dissenting: I am unable to agree with the majority decision of the Board for several reasons.
In the final paragraph of the opinion, the author states that “ the evidence does not overcome the presumption of the correctness of the respondent’s determination that the shares of stock received by the petitioners in 1923 had a fair market value at the date of their receipt equal to their par value.” The respondent made no such *855finding. Respondent’s determination is set out in the deficiency letter as follows: “ The evidence does not prove conclusively that (the stock) had no readily realizable market value.” This finding was obviously made under article 33, Regulations 62, which provided that “ where services are paid for with something other than money, the fair market value, if readily realizable, of the thing taken in payment is the amount to be included as income.” Petitioners allege the above quoted determination as error. The answer denies that the stock did not have any realizable market value. Thus issue was joined. At the hearing petitioners’ counsel stated the sole question to be whether the stock had any readily realizable market value. Counsel for respondent stated the issue more generally, whether petitioners received income as determined, but did not contravene the more specific statement by petitioners’ counsel. The testimony was all directed to the issue so framed. The prevailing opinion is based on an erroneous statement of respondent’s determination and on an issue not raised by the pleadings, not contemplated by the parties, and not the subject of the evidence introduced. The two terms, “ fair market value ” and “ fair market value, if readily realizable,” are far from synonymous, as I shall presently point out.
The Revenue Act of 1921 provided that the term “ gross income ” “includes gains, profits, and income derived from salaries, wages or compensation for personal service * * * of whatever kind and in whatever form paid * * In interpretation and definition of this statutory provision the Commissioner pronmlgated Regulations 62, in article 33 of which he stated “ where services are paid for with something other than money, the fair market value, if readily realizable, of the thing taken in payment is the amount to be included as income * * *. Compensation paid an employee of a corporation in its stock is to be treated as if the corporation sold the stock for its market value and paid the employee in cash. ⅜- * *_» The pfo.agQ « if readily realizable ” is unique in Regulations 62, not appearing in either Regulations 45 which preceded, or Regulations 63, which followed Regulations 62.
The prevailing opinion makes no direct attack on the regulation and does not purport to overrule it, but, as I view it, avoids it by circumlocution.
The first quoted provision of article 33 fixes as the general test in all cases falling within its scope “ the fair market value, if readily realizable." Fair market value is the price at which a willing buyer would buy, and a willing seller would sell, neither being under compulsion, and both having full or reasonable knowledge of the pertinent facts. The regulation provides a dual condition, however. The property or thing must have a fair market value and that value must *856be readily realizable. Not every thing of intrinsic value has a fair market value, nor does the fact that under peculiar circumstances a purchaser might be found demonstrate fair market value. The thing must be marketable. It must not be so constricted by origin or nature that its sale will be possible only by virtue of special relationship, such as that of employer and employee. But the regulation goes further. It provides that fair market value must be readily realizable. This provision removes any doubt of definition. The thing must be such as to be readily convertible into cash or its equivalent.
The second quoted sentence of the regulations provides that the stock must be treated as though the corporation sold the stock for its market value and paid the employee in cash. This provision is common to all the regulations. It does not provide a different test. It merely illustrates the procedure suggested inferentially by the specific definition. This illustrative provision, on its face, requires that the property must be so readily marketable that it can be treated as the equivalent of cash. This provision therefore is identical in its meaning with the first quoted sentence. They contemplate the same test — that the fair market value must be readily realizable.
As stated, the prevailing opinion does not attack the regulation as being contrary to the statute or as being unreasonable. It rejects, however, petitioners’ contention that article 1564 (interpreting section 202 (c) of the Act of 1921) points the way in which the phrase “ if readily realizable ” should be interpreted.
This article provides:
* * ⅜ pr0perty has a readily realizable market value if It can be readily converted into an amount of cash or its equivalent substantially equal to the fair value of the property. In other words, the property received in exchange must be readily marketable at substantially its fair value in order that a gain or loss be recognized. Property which is regularly traded in in a public market has a readily realizable market value in the quantities regularly traded in. Property may be salable, as in the case of a forced sale or in exceptional quantities, without having a readily realizable market value. Stock in a close corporation may or may not have a readily realizable market value, depending upon all the facts in each particular case. The question whether property has a readily realizable market value, and if so the amount thereof, is one of fact to be determined in each case in the light of all the surrounding circumstances; and attention should be called in the return to each exchange effected during the taxable year about which there could be any doubt.
While I disagree entirely with the conclusion that this definition is not pertinent, I do not deem it necessary to go into a lengthy discussion of the tortured reasoning by which the conclusion is reached, for the simple reason that I find no difficulty in interpreting article 33 without resorting to the Commissioner’s interpretation of a similar phrase elsewhere used. It seems to me to be couched in language *857so plain as to be impossible of misinterpretation. Suffice it to say, the parallelism suggested by petitioner has the virtue and simplicity of logic and the merit of reason. The definition contained in article 1564 seems to me to be absolutely sound in every respect.
The true test laid down by all the regulations is the same, the stock must be substantially the equivalent of cash to be regarded as income. This means that it must be readily convertible into cash or, if you choose to employ the phrase used in Regulations 62, its value must be readily realizable.
From the fact the regulations have been discussed at this length, let it not be inferred that my views are based solely on the statutory interpretations of the Commissioner. Á yet more fundamental predicate for my view of what constitutes income is to be found in the basic concept of the term “ income ” as used in the Sixteenth Amendment to the Constitution. Income is a fruit of capital or labor, or both combined. The term “ income ” is used neither in its broad economic sense nor in any abstract sense, but as the concrete concept of a mercenary world. It connotes realization in a monetary way, in cash or its equivalent. It seems to me fundamental that if the enjoyment of the fruit be necessarily postponed to a future date by the inherent nature of the product or bj^ circumstances wholly beyond the possible control of the recipient, then it can not be said that income has been derived.
I thus come to the question of whether or not the stock received by petitioners had, when received, a readily realizable market value. The majority opinion holds that petitioners have failed to prove error in respondent’s determination that the stock had a fair market value at the date of its receipt equal to its par value. As above demonstrated, this statement is based on an erroneous assumption as to the issue. The question is, Did the stock have a readily realizable market value? This question the Board does not decide.
The prevailing conclusion is based on two fragments of evidence culled from a full record. The first, a statement that one of the petitioners would appraise the stock at $75 per share if you could have found a purchaser, and, second, the admission that the stock could have been sold for par to employees by taking the employees’ notes. Even on their face, those statements do not support the conclusion. Fair market value is not established by an appraisal independent of the market. Nor is marketability shown by establishing that employees of a close corporation would have bought small lots of the stock if their notes were accepted in payment. Certainly it cannot be said that such evidence establishes that the corporation “ could have sold the stock and have realized cash with which to pay the petitioners,” the test of income under the regulations.
*858Turning to the real issue in the case as framed by the pleadings, the applicable law, and as understood by the parties, the evidence is ample and conclusive that the stock of the corporation did not, in 1923, have a readily realizable market value.
The Crowell & Little Co. was a close corporation of but eight stockholders, being the two taxpayers and six others, all officers or employees of the company. It was engaged in' a hazardous business in which competition was very keen. Cleveland is a highly unionized city in all the building trades. Due to the keenness of competition it was usually problematical whether a given contract would be profitable or not, and on one job the corporation lost approximately $100,000. During some years the corporation made money, but in certain other years it lost money.
The corporation was a heavy borrower, at times having borrowed as much as $300,000. All loans were made on the security of the taxpayers’ personal endorsements, without which the loans could not have been secured.
The stock in question was not traded in on the market. There were no market offerings or sales at any time and the only sale made in 1923 was of 100 shares to one H. E. Church, who desired to join the company and whom the company desired in an official capacity. The sale was at par but not for cash. Church gave his note for the full amount of the stock and expected to pay the same through dividends subsequently received. This sale was not of a character to establish either a market value or the possibility of the ready conversion of the stock. The testimony is that no sales of the stock could be made except to employees and to them only by accepting their notes. Such sales are the result of a special relationship and special inducement and if made could not establish ready marketability. The testimonjr further is that the stock would not have been acceptable as security for bank loans. The hazards of the business with its frequent and sudden fluctuations from profit to loss and the closeness of the corporation, all stockholders being either officers or employees, would militate strongly against ready sale on the open market.
The author of the Board’s opinion asks the question: “ What difference does it make in determining the value of the shares whether the purchasers were other stockholders of the corporation or the public at large ? ” To which question the obvious reply is that it makes every difference. Sale of a few shares to employees for their notes does not establish market or readily realizable market value, and sale to the public does. Furthermore, such sales in which notes of employees are offered in payment are not sales for cash or its equivalent.
*859In my opinion the petitioners should prevail. At the time of its receipt the stock had no readily realizable market value and did not constitute taxable income.
Love agrees with this dissent.