*1134 In 1925 petitioner contracted to purchase certain timber and in part payment therefor agreed to convey its own lands at an agreed valuation, the balance to be represented by its notes. The purchase price of the timber was not then definitely ascertained, but the minimum price was fixed. Acceptance of petitioner's lands was subject to approval of title, but petitioner's vendor had an immediate right of possession and was to bear any loss sustained by casualty thereafter. Petitioner's deed was not delivered until 1926, and it continued to pay taxes on its lands after conveyance. Held:
1. Under the contract petitioner's vendor became the beneficial owner of the lands, petitioner holding legal title in trust.
2. Sale of petitioner's lands was consummated in 1925 and the profit arising therefrom should be included in its income for that year.
*353 This is a proceeding for the redetermination of a deficiency in income taxes for the year 1925 in the amount of $50,633.72. The question involved is whether the*1135 gain resulting from the sale by petitioner of certain of its properties is taxable in 1925.
FINDINGS OF FACT.
The petitioner is a Florida corporation, with its principal office at Live Oak, Florida.
On March 19, 1925, it entered into an agreement with the Florida Industrial Co. (hereinafter called "Industrial") to purchase from Industrial the timber on lands in south Florida. This agreement, which is in evidence, we incorporate by reference in our findings of fact, and, for the purposes of this report, we mention only the provisions most material to the issue in the case. The purchase price of Industrial's timber was to be not less than $3,575,000, nor more than $4,000,000. Unless petitioner should demand a timber cruise, $115,000 was to be added to the minimum price; if a cruise were demanded, the price was to be increased by $6.50 per thousand feet for all timber revealed by the cruise in excess of 550,000,000 feet. As a part of the purchase price, however determined, Industrial agreed to accept certain lands in north Florida then belonging to petitioner at $3 per acre. It was agreed that Industrial should have immediate possession of such lands, subject to reservations*1136 for turpentine and timber removal from specified tracts, and should bear any loss resulting from fire or storm.
To avoid delay, it was to be assumed that petitioner had good title to the entire acreage, and petitioner was required to execute and deliver a warranty deed thereto within fifteen days after the date of the agreement. It was required also to deliver to Industrial, within ten days after the date of the agreement, its promissory notes, payable monthly at the rate of $21,000 plus interest, for the difference between the credit to be allowed it for its lands and the minimum price due to Industrial for the purchase of the south Florida properties. Upon the determination of the exact purchase price of Industrial's lands, and the approval of title of petitioner's lands, petitioner was to deliver to Industrial its additional notes to the amount necessary to make up the consideration. With respect to the title to petitioner's lands, the agreement provided that petitioner, within sixty days from date of the agreement, should deliver to Industrial merchantable *354 abstracts covering the entire acreage. Within fifty days thereafter Industrial might return unacceptable*1137 abstracts with a statement of its exceptions thereto, but if this were not done, or if the exceptions did not exceed 4 per centum of the total acreage, title would be presumed to be approved. If the exceptions exceeded the 4 per centum, Industrial was to quitclaim such excess to petitioner, which then had until October 1, 1926, to render marketable title to the lands so reconveyed.
The agreement also provided that within two years thereafter petitioner should erect on the south Florida properties a mill with an annual capacity of not less than forty million feet, and should manufacture a minimum of thirty million feet of lumber in 1927, and of forty million feet each year thereafter. The lands were to be released for logging purposes by Industrial to petitioner as the latter's notes were paid, and petitioner's rights to cut on Industrial's lands, and its reservations of the timber and turpentine rights in the lands it had owned were to expire in 1940.
Pursuant to the contract, Industrial took immediate possession of petitioner's north Florida lands, but the deed thereto was not delivered by petitioner until March 29, 1926, and petitioner continued to pay taxes on these lands*1138 until 1929. Petitioner, in accordance with the terms of the agreement, delivered to Industrial its notes dated March 19, 1925, the first of which matured one month later, and all of which contained the following statement:
This note is one of a series of notes given or to be given to evidence the maker's obligation to pay the remaining principal amount of the purchase price of certain timber in "South Florida" purchased by the makers from said Florida Industrial Company.
Petitioner ordered a cruise of the timber, which was commenced in May 1925 and completed in June 1927. Petitioner then delivered to Industrial additional notes representing the purchase price for the timber revealed by the cruise in excess of the basic estimate. In September 1925 petitioner commenced construction of its mill, which it completed at a cost of $1,378,000 in December 1926, and operated thereafter until July 12, 1928, at a substantial loss. In cutting the timber from Industrial's lands it developed that the run was about 49 per centum short of the estimate of 2,000 feet per acre upon which the contract had been made. After the mill closed petitioner negotiated with Industrial, seeking unsuccessfully*1139 an adjustment of its liability under the contract according to the timber stand disclosed by its experience in cutting. Negotiations having failed and petitioner refusing to perform, Industrial brought suit in October 1928 to foreclose its rights under the contract. Petitioner filed a countersuit *355 alleging fraud, claiming damages, and seeking a restoration of the parties to status quo ante.
The fair market value as of March 1, 1913, of petitioner's north Florida lands was $1.33 per acre. Respondent, in his computation of petitioner's income for 1925 upon which the deficiency herein is based, included in income $461,746.19, which is the difference between the credit allowed petitioner at $3 per acre upon the entire tract by Industrial, and the value of those lands as of March 1, 1913.
OPINION.
GOODRICH: The sole issue before us is whether there should be included in petitioner's income for 1925 the profit, determined by respondent to be $461,746.19, derived from the sale of its lands to the Florida Industrial Co. in part payment for the timber located on Industrial's south Florida lands. Petitioner disputes neither respondent's determination of the basic value*1140 of its lands nor his determination of the amount of profit, but contends that the profit should not be included in income for 1925 for two reasons; first, because the sale of its properties was not consummated in 1925 but, at the earliest, in 1926 when it delivered its deed, and, second, because it received nothing of value in consideration for its properties. With neither contention can we agree.
Under the contract of March 19, 1925, petitioner assumed an obligation, the exact amount of which was not then determined, but which was not less than $3,575.000. Against that obligation it was allowed an immediate credit for the total acreage of its lands at $3 per acre, and it passed its notes to make up the shortage of that credit from the minimum obligation. To avoid delay, it was assumed that its title was good to the entire tract and Industrial came into immediate possession and beneficial ownership of the north Florida lands and was itself to bear any damage suffered by the properties by casualty thereafter. True, the amount of petitioner's obligations remained to be finally determined by a timber cruise, but that did not alter the fact that petitioner had disposed of its lands*1141 and received a credit as the consideration therefor. True also, the amount of that credit as first allowed might be subsequently changed by discovery of title defects, but that did not affect Industrial's rights to possession and ownership. Any part of the credit already allowed petitioner for its lands which might subsequently be lost by the return of certain tracts to petitioner because of imperfect title was to be made up by additional notes, but such an adjustment would not affect the transfer of the accepted acreage. However, this contingency need not concern us, for the record contains no evidence *356 respecting any title defects, and, since the contract provides that unless exceptions to title were filed within a time certain, Industrial would "be conclusively presumed to have approved titles to all" of petitioner's lands, it clearly appears that petitioner received its credit at the same time it assumed its obligation, which was in 1925, and that Industrial had immediate right to full and complete possession of the lands. Under the decisions of the Florida courts, including the decision in the suit between petitioner and Industrial wherein the contract now before*1142 us was under consideration, in such circumstances the sale is regarded as consummated; consequently, in 1925 Industrial became the beneficial owner of the north Florida lands, having acquired equitable title thereto, and petitioner thereafter held the bare legal title in trust for Industrial. ; ; ; ; ; ; ; ; ; ; ; .
Therefore we do not regard as controlling the fact, so strongly relied on by petitioner, that its deed was not delivered until 1926, for the consummation of a sale is not dependent upon delivery of a deed where, as here, the consideration was received and the benefits and burdens of ownership were transferred previously. *1143 ; . Nor is it material that petitioner continued to pay the taxes on the north Florida lands. . We are not told why it did so; perhaps its notes were credited with the amounts so paid.
Petitioner's second argument may be disposed of summarily, for the Supreme Court of Florida in its decision in , held that petitioner did receive something of value under this contract. Moreover, we are not concerned with petitioner's bargain, and the fact that the properties it purchased may have been worth less than it paid for them is not material to the issue before us. The point here is that petitioner sold its own lands and received the consideration therefor. It is with the profit arising from that sale - the difference between the cost basis to petitioner and the amount received - that we are concerned. We conclude that this profit arose in the year 1925 and that respondent was not in error when he included it in petitioner's income*1144 for that year.
Judgment will be entered for the respondent.