction of $179,000 for worthless stock should be disallowed. Perhaps the stock did have some potential value at the end of 1940, though I think from the evidence that value must have been very small and uncertain. However, while willing to agree to the holding of the majority that petitioner is not entitled to take a deduction of $179,000 in 1940 because of 1,958 shares of Chelsea Housing Corporation stock becoming worthless in that year, I am unwilling to agree to the majority holding that petitioner should be taxed on $39,000 as income received in 1940. represented by 390 shares of the Chelsea Housing Corporation stock at $100 per share, received July 5, 1940. Respondent’s own revenue agent, reporting on the value of this stock, had this to say:
It may be noted that also in the contract by taxpayer for the construction of the Chelsea Village apartments, taxpayer received in addition to the cash consideration of $897,783.00, Common stock of the Chelsea Housing Corp. (which owns the Chelsea Village), in the amount of 390 shares. However in this instance, the examining agent holds that the stock had no value, since this development was a failure, and as a matter of fact was foreclosed upon in 1942 by the sheriff, and as early as 1941, a voluntary Trusteeship was created to try to work out the situation, but failed.
I agree, of course, that petitioner could not prevail in this case against respondent’s determination on this issue by merely introducing the revenue agent’s report. Petitioner makes no such contention. Petitioner has introduced much evidence, as shown by the findings of fact in the majority opinion bearing upon the value of this Chelsea Housing Corporation stock in 1940. It would make this dissenting opinion too long to discuss these facts in detail and I shall not do so. Suffice it to say that I think these facts clearly show that this Chelsea Housing Corporation stock had no such value as $100 per share or any value near that amount when petitioner received the 390 shares on July 5, 1940. The majority opinion, as I construe it, does not affirmatively hold that the stock had a value of $100 per share in 1940 when it was received. The majority opinion in the concluding part of its discussion of this point says:
* * * On the record before us we are unable to say that respondent’s valuation is incorrect. The evidence presented by petitioner on this issue has not only failed to establish worthlessness, but has also failed to furnish us with any fact which would justify or enable us to determine a lesser value with any reasonable assurance. We consequently hold respondent’s valuation as correct.
I am unable to agree with this conclusion at all. I think this is no lack of evidence case. Petitioner has introduced much evidence which I think bears upon the valuation of this stock when petitioner received it in 1940 and that this evidence shows clearly that the determination of the Commissioner that the stock had a value of $100 per share on the basic date is wrong. We, therefore, should not sustain it. Cf. Helvering v. Taylor, 293 U. S. 507. From the facts given in the majority report I should say that the shares of stock in question had a value of only a small fraction of the $39,000 which the Commissioner has determined and we should find a value much less than the $100 per share which the Commissioner has determined.
I respectfully dissent.
Van Fossan, Leech, Kern, Opper, and Harlan, JJ., agree with this dissent.