*105 Decision will be entered for the petitioner.
Held, that in 1947, petitioner received less than 30 per cent of the selling price of certain stock which she sold in that year and she is therefore entitled to report the gain on such sale on the installment basis pursuant to section 44 (b) of the 1939 Code.
*962 This proceeding involves a deficiency in income tax determined against Minnie R. Ebner (hereinafter referred to as petitioner) in the amount of $ 12,454.77 for the taxable year 1947.
The sole issue to be decided is whether petitioner received, during 1947, more than 30 per cent of the selling price of certain stock sold by her during that year, *106 thereby disqualifying such sale from the installment sale provisions of section 44 (b) of the 1939 Code.
Some of the facts were stipulated.
FINDINGS OF FACT.
The stipulated facts are so found and are incorporated herein by this reference.
Petitioner filed her individual income tax return for the calendar year 1947 with the former collector of internal revenue for the first district of Ohio. She and her husband, Joseph Ebner, resided in Springfield, Ohio, where, for many years, he and his brother, Martin *963 Ebner, operated a scrap iron business, known as Ebner Sons Company, Inc. (hereinafter sometimes referred to as the corporation).
Joseph Ebner died on November 23, 1947. At the time of his death, his estate, his wife, Minnie R. Ebner, and their three children owned 240 shares of the issued and outstanding capital stock of the corporation, such stock being held by these individuals in the following amounts:
| No. of | |
| Name | Shares |
| Minnie R. Ebner | 185 |
| Stanley Ebner | 40 |
| Bernice Ebner Hokin | 5 |
| Naomi Ebner Fine | 5 |
| Estate of Joseph Ebner | 5 |
| Total | 240 |
The remaining issued and outstanding capital stock was owned by Martin Ebner and his family. Shortly after*107 the death of Joseph Ebner, dissension arose between the Martin Ebner family and the Joseph Ebner family. As a result of the disagreement between the two families, the Joseph Ebner family decided to sell their stock back to the corporation.
On or about December 1, 1947, Fred M. Cole (hereinafter referred to as Cole), an attorney of Springfield, Ohio, was employed by petitioner, her three children, and the estate of Joseph Ebner to represent them in negotiations for the sale or disposition of their stock. During the month of December 1947, he conducted extensive negotiations with representatives of the corporation. A special effort was made by both negotiating parties to consummate the sale of this stock before the end of 1947. On December 30, 1947, the corporation agreed to purchase the 240 shares of stock for a total consideration of $ 110,000, resulting in the following amounts to be paid to each of the selling stockholders:
| Selling | No. of | |
| stockholder | shares | Sales price |
| Naomi Fine | 5 | $ 2,291.65 |
| Bernice Hokin | 5 | 2,291.65 |
| Estate of Joseph Ebner | 5 | 2,291.65 |
| Stanley Ebner | 40 | 18,333.20 |
| Minnie Ebner | 185 | 84,791.85 |
| Total | 240 | $ 110,000.00 |
The terms of the*108 agreement provided for an installment sales agreement as to the stock owned by petitioner, and an immediate cash payment in full for the stock being sold by each of the other parties. The corporation was to pay a total of $ 50,000 in cash on December 30, 1947, and petitioner was to receive an initial payment of $ 24,791.85 out of this amount, after each of the other selling stockholders had been paid in *964 full. The remaining $ 60,000 of the purchase price of petitioner's stock was to be paid for by the corporation in installments of $ 20,000 per year until the full amount had been paid. Interest at the rate of 2 per cent per annum was to be paid to her on the unpaid balance.
On December 30, 1947, a meeting was held at the office of petitioner's attorney for the purpose of closing the sale. At this meeting, a check for $ 50,000 was delivered to Cole by the corporation in full payment for the stock held by the Estate of Joseph Ebner and by petitioner's children, and in part payment of petitioner's stock. A promissory note in the amount of $ 60,000 was also executed and delivered to petitioner by the corporation to secure the installment payments still due her. Such note*109 was secured by a mortgage deed on all real estate owned by the corporation.
During this meeting Cole was informed that Stanley Ebner owed a personal indebtedness to the corporation in the sum of $ 11,000. Cole insisted that the sale of the stock to the corporation be completed at that meeting and that arrangements for the payment of the indebtedness be made at a later date. After assurances were given by Stanley Ebner that he would repay this debt, Martin Ebner agreed to discuss arrangements for its payment at some future time, and the closing of the sale was completed. Cole deposited the $ 50,000 check received from the corporation in a special bank account which he opened in the name of "Fred M. Cole, Attorney for Minnie Ebner, et al." This $ 50,000 check was cleared and paid by the bank on which it was drawn on December 30, 1947.
On January 9, 1948, Stanley Ebner, Martin Ebner, and Cole met to arrange for the payment of the $ 11,000 which Stanley Ebner owed to the corporation. It was agreed that such sum should be deducted from the $ 18,333.20 then being held by Cole, in a special account, as full payment for the shares of stock which Stanley Ebner had sold to the corporation. *110 Since no note had previously been given to the corporation by Stanley Ebner to evidence his $ 11,000 debt, a note was executed on January 9 in the amount of $ 11,000 and then immediately marked by Martin Ebner as being paid in full. In addition, a written receipt for this sum was executed and delivered by Martin Ebner in the name of the corporation. Martin Ebner then directed Cole, on behalf of the corporation, to pay to petitioner the $ 11,000 being deducted from Stanley Ebner's share of the $ 50,000; such additional sum to be part payment on the $ 60,000 installment note which she was holding. The books of the corporation were not closed for the calendar year 1947 until sometime in 1948. Pursuant to the instructions of Martin Ebner, the bookkeeper of the corporation made an entry on its books, as of December 31, 1947, debiting the note payable to petitioner in the amount of $ 11,000 and crediting the account receivable from Stanley Ebner in a like amount.
*965 On January 16, 1948, Cole disbursed the $ 50,000 received by him on December 30, 1947, by causing cashier's checks to be issued in the following amounts:
| Minnie Ebner | $ 35,791.85 |
| Stanley Ebner | 7,333.20 |
| Estate of Joseph Ebner | 2,291.65 |
| Naomi Fine | 2,291.65 |
| Bernice Hokin | 2,291.65 |
| Total | $ 50,000.00 |
*111 In disbursing the $ 50,000, Cole gave effect to the January 9, 1948, agreement involving Stanley Ebner's indebtedness by deducting $ 11,000 from the $ 18,333.20 due him for the sale of his 40 shares of stock and by adding $ 11,000 to the $ 24,791.85 due petitioner from the $ 50,000.
On his Federal income tax return for 1947, Stanley Ebner reported a sales price of $ 18,333.20 for his 40 shares of stock of the corporation. On her return for that year, petitioner reported a selling price of $ 84,791.85 for her 185 shares, and she further reported that she had received $ 24,791.85 of this amount in 1947. Petitioner elected to report the gain from this sale on the installment basis on her return for 1947. Respondent determined that petitioner had constructively received $ 35,791.85 during the calendar year 1947 as part payment for her 185 shares of stock in the corporation and that, since such amount exceeds 30 per cent of the $ 84,791.85 selling price, petitioner was not entitled to use the installment basis in reporting this sale.
The $ 11,000 debt owed to the corporation by Stanley Ebner was not satisfied until such amount was deducted from his share of the $ 50,000 on January *112 9, 1948, and petitioner received a total of only $ 24,791.85 during 1947 as part payment for the sale of her stock in the corporation.
OPINION.
The issue herein is solely one of fact, namely, whether petitioner received, during 1947, more than 30 per cent of the selling price of certain stock sold by her during that year, thereby disqualifying her from reporting the gains from such sale on the installment basis under section 44 (b) 1 of the 1939 Code. On December 30, 1947, *966 petitioner, her three children, and the estate of her deceased husband sold back to the corporation a block of 185 shares of its stock which they owned. The sum of $ 50,000 was paid to their attorney on that date, such amount constituting the first of a series of installment payments on petitioner's shares and payment in full for the shares sold by the others. According to the terms of the contract of sale, this resulted in the payment of $ 24,791.85 out of the $ 50,000 to petitioner. Respondent has determined, however, that petitioner actually received $ 35,791.85 of this $ 50,000 during 1947. He argues that during the closing of the sale on December 30, 1947, the $ 11,000 debt owed to the corporation*113 by petitioner's son, Stanley Ebner, was offset against that portion of the $ 50,000 due him for his 40 shares of stock and that such $ 11,000 constituted an additional payment to petitioner in 1947.
*114 Although the $ 50,000 was deposited in a special account on December 30, 1947, and was not distributed to each of the sellers until January 16, 1948, it is clear that they are each to be regarded as having constructively received their allocable shares on December 30, 1947. Samuel E. Diescher, 36 B. T. A. 732 (1937), affd. 110 F. 2d 90 (C. A. 3, 1940), certiorari denied 310 U.S. 650">310 U.S. 650 (1940). We do not think, however, that petitioner is to be regarded as having received, in 1947, more than the $ 24,791.85 share allocated to her in the original contract of sale. Petitioner has convincingly carried her burden of proving that the agreement between Stanley Ebner and the corporation, which resulted in an additional $ 11,000 payment to her, was executed on January 9, 1948, rather than on December 30, 1947. Although respondent relies on the book entries on the corporation's books debiting Stanley Ebner's account with an $ 11,000 payment and crediting petitioner's account with a like amount as of December 31, 1947, the evidence indicates that the transaction took place on January 9, 1948, rather than at *115 the end of 1947. Martin Ebner, under whose direction these entries were made, testified that the corporation's books were not closed for the year 1947 until sometime in 1948 and he could not recall when the direction for the entries had been given. On the other hand, both Stanley Ebner and the attorney who represented petitioner in this transaction testified that the problem regarding the payment of the $ 11,000 debt was not settled until January 9, 1948. This testimony was substantiated by the canceled note and the receipt for payment of the $ 11,000, both of which are dated January 9, 1948. Accordingly, we hold that, on December 31, 1947, petitioner was entitled to but $ 24,791.85 of the $ 50,000 payment made by the corporation, and that she did not acquire a right to this additional $ 11,000 until January 9, 1948. Such amount of $ 24,791.85 being less than 30 per cent of the total selling price of her shares of stock, she is entitled to report the gains on such sale on the installment basis.
Decision will be entered for the petitioner.
Footnotes
1. SEC. 44. INSTALLMENT BASIS.
(b) Sales of Realty and Casual Sales of Personality [sic↩]. -- In the case (1) of 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, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed 30 per centum of the selling price (or, in case the sale or other disposition was in a taxable year beginning prior to January 1, 1934, the percentage of the selling price prescribed in the law applicable to such year), the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, be returned on the basis and in the manner above prescribed in this section. As used in this section the term "initial payments" means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.