*22 Decision will be entered for petitioners.
Petitioner, George W. Johnson, and three other individuals, who together constituted the sole officers, stockholders, and board of directors of a corporation, on October 14, 1949, received salary checks for services rendered during 1949 in the aggregate amount of $ 14,322.47, subject to an express restriction that the checks, as a group, would not be presented to the bank for payment until the recipients were authorized to do so by the president of the corporation at such time, in his discretion, as the cash position of the corporation warranted. The corporation did not have adequate funds available for such payments during the taxable year. Held, that the amount credited to petitioner's account in 1949 but not withdrawn by him was not taxable income constructively received by him in that year.
*499 The respondent determined a deficiency in petitioners' income tax for the taxable year ending December 31, 1949, in the sum of $ 1,329.84. The only question presented is whether George W. Johnson, one of the petitioners herein, constructively received a check in the amount of $ 2,951.10 as salary earned during the taxable year 1949 and credited to his account by the issuing corporation of which he was a principal stockholder and officer.
FINDINGS OF FACT.
Some of the facts were *24 stipulated by the parties. They are found accordingly and incorporated herein by this reference.
Petitioners George W. Johnson and Lena Johnson are husband and wife, residing in Knoxville, Tennessee. For the taxable year 1949, they filed a joint Federal income tax return with the collector of internal revenue for the district of Tennessee.
During the year 1949, George W. Johnson, hereinafter sometimes referred to as petitioner, and three other individuals constituted the sole officers, stockholders, and the board of directors of the Dartmont Coal Company, hereinafter sometimes referred to as Dartmont, a Kentucky corporation engaged in mining coal. The petitioner owned about 21 per cent of the stock in Dartmont and was its vice president.
Petitioners reported their income on the cash basis for the calendar year 1949 while Dartmont filed its Federal income tax returns on an accrual basis for a fiscal year ending on July 31, 1949.
On October 14, 1949, Dartmont issued its check payable to the petitioner in the amount of $ 2,951.10 as his salary for the fiscal year 1949. At the same time Dartmont also issued similar salary checks in various *500 amounts to its three other corporate*25 officers which, including petitioner's check, totaled $ 15,322.47. Upon receipt of the checks on October 14, 1949, the president of the corporation informed the officers that the checks had to be issued within a 75-day limit from the end of the fiscal year. 1 He stated further that he was issuing the checks with the strict understanding that they would not be deposited at that time, and that he would notify the officers as soon as the corporation had sufficient funds available to permit them to cash the checks. It was mutually agreed that the checks would not be cashed until the president so authorized and that all of the checks would be presented for payment simultaneously. No authorization was given to any of the officers during the taxable year and none of the checks were presented for payment during 1949. In 1952, the salary check that had been issued to C. B. Bennett was cashed by mistake by one of the office clerks, and the error was subsequently corrected. Except for this inadvertent cashing of one of the checks outstanding, none of them have ever been presented for payment. In 1952, as part of a transaction in which petitioner sold his stock in Dartmont to the treasurer*26 of the corporation, he released Dartmont from all liability on the check in order that the obligation might be canceled on the books of the corporation.
Dartmont Coal Company treated the checks issued to its officers on October 14, 1949, as expenses and deducted them on its Federal income tax return filed for the previous fiscal year. The*27 corporation reported a net income of $ 15,208.70 which reflected the officers' salaries and the accounts receivable from Kentucky Cumberland Coal Company.
During 1949, and for some years prior and subsequent thereto, Dartmont sold all of its coal to, or through, Kentucky Cumberland Coal Company, hereinafter referred to as Kentucky Cumberland, a partnership engaged in the wholesale business of selling coal. Forty per cent of the partnership was owned by petitioners, 10 per cent by their son, and the remaining 50 per cent was owned in various amounts by C. B. Bennett, treasurer of Dartmont, and his relatives. Since 1943 Kentucky Cumberland has represented Dartmont as exclusive sales agent under an agreement providing that Kentucky Cumberland purchase all of Dartmont's coal and pay Dartmont a net price after deducting a certain commission. Pursuant to this agreement, Dartmont made frequent and substantial shipments to Kentucky Cumberland.
*501 On the dates shown, Kentucky Cumberland owed Dartmont amounts as follows:
| Date | Amount |
| July 31, 1949 | $ 14,376.53 |
| Aug. 31, 1949 | 16,544.94 |
| Sept. 30, 1949 | (5,455.06) |
| Oct. 31, 1949 | (12,153.38) |
| Nov. 30, 1949 | 25,109.55 |
| Dec. 31, 1949 | 14,159.16 |
*28 Sometimes, when Dartmont needed additional cash to pay the salaries of employees, royalties to the owners of the mine, or to purchase supplies, Kentucky Cumberland made advances to Dartmont, including the two loans noted above in the amounts of $ 5,455.06 on September 30, 1949, and $ 12,153.38 on October 31, 1949.
During 1949, Dartmont maintained a bank account at the Bank of Harlan, Harlan, Kentucky. The balances in this account on the dates indicated were as follows:
| Date | Amount |
| Aug. 31, 1949 | $ 1,163.14 |
| Sept. 30, 1949 | 14,036.85 |
| Oct. 31, 1949 | 6,092.61 |
| Nov. 30, 1949 | 5,251.69 |
| Dec. 19, 1949 | 20,203.60 |
| Dec. 29, 1949 | 16,974.13 |
| Dec. 30, 1949 | 15,234.69 |
| Dec. 31, 1949 | 12,702.59 |
Excluding the checks issued by Dartmont to its officers on October 14, 1949, there were checks outstanding on its bank account on the dates shown as follows:
| Date | Total checks outstanding |
| Aug. 31, 1949 | $ 3,340.67 |
| Oct. 31, 1949 | 9,878.77 |
| Nov. 30, 1949 | 10,762.03 |
| Dec. 31, 1949 | 15,404.24 |
All of the above figures, except that for August 31, 1949, include a check in the amount of $ 4,444 payable to a company to which the check has never been mailed.
Dartmont withheld Federal income tax*29 on the petitioner's salary and subsequently issued him a withholding statement (Form W-2) showing wages paid to him in 1949 in the amount of $ 3,475.50 from which $ 524.40 was stated to have been withheld as Federal income tax, and the remainder was represented by the check previously issued to petitioner in the amount of $ 2,951.10. On their return, petitioners' total income from all sources is reported as $ 34,799.93, and they indicated $ 524.40 as income received from Dartmont and deducted that amount as tax withheld. Petitioners did not report the $ 2,951.10 check as income for the taxable year or in 1950. The respondent has determined the latter amount as taxable income for the year 1949.
*502 OPINION.
The respondent has determined that the sum of $ 2,951.10 credited to petitioner's salary account on the books of Dartmont in 1949, but not paid in that year, was income constructively received by him in 1949. It is respondent's position that the corporation had ample funds on deposit and other assets to have made payment on the salary checks in 1949, and that the directors, as the sole officers and stockholders, had the power to cash the salary checks at any time during*30 the taxable year. Petitioner, on the other hand, maintains that the check in question was not unqualifiedly made subject to his control during 1949 because the several salary checks were subject to a substantial restriction as to the time and condition of payment, and that the checks could not have been cashed without imposing a severe financial strain on the corporation.
Section 29.42-2, Regulations 111, provides in part:
To constitute receipt in such a case the income must be credited or set apart to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is made, and must be made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition. * * *
The test laid down in the regulation for determining the application of the doctrine of constructive receipt has long been followed by this Court, Robert J. Dial, 24 T. C. 117; C. E. Gullett, 31 B. T. A. 1067, 1069 (1935); Hal E. Roach, 20 B. T. A. 919 (1930); John A. Brander, 3 B. T. A. 231 (1925).*31 In the light of these cases, it is essential for us to determine whether the amount credited to petitioner's account was unequivocally made subject to his demand and disposition without any substantial limitation thereon during the taxable year. In C. E. Gullett, supra, a resolution of the directors restricted the corporation from paying accrued officers' salaries during the taxable period because of an involved financial condition. Holding that the salaries originally voted and credited to the officers' accounts were not constructively received, we said:
It is clear that the doctrine of constructive receipt is to be sparingly used; that amounts due from a corporation but unpaid, are not to be included in the income of an individual reporting his income on a cash receipts basis unless it appears that the money was available to him, that the corporation was able and ready to pay him, that his right to receive was not restricted, and that his failure to receive resulted from exercise of his own choice. [Emphasis added.]
In the instant case, as in C. E. Gullett, supra, we are confronted with an oral condition imposed*32 at the time the checks were issued restricting the time when the proceeds of the checks might be collected. The evidence is clear that the corporation president, alone, was to decide the time when the financial position of Dartmont would permit payment. Three witnesses, the petitioner, the president, and the former bookkeeper *503 of the corporation, testified without contradiction that the checks were delivered to the officers with the strict understanding and their mutual consent that the checks were not to be presented for payment until authorized by the president. No further action was taken to remove the restriction after October 14, 1949, and no payment was received by petitioner during the taxable year.
Under the circumstances, we cannot say that the account credited to Johnson was unqualifiedly subject to his demand and disposition during 1949. The petitioner could not, without violating his agreement with the other directors, obtain and use the money in that year. In our opinion, therefore, what he received in 1949 was still subject to a substantial limitation or restriction as to the time of payment. L. M. Fischer, 14 T. C. 792 (1950);*33 Samuel Keller Jacobs, 22 B. T. A. 1166 (1931); Walter L. Hopkins, 2 B. T. A. 549 (1925).
Respondent argues that there was no basis for the proviso restricting presentation of the checks for payment, because the corporation had adequate funds available in its bank account on certain days after October 14, 1949, to pay the checks, either individually or as a group. Whether in a given case the income in question was actually available so that the taxpayer might have drawn it at any time is a question of fact. Weil v. Commissioner, 173 F. 2d 805 (C. A. 2, 1949), certiorari denied 338 U.S. 821">338 U.S. 821 (1949). In determining it, we must consider the debtor's assets and liabilities, its earnings, surplus, credit position, and all relevant facts. Thus, the corporation's credit position at the end of any month, though important and one of the items to be considered in determining the availability of funds, is not controlling of the question of constructive receipt. William D. Huber, 12 B. T. A. 1 (1928); Old Colony Trust Co. et al., Administrators, 22 B. T. A. 1062 (1931).*34
We believe that the record on the whole sustains petitioners' position regarding the practical availability of funds. It is true as respondent points out that Dartmont's bank balances from October 14, 1949, to the end of the taxable year reveal some brief periods when sufficient funds were available to pay Johnson the $ 2,951.10 credited to his account. But, considering the undisputed fact that all of the compensation checks were to be paid simultaneously, there was not enough cash on hand to pay the full amount of the accrued salaries of $ 15,322.47, as well as other outstanding obligations. Although the bank balances on December 19 and 29, 1949, would have been adequate to pay the aggregate amount of the salary checks, the evidence shows that during the same period there were several other corporate checks, in substantial amounts, outstanding. Consequently, if both the officers' checks and these latter checks had been presented for payment during December 1949, it is evident that the operation of the corporation would have been impaired. Apparently, Dartmont was already experiencing some financial difficulty which is emphasized by the necessity for the restrictive *504 *35 proviso when the salary checks were issued and by the large loans obtained from Cumberland Kentucky during September and October 1949.
The respondent further argues that the accrued salary checks could have been paid during 1949, without imposing any financial strain on Dartmont, by compelling Kentucky Cumberland, in which petitioners had a 40 per cent partnership interest, to remit the net proceeds for coal shipments. Admittedly, the money due Dartmont for these shipments represented an available source of cash. But this account receivable does not establish that Dartmont, in fact, had on hand in 1949 adequate funds with which to discharge its financial obligations. It is true that Dartmont could have borrowed money or that it might have disposed of some of its assets in order to raise the money with which to pay the aggregate salaries, but it is not for us to speculate or theorize on what might have been but was not done. In our opinion, the fact that Dartmont might have borrowed money or compelled payment of its account receivable from Cumberland Kentucky does not require a determination that, as a consequence, petitioner constructively received salary during the taxable period. *36 Samuel Keller Jacobs, supra.See also Marian Otis Chandler, 16 B. T. A. 1248, 1253 (1929), and cases cited therein.
It is hardly necessary to add that we do not condone the transparent effort to obtain a deduction for the corporation without the payment of tax by the four recipients of the checks. The question of deductibility by the corporation, however, is not before us.
In the light of the foregoing, we hold that the amount of $ 2,951.10 credited to petitioner's account was not unconditionally at his command or available for his use in 1949. Accordingly, this amount was not income constructively received in 1949. Robert J. Dial, supra.
Decision will be entered for petitioners.
Footnotes
1. Sec. 24 (c) of the Internal Revenue Code of 1939 provides, in part, as follows:
(c) Unpaid Expenses and Interest. -- In computing net income no deduction shall be allowed under section 23 (a), relating to expenses incurred, or under section 23 (b), relating to interest accrued --
(1) If such expenses or interest are not paid within the taxable year or within two and one half months after the close thereof; and
(2) If, by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not, unless paid, includible in the gross income of such person for the taxable year in which or with which the taxable year of the taxpayer ends; and↩