*191 Decision will be entered under Rule 50.
1. In 1944 and 1945, the petitioner received certain payments under contracts entered into during those years for the sale of burial space in a mausoleum unit it planned to construct. The petitioner was not obligated to construct the unit, or, once construction was begun, it was not required to complete it, but could return the payments received with interest and be free of liability. In certain contingencies the purchasers were not required to take the space contracted for. At the end of 1945, the foundation and concrete slab floor had been installed, a number of contracts for the construction of other portions of the unit had not been let and the cost of construction of the unit was not determinable. Construction of the unit was finally completed in 1947. Held, that in 1945 the contracts for space were not completed sales but were executory and contingent and that the respondent erred in including in the petitioner's taxable income for that year any portion of the amounts received in 1944 and 1945.
2. Prior to 1942, the petitioner paid to its sales managers, who were also officers, commissions of 20 per cent of sales. Because*192 of increased administrative and managerial duties in 1943, the directors adopted a resolution in April 1943, providing that commissions for that year should be 25 per cent of sales. Commissions amounting to 20 per cent of 1943 sales were paid to the sales managers in that year. So far as shown, no attempt was made to obtain the approval for the increase in commissions as required by the Stabilization Act of 1942, before payment could legally be made, and it is not disclosed that any accrual of the amount of such increase was entered on the petitioner's books in 1943. Payment of the amount of the increase was made in 1945, after the lifting of stabilization controls on wage and salary payments and subsequent corporate action authorizing and directing such payment. Held, that the directors' action in 1943 as to the increase in commissions was, in effect, a declaration of a future policy or plan after the lifting of stabilization controls, and that the amount of the increase in commissions did not accrue and become deductible in 1943 but accrued and was deductible in 1945.
*1068 The respondent determined deficiencies in the petitioner's income and excess profits taxes as follows:
| Declared value | |||
| Excess profits | excess-profits | ||
| Year | Income tax | tax | tax |
| 1943 | $ 12,381.20 | ||
| 1944 | 1,971.21 | $ 162.91 | |
| 1945 | $ 7,452.03 | 14,667.52 |
The issues presented are (1) whether amounts received by the petitioner in 1944 and 1945, pursuant to contracts to sell the right of burial in crypts in a mausoleum unit to be constructed by the petitioner, constituted gross income for 1945, and (2) whether certain amounts paid in 1945 as commissions on sales made during 1943, constituted allowable deductions for 1945. The years 1943 and 1944 are involved because an excess profits credit carry-back from 1945 was denied by the respondent as a result of his action involved in the foregoing issues.
FINDINGS OF FACT.
The petitioner is a Florida corporation, with its principal place of business in Miami. It kept its books and records on an accrual basis of accounting and its returns for the years involved herein were filed on that basis, with the collector for the district of Florida.
For twenty years or longer, the petitioner has been*194 engaged in the operation of a cemetery and mausoleum in Miami. Its cemetery and mausoleum are the largest in that city.
In 1943 the petitioner began formulating plans for the construction of an addition, sometimes hereafter referred to as Fourth Unit, to its mausoleum. The architect's plans, specifications and drawings for the unit were dated February 26, 1944. On June 1, 1945, the petitioner entered into a contract for the construction of the unit in accordance with such plans, excepting the items of roofing, sheet metal and bronze work, the furnishing of stone, marble and marble setting, glass, glazing and light fixtures and the installation of same. The stated price was $ 47,239, but, under the terms of the contract, the price was subject to adjustment for any changes in the price of materials and labor costs from those prevailing during the week ended May 19, 1945. Under these terms, additional costs for labor totaled $ 2,412.50, for which the petitioner was billed in September 1946. Additional footings found necessary to make the building secure were installed at a total cost of $ 1,415.30, for which the petitioner was also billed in September 1946.
On June 25, 1945, the*195 petitioner entered into a contract with a marble company to supply the marble required in the construction of *1069 the Fourth Unit, not including furniture marble, for $ 21,943 delivered in Miami. The contract price was subject to adjustment upward to cover any additional freight costs that might result from an increase in freight rates prior to delivery.
On August 18, 1945, the War Production Board gave its authorization for the petitioner to construct the Fourth Unit at an estimated cost of $ 78,898. By the terms of the authorization, the petitioner's request for priorities assistance was denied. Construction of the unit began about September 1, 1945, and by the end of that year, only the foundation had been put in and the concrete floor slab had been poured.
Contracts for other portions of the construction of the Fourth Unit were entered into by the petitioner on the following indicated dates and at the amounts shown:
| Date | Portion of construction | Contract price |
| January 2, 1946 | Roofing and sheet metal | $ 6,350.00 |
| January 17, 1946 | Bronze work | 6,275.00 |
| March 28, 1946 | Marble setting | 5,240.00 |
| May 1, 1946 | Colored glass | 2,929.00 |
| July, 1946 | Additional bronze work | 295.00 |
| September 5, 1946 | Lighting fixtures | 405.00 |
| Total | $ 21,494.00 |
*196 Construction of the Fourth Unit was completed in 1947.
The petitioner was not able on December 31, 1945, to determine what the cost of constructing the Fourth Unit would be.
In 1944, the petitioner began entering into contracts for the sale of burial space in the Fourth Unit and continued to do so throughout the period prior to the completion of its construction. One type of the contracts, sometimes hereafter referred to as escrow contracts, was in the following form:
AGREEMENT TO PURCHASE MAUSOLEUM SPACE
WHEREAS, it is the purpose of Woodlawn Park Cemetery Company, hereinafter referred to as the Company, to erect a Fourth Unit to its Mausoleum in Woodlawn Park Cemetery, of Miami, Florida, if, as and when building conditions and availability of materials will permit at reasonable prices, pursuant to Plans and Specifications originally prepared by McDonald Lovell, Mausoleum Architect, and now on file in the office of said Company in Miami,
NOW, THEREFORE, the Company does hereby agree to sell and (hereinafter called the Purchaser) does hereby agree to buy the exclusive right of burial of human dead of the Caucasian race in the mausoleum space described as Crypt *197 , Section , Corridor , of said Fourth Mausoleum Unit, at and for the price of , upon the following terms and conditions, namely:
1. The Purchaser will pay said purchase price to the Florida National Bank and Trust Company, at Miami, as Escrow Agent, at the rate of 25% cash herewith, 25% within six months from date hereof, and the balance within fifteen days after notice by the Company that:
*1070 a. Its proposed bond issue for the construction of said Unit has been authorized by the Florida Securities Commission, or
b. The Company has let contracts for construction or started construction of its Fourth Mausoleum Unit, whichever shall be the earlier. Should such fifteen day notice occur before the expiration of the six months period hereinabove set forth, then all of the unpaid balance shall become due and payable when such notice is sent.
2. This purchase shall be subject to the Rules and Regulations of the Company governing said Mausoleum, this Unit and the Company's property, now in existence, or which may hereafter be lawfully prescribed, or may be amended or altered from time to time and all made a part hereof, and the Purchaser hereby agrees*198 to abide by the same with like effect as if herein fully set forth and whether or not each or any thereof shall have been brought to the specific attention of the Purchaser.
3. When the Company is ready to begin construction of said Unit as certified to the Escrow Agent by the Company and the builder, then the said Escrow Agent is hereby authorized to pay said purchase price to the said Florida National Bank and Trust Company, at Miami, as Trustee under an agreement for construction, which may or may not include funds from the sale of mausoleum construction bonds.
4. In the event the Company should find it unnecessary and determine not to float a bond issue but to pay the construction costs and incidental expenses from funds received from the sale of mausoleum space under this instrument, plus such additional funds as may be required and provided by the Company, then the Florida National Bank and Trust Company at Miami, as Escrow Agent hereunder, shall deliver all funds received under agreements for the purchase of mausoleum space to The Florida National Bank and Trust Company at Miami, as Trustee, said total fund to be paid by it for work, labor and material, as the building progresses, *199 under architect's certificates certifying as to such progress, in accordance with the terms and conditions outlined in the Trust Agreement.
5. That if said construction shall not be begun within six months after the termination of the present national emergency due to war (otherwise referred to as duration), then the Escrow Agent is hereby authorized to return to said Purchaser any payments without interest made to it on account of said purchase price, or if deceased, to his or her personal representative, upon written demand for same by purchaser before construction begins and such return shall constitute an automatic release of the Company from all liability under this contract or otherwise to the Purchaser.
6. It is contemplated that the material and workmanship and Unit construction and crypt size shall be along the same general lines and kinds as prior units of said mausoleum, except where otherwise called for by said plans and specifications, but the Company makes no warranty of same, and if there shall be any departure therefrom, no liability shall be incurred by the Company as result thereof, but the Purchaser shall have the right to demand the return of any payments made *200 on account of said purchase price, and such return shall constitute an automatic release of the Company from all liability under this contract or otherwise to the Purchaser.
7. Provided, nevertheless, that in any of the events of refund, payment hereunder shall be delayed by the Escrow Agent under order of the Company, until any temporary interment or interments shall have been disposed of by permanent arrangements which the Purchaser agrees to make within 30 days after notice by the Company without further liability hereunder or otherwise by the Company meanwhile.
*1071 8. Should the Company abandon its plan of erecting said unit, then and in that event, the Company will pay and refund to the Purchaser all sums which may have been paid and may be on deposit with said Escrow Agent, together with interest thereon at the rate of two (2) percent per annum from the respective dates of payment, unless the payments so made shall have been delayed by fault of the Purchaser, and such return shall constitute an automatic release of the Company from all liability under this contract or otherwise to the Purchaser.
9. The Company has on file in its office two price lists certified to by an*201 Officer of the Company. The first price list shall be effective under the terms of this Agreement. The second price list shall become effective at such time as the Company starts to sell its Mausoleum Construction Bonds for construction of this Fourth Mausoleum Unit, or at such time as the Company shall let contracts and/or start construction of this Fourth Mausoleum Unit, whichever shall be the earlier. The Company shall not decrease the prices in said second price list, but may increase said prices from time to time as it may deem best. In no case, shall a sales price include charges for inscribing crypt panels.
10. Upon completion of said Unit, the Company will convey said burial right as herein described to the Purchaser or his heirs, or other party lawfully designated to receive same after his death, by Warranty Deed free of liens, but subject to Rules and Regulations as aforesaid.
11. If there shall be need for proper interment in said space prior to the completion of said mausoleum, other space will be temporarily provided by or through the Company without rental or removal charge if there shall then be no default under this agreement. The Company is hereby authorized *202 to remove any such temporary interment to said Fourth Mausoleum Unit as soon as said Fourth Unit is available for such transfer, whether or not fully completed, after fifteen days' notice to the Purchaser of intention to make such removal. The Company is hereby irrevocably constituted agent of the Purchaser or his personal representative to receive any necessary permit for interment or removal of any remains, such power being coupled with an interest.
12. Any notice required or desirable hereunder may be to the Purchaser by United States Mail to the address below or other address known to the Company.
13. No agreement or representation not fully expressed herein shall be binding upon either party hereto.
14. The Escrow Agent and Trustee hereunder shall not be liable for anything done or performed hereunder in good faith, but only for their wilful acts of negligent commission or omission.
15. This agreement shall not be assignable by the Purchaser or his personal representative without written consent of the Company, but it shall inure to and be binding upon the successors and assigns of the Company and personal representatives and assigns of the Purchaser when assignment is consented*203 to by the Company. Time shall be of the essence of these presents.
16. This agreement is made subject to the prior sale of the right covered hereby and is to become effective only after approval by an Executive Officer of the Company.
17. In case of the failure of said Purchaser to make any of said payments or any part thereof within sixty days in the event of an interment, hereunder, or otherwise within fifteen days, after any such payment shall have become legally due and demandable, as herein provided, then this agreement shall at the option of the Company be forthwith terminated, and thereupon all rights of the Purchaser in said space and memorial thereon, if any, shall cease, and the Company *1072 shall have the right at will to remove any bodies, previously buried in said space, or temporarily cared for elsewhere, as herein provided, to a grave or graves to be designated by the Company in said cemetery, such removal to be at the expense of the Purchaser, without any liability therefor on the part of the Company, and the Company shall further have the right to remove any memorial placed on said space, and to retain all payments previously made hereunder by the Purchaser*204 in satisfaction of all damages by it sustained, or said Company may proceed to collect the balance due under this contract in any manner provided by law.
19. The affidavit of any officer of the Company delivered to said Escrow Agent, accompanied by registry receipt, shall be accepted as conclusive proof that demand as aforesaid and cancellation notice have been mailed to the Purchaser, as herein provided, and thereupon said Escrow Agent shall, without liability to Purchaser, his or her heirs, personal representatives or assigns, pay to the Company all amounts received by it under this agreement, without further responsibility therefor by the Escrow Agent or the Company.
The other type of the contracts, sometimes hereafter referred to as non-escrow contracts, was as follows:
AGREEMENT TO PURCHASE MAUSOLEUM SPACE
WHEREAS, it is the purpose of WOODLAWN PARK CEMETERY COMPANY, hereinafter referred to as the Company, to erect a Fourth Unit to its Mausoleum in Woodlawn Park Cemetery, of Miami, Florida, if, as and when building conditions and availability of materials will permit at reasonable prices, pursuant to Plans and Specifications originally prepared by McDonald Lovell, Mausoleum Architect, *205 and now on file in the office of said Company in Miami,
NOW, THEREFORE, the Company does hereby agree to sell and (hereinafter called the Purchaser) does hereby agree to buy the exclusive right of burial of human dead of the Caucasian race in the Mausoleum space described as at and for the price of upon the following terms and conditions, namely:
Said above deferred installments shall bear interest at the rate of 5% per annum after .
1. This purchase shall be subject to the Rules and Regulations of the Company governing its property, its operations and/or its Perpetual Care Fund, now in existence, or which may hereafter be lawfully prescribed, or as may be amended or altered from time to time, and all made a part hereof and on file at the Company's office and open to inspection by such Purchaser and all of which Purchaser agrees to be bound by and observe with like effect as if fully set forth herein and whether or not each or any thereof shall have been brought to the specific attention of such Purchaser.
2. Should the Company abandon its plan of erecting said unit, then and in that event, the Company will pay and refund to the Purchaser all sums which*206 may have been paid on this contract, together with interest thereon at the rate of two (2) percent per annum from the respective dates of payment, unless the payments so made shall have been delayed by default of the Purchaser, and such return shall constitute an automatic release of the Company from all liability under this contract or otherwise to the Purchaser.
3. Provided, nevertheless, that in the event of refund, payment hereunder shall be delayed by the Company until any temporary interment or interments *1073 shall have been disposed of by permanent arrangements which the Purchaser agrees to make within 30 days after notice by the Company without further liability hereunder or otherwise by the Company meanwhile.
4. The Company will henceforth after its construction keep said Unit under perpetual care in accordance with terms of the Perpetual Care Trust Indenture covering the present mausoleum and additions thereto duly of Public Record in Dade County, Florida.
5. On completion of said Fourth Unit Purchaser may elect to take other available space of equal or greater value than the space named above, and receive full credit for all payments made on this contract.
6. Upon*207 completion of said Unit, the Company will convey said burial right as herein described to the Purchaser or his heirs, or other party lawfully designated to receive same after his death, by Warranty Deed free of liens, but subject to Rules and Regulations as aforesaid.
7. If there shall be need for proper interment in said space prior to the completion of said mausoleum, other space will be temporarily provided by or through the Company without rental or removal charge if there shall then be no default under this agreement. The Company is hereby authorized to remove any such temporary interment to said Fourth Mausoleum Unit as soon as said Fourth Unit is available for such transfer, whether or not fully completed, after fifteen days' notice to the Purchaser of intention to make such removal. The Company is hereby irrevocably constituted agent of the Purchaser or his personal representative to secure any necessary permit for interment or removal of any remains, such power being coupled with an interest.
8. In case of default in any payments specified to be made by the Purchaser and continuing for a period of 90 days after notice to the Purchaser, which may be by U. S. Mail to the *208 address below, or other address known to the Company, the Purchaser hereby agrees that this agreement may be canceled and all rights of the Purchaser terminated. The Company agrees that the total sum paid by Purchaser on agreement so canceled may be applied by said Purchaser on a later purchase by him of either ground space or mausoleum space from the Company.
9. In the event of interment and the failure of said Purchaser to make any of said payments or any part thereof within 30 days after any such payment shall have become legally due and demandable, as herein provided, then this agreement shall at the option of the Company be forthwith terminated, and thereupon all rights of the Purchaser in said space and memorial thereon, if any, shall cease, and the Company shall have the right at will to remove any bodies, previously buried in said space, or temporarily cared for elsewhere, as herein provided, to a grave or graves to be designated by the Company in said cemetery, such removal to be at the expense of the Purchaser, without any liability therefor on the part of the Company, and the Company shall further have the right to remove any memorial placed on said space, and to retain*209 all payments previously made hereunder by the Purchaser in satisfaction of all damages by it sustained, or said Company may proceed to collect the balance due under this contract in any manner provided by law. Any notice required or desirable hereunder may be to the Purchaser by U. S. Mail to the address below or other address known to the Company.
No agreement or representation not fully expressed herein shall be binding upon either party hereto.
During 1944 the petitioner entered into ten escrow contracts with total selling prices of $ 11,650, of which $ 3,400 was paid in 1944 and $ 8,250 was paid in 1945.
*1074 During 1945 the petitioner entered into 28 escrow contracts with total selling prices of $ 36,300. One of these contracts, with a selling price of $ 450, was canceled during 1945 and the $ 225 which had been paid thereunder was applied, after the cancellation, on a new contract entered into between the parties for the sale of different space in the Fourth Unit. Another of the contracts, with a selling price of $ 600, all of which was paid during 1945, was canceled in 1946 and the $ 600 theretofore paid was applied, after the cancellation, on the purchase price of*210 space in a portion of the petitioner's mausoleum other than the Fourth Unit. The above-mentioned $ 36,300, less the foregoing cancellations with total selling prices of $ 1,050, or $ 35,250, was paid as follows: $ 31,325 in 1945, and $ 3,925 in 1946.
When construction was begun on the Fourth Unit, about September 1, 1945, the amounts theretofore held in escrow were transferred to the trustee, in accordance with the terms of the contracts which initially required payments to be placed in escrow.
During 1945 the petitioner entered into 49 non-escrow contracts, with total selling prices of $ 68,430, less one discount of $ 242. In 1945 two of the foregoing 49 contracts, with total selling prices of $ 1,320, all of which was paid in 1945, were canceled and the parties thereto during 1945 entered into new non-escrow contracts for the purchase of different space in the Fourth Unit. During 1946 two other of the 49 contracts with total selling prices of $ 935 on which no payments had been made were canceled and the parties thereto did not enter into any new contracts after the cancellation. During 1946 three other of the 49 contracts with total selling prices of $ 4,210 on which $ 420 *211 was paid in 1945 and $ 2,530 was paid in 1946 were canceled. The parties to two of the contracts with total selling prices of $ 3,300 entered into new contracts for the purchase of space in a portion of the petitioner's mausoleum other than the Fourth Unit. The parties to the other contract entered into a new contract for the purchase of different space in the Fourth Unit. All the payments which had been made under said three contracts were applied, after cancellation, on the new contracts for the purchase of different space. During 1947 one other of the aforesaid 49 contracts with a selling price of $ 3,500, of which $ 1,000 was paid in 1945 and $ 100 in 1947, was canceled and the parties thereto entered into a contract for the purchase of less expensive space in a portion of the petitioner's mausoleum other than the Fourth Unit. All payments made on the canceled contracts were applied, after cancellation, on the new contract for the purchase of different space. The following is a statement of the payments made on the 49 contracts and the portion of said payments remaining after elimination of the amounts therof applicable to contracts which were canceled after 1945: *1075 *212
| Portion of payments | ||
| remaining | ||
| after elimination | ||
| Payments | of amounts applicable | |
| Year | made | to contracts |
| canceled | ||
| after 1945 | ||
| 1945 | $ 27,212.00 | $ 25,792.00 |
| 1946 | 19,189.00 | 16,659.00 |
| 1947 | 11,586.50 | 11,486.50 |
| 1948 | 3,625.00 | 3,625.00 |
| Total | $ 61,612.50 | $ 57,562.50 |
As of December 31, 1948, $ 902.50 was owing to petitioner on non-escrow contracts entered into in 1945.
Because of the uncompleted state of the Fourth Unit in 1945 the petitioner, in that year, delivered no space and executed no deeds to persons contracting for space in that unit. Nor were there any temporary interments made in that unit during 1945.
In determining the deficiency for 1945 the respondent determined that the petitioner realized in that year taxable income of $ 1,563.87 on the contracts entered into in 1944 and taxable income of $ 32,521.32 on the contracts entered into in 1945, or total taxable income of $ 34,085.19.
During 1943, 1944, and 1945, the petitioner had the following officers to whom it paid the indicated amounts as salaries:
| Salary | ||||
| Office | ||||
| 1943 | 1944 | 1945 | ||
| Gaines Wilson | Vice president | $ 1,040 | $ 1,040 | $ 1,040 |
| Peyton Wilson | Treasurer | 1,040 | 1,040 | 1,040 |
| Frederick Sharp | Secretary | 1,050 | 1,200 | 1,200 |
*213 Gaines Wilson and Peyton Wilson are brothers and had worked about the petitioner's cemetery during the lifetime of their father who managed it. They and Sharp were the only active officers of the petitioner during 1943 through 1945. Sharp had been secretary since about 1930 and Gaines Wilson and Peyton Wilson had held their offices since 1938. In addition to holding the above-mentioned offices during the years 1943 through 1945 the Wilson brothers and Sharp were also directors of the petitioner and were its sales managers. They had been sales managers throughout the time they had held the above-mentioned offices in the petitioner. In addition to the above salaries they were paid during 1943 through 1945 commissions computed at the rate of 20 per cent on all space sold by petitioner in the respective years. During 1943 Sharp was paid a bonus of $ 2,500 in addition to his salary and commissions.
*1076 At the end of 1943, 1944, and 1945 the petitioner had outstanding 2,888 shares of stock with holdings ranging from one share upwards. The largest holdings were as follows:
| Number of shares | |||
| 1943 | 1944 | 1945 | |
| Peyton Wilson | 568 | 568 | 543 |
| Gaines Wilson | 528 | 528 | 503 |
| Emma R. Wilson (mother of Peyton and Gaines Wilson) | 501 | 501 | |
| Estate of Emma R. Wilson | 501 | ||
| Total | 1,597 | 1,597 | 1,547 |
*214 Frederick Sharp held only one share of stock in the petitioner at the end of the respective years.
As officers and sales managers of the petitioner in 1943, 1944, and 1945, Gaines Wilson, Peyton Wilson, and Sharp supervised the maintenance, care, and operation of the cemetery and cemetery properties, including the supervision of the petitioner's city office in Miami, as well as the one at the cemetery. They also supervised the landscaping and development of new projects and the building of roads which were under way during that time. They were also responsible for the hiring, training and supervision of space salesmen. In addition they attended meetings of cemetery associations and other organizations in an effort to learn better methods of training salesmen to do a better selling job. They also did a certain amount of work in the field of public relations.
During 1943 Gaines Wilson and Sharp devoted their entire time to petitioner's affairs. Peyton Wilson devoted only part of his time to its affairs. During part of 1943 he was away in the army. For part of that time he was stationed near Key West, Florida, and after that at Venice, Florida. Although he had arranged with *215 Gaines Wilson and Sharp to carry on his duties while he was away, he carried on correspondence with them about petitioner's affairs and when he was able to get back to Miami on weekends or furloughs he spent some time in selling and in going over matters relating to petitioner's affairs.
The salaries paid by petitioner to the Wilson brothers and Sharp were intended to be only nominal for their supervisory or administrative services to the petitioner. The principal portion of their compensation for such services was supposed to be obtained by way of commissions on the sales of space. The sales managers employed salesmen to work for them individually, and not for the petitioner. Out of the commissions of 20 per cent they received from the petitioner the sales managers paid the salesmen. Whatever amount remained belonged to the sales managers. The commissions paid by the sales managers to the individual salesmen ranged from 2 1/2 per *1077 cent to 15 per cent. The lowest rate was paid to what is termed "need salesmen" or those who had some other duties in connection with the cemetery and who took care of customers that had to arrange for an immediate burial and came in without*216 solicitation. The highest rate was paid to salesmen who solicited business without any leads.
As a result of conditions produced by the war it was more difficult than normally for the petitioner to get the help and supplies required to carry on its operations. In addition it was called upon to furnish detailed data to various government agencies. At times petitioner had to carry on operations without the help it needed. As a result the duties of the Wilson brothers and Sharp were materially increased. They were required to devote more of their time to administrative work of the petitioner and therefore had less time to devote to the sales end of the business which produced their commissions. During 1943 Sharp devoted about one-fifth of his time to selling and the balance to administrative work. The Wilson brothers also devoted most of their time to administrative work.
In recognition of the facts that the cost of living was higher, the commissions paid to salesmen and other selling costs were higher and that Sharp and the Wilson brothers had heavier duties and were required to devote more time to administrative work with less time to devote to selling, the petitioner's board*217 of directors at a special meeting held on April 2, 1943, adopted a resolution providing that a commission of 25 per cent be paid on all sales made during 1943. In prior years the commission was 20 per cent. The petitioner's auditor was present at the meeting and informed the board as to governmental regulations relating to salary and wage increases and as to certain matters relating to taxes. Gaines Wilson and Sharp were directors of the petitioner at that time and were present at the meeting.
Commissions amounting to 20 per cent of 1943 sales were paid in 1943 to the Wilson brothers and Sharp, but commissions amounting to 5 per cent of such sales, or $ 7,945.70, were not paid to them in that year. So far as disclosed no attempt was made by the petitioner in 1943 or in any other year to obtain the approval required by the Stabilization Act of 1942 for an increase of compensation by an employer. In 1945, after the restrictions on wage and salary increases had been lifted by Executive Order No. 9299, 10 F. R. 10155, the petitioner paid to Sharp and the Wilson brothers $ 7,945.70 as additional commissions on sales made by them in 1943.
In its 1945 income*218 tax return the petitioner deducted the $ 7,945.70 but the respondent disallowed it in determining the deficiencies for that year.
The following is a statement of the gross income and net income reported by petitioner in its income tax returns for 1941 through 1945, *1078 together with the amounts deducted therein as compensation of Gaines Wilson and Peyton Wilson for the respective years:
| Compensation deductions | ||||
| Year | Gross income | Net income | ||
| Gaines Wilson | Peyton Wilson | |||
| 1941 | $ 119,137.56 | $ 37,964.22 | $ 7,181.15 | $ 11,583.85 |
| 1942 | 119,409.06 | 32,281.47 | 8,174.13 | 12,307.50 |
| 1943 | 142,331.72 | 33,788.51 | 14,475.65 | 14,475.64 |
| 1944 | 171,172.15 | 45,624.17 | 16,647.06 | 16,647.08 |
| 1945 | 142,339.97 | 2,127.88 | 22,816.29 | 22,831.29 |
The amounts deducted in 1945 as compensation for Gaines Wilson and Peyton Wilson were inclusive of their respective shares of the $ 7,945.70 of 1943 commissions which were paid in 1945.
In each of the years 1943 through 1945 the petitioner paid a cash dividend of $ 3.75 per share on its outstanding stock which had a par value of $ 25 per share.
The salaries and commissions actually paid in 1943 to the Wilson brothers and Sharp*219 plus the commissions of $ 7,945.70 paid to them in 1945 constituted reasonable compensation for the services rendered by them to the petitioner in 1943.
OPINION.
The respondent has determined that in 1945 the petitioner realized taxable income in the amounts of $ 1,563.87 and $ 32,521.32 from contracts for burial rights or space in the Fourth Unit of the petitioner's mausoleum entered into in 1944 and 1945, respectively. The deficiency notice does not disclose how such amounts were determined but indicates that such information had been furnished to the petitioner in a prior communication. Neither party has made such communication or its contents a part of the record in this proceeding. However, from statements of counsel and arguments made on brief it appears that the respondent has treated the contracts as completed sales of property in 1945 and has treated the amounts made available to, or received by, the petitioner in that year from the contracts as installment payments for the property.
The petitioner contends that at the end of 1945 the contracts were purely executory, that the amounts received thereunder were mere contingent payments made pursuant to conditional agreements*220 to sell burial space which then was nonexistent and that accordingly the contracts are in no wise to be regarded as closed or completed sales. The petitioner further contends that it is the gain from the sale of property that constitutes gross income; that since the Fourth Unit had not been completed at the end of 1945 and its final cost was not then known or determinable with reasonable accuracy the basis for computing *1079 gain or loss was likewise unknown and undeterminable at that time; and that the respondent erred in determining that taxable income was realized in 1945 from the contracts. The respondent takes the position that the primary question here is one of accounting and that the question of whether the contracts were executory or completed is immaterial and irrelevant. He contends that since the petitioner has not established that it is entitled to use some other method of accounting than that employed by respondent in making his determination and has not shown that the items of gross income realized by it in 1945 from installment sales of space made in 1944 and 1945 should be accounted for in some year other than 1945, the determination should be sustained.
*221 Since the respondent's determination appears to have been grounded on the determination that the contracts in controversy represented completed sales of property and since there is no controversy between the parties as to whether the property involved was realty or personalty we are not called on here, as we were in Community Mausoleum Co., 33 B. T. A. 19, to determine whether the property was of one type or the other. Consequently, we make no determination on that point.
While in 1944 the petitioner began entering into contracts with respect to space in the Fourth Unit, which it planned to construct, the petitioner was not required under the contracts to construct the unit, or once construction was begun it was not required to complete it. In either event a return of the amounts paid by the purchasers plus interest would relieve petitioner of any liability under the contracts. Although the contracts provided that the material, workmanship, unit construction and crypt size in the Fourth Unit would be along the lines and kinds as prior units of the mausoleum the petitioner was free for any reason satisfactory to itself to depart therefrom. In such*222 event the purchaser could refuse to take space in the unit and was entitled to a refund of any payments made. Petitioner's liability ended with refunding the payments. Under the non-escrow contracts a purchaser could, upon completion of the Fourth Unit, refuse to take the space contracted for therein and elect to take space of an equal or greater value in some other portion of the petitioner's mausoleum and receive full credit for all payments made for the contracted space. Under neither type of contract was the petitioner required to convey title to the space contracted for by the purchaser until completion of construction of the unit. A sales agreement from which either the seller or the buyer may withdraw is not a completed sale. United States Industrial Alcohol Co. v. Helvering, 137 F.2d 511">137 F. 2d 511. In view of the foregoing it is difficult to see how the contracts could be considered as completed sales in 1945, particularly since at the end of that year construction of the Fourth Unit had proceeded *1080 no further than putting in the foundation and the concrete floor slab and since a number of contracts for the construction of other portions*223 of the unit had not been let. In our opinion the contracts for burial space that were entered into in 1944 and 1945 were executory and contingent contracts to sell and not completed sales.
From the situation existing at the end of 1945, as appears in our findings, we have concluded and so found as a fact that as of the close of that year the petitioner was not able to determine what the cost of constructing the Fourth Unit would be. Since the cost of the unit was not determinable at the end of 1945 and since the contracts were executory and contingent the situation here is similar to that presented in Veenstra & DeHaan Coal Co., 11 T.C. 964">11 T. C. 964. In that case the taxpayer was engaged in selling coal at retail and reported its income on the accrual basis. During 1943 it received deposits from customers on contracts to sell and deliver coal to them at its retail prices in effect at the time of delivery. At the close of 1943 the taxpayer had on hand only a small portion of the amount of coal necessary to make the deliveries required under its contracts. It did not know whether it would be able to obtain the required amount of coal, did not know at what*224 wholesale price it would be able to acquire such coal, if available, and did not know what its retail price for such coal would be at the time of delivery. After pointing out that the gross income arising from the sale of property is the excess of the selling price over the cost or other basis of the vendor; that the vendor has no gain or gross income until a sale is made; that the statute taxes gains from sales and not estimated gains from contracts to sell, and that not until a transaction of sale is a closed one will a gain arise which constitutes gross income to the vendor, we there held that the deposits received during 1943 and on hand at the end of the year did not constitute taxable income for that year and that the respondent's action in including them in gross income for that year was not only erroneous but also arbitrary within the rule of Helvering v. Taylor, 293 U.S. 507">293 U.S. 507.
Unlike in the Veenstra case, the respondent here is not attempting to tax the full amount of the payments made in 1944 and 1945 but only the portion of them which he apparently considers to be the gain. However, to sustain such an attempt would require treating*225 the contracts as closed sales in 1945 and either arbitrarily estimating the petitioner's cost or other basis with respect to each or resorting to the use of actual costs which were ascertainable only in some year subsequent to 1945. Since such action would be in violation of the principles set forth in the Veenstra case, it cannot be sustained. Accordingly, we hold for the petitioner on this issue.
The remaining issue is whether the petitioner, who reports its income on an accrual basis, was entitled to deduct in 1945 an amount of *1081 $ 7,945.70 which it paid in that year to the Wilson brothers and Sharp and which represented the portion of the commissions for 1943 that were not paid in 1943.
The petitioner takes the position that the $ 7,945.70 plus the salaries and commissions actually paid in 1943 constituted reasonable compensation for the services rendered by the Wilson brothers and Sharp in 1943 and that since no liability for the payment of the $ 7,945.70 was incurred prior to 1945, said amount accrued and became deductible in that year. The respondent contends that the petitioner has failed to establish the reasonableness of the compensation and further that *226 the amount in question accrued or was accruable in 1943 and, therefore, is not properly deductible in 1945.
The evidence relating to commissions paid on sales by cemetery companies in the Miami area in 1943 shows a range of from 15 per cent to 35 per cent of sales. The lowest rate was paid by the smallest cemetery in the area to its only active officer who also received a salary and made sales only from the office. The highest rate was paid by another cemetery to its general office manager and sales director who was without previous experience in the cemetery business. Out of the 35 per cent of the sales price received by him he paid about 25 per cent of the sales price to his salesmen and expended about 5 per cent in advertising. From a careful consideration of all the evidence bearing on the question we have concluded and so found as a fact that the salaries and commissions actually paid in 1943 to the Wilson brothers and Sharp, who were experienced in the cemetery business, plus the commissions of $ 7,945.70 paid to them in 1945 constituted reasonable compensatation for the services rendered by them to the petitioner in 1943.
The resolution adopted by petitioner's board of directors*227 in April 1943 fixing commissions for that year merely recited "that a commission of 25 per cent be paid on all sales made during the year 1943." It contained no specific provision respecting the time when, or conditions under which, liability was to be incurred or payment was to be made. Ordinarily under such a resolution liability for payment for the full amount of commissions would accrue in 1943 and the amount of such liability would be deductible only in that year.
But the situation existing in 1943 was not usual or ordinary. The Emergency Price Control Act of 1942 had been amended on October 2, 1942, by the Stabilization Act of 1942, Public Law 729, Seventy-Seventh Congress, Second Session, Chapter 578. The Stabilization Act authorized and directed the President to issue a general order stabilizing prices, wages, and salaries affecting the cost of living and, except as otherwise indicated therein, provided that such stabilization should so far as practicable be on the basis of the levels which existed on September 15, 1942. The Act provided that no employer *1082 should pay, and no employee should receive, wages or salaries in contravention of the regulations promulgated*228 by the President thereunder. The Act also provided for a fine or imprisonment or both for the violation of its provisions or the violation of any regulation promulgated under it. Pursuant to the provisions of the Act, the President, on October 3, 1942, promulgated Executive Order No. 9250, 7 F. R. 7871. That order contained among others, the following provisions:
Title II -- Wage and Salary Stabilization Policy.
1. No increases in wage rates, granted as a result of voluntary agreement, collective bargaining, conciliation, arbitration, or otherwise, and no decreases in wage rates, shall be authorized unless notice of such increases or decreases shall have been filed with the National War Labor Board, and unless the National War Labor Board has approved such increases or decreases.
* * * *
Title III -- Administration of Wage and Salary Policy.
* * * *
3. No provision with respect to wages contained in any labor agreement between employers and employees * * *, which is inconsistent with the policy herein enunciated or hereafter formulated by the Director [Economic Stabilization Director] shall be enforced except with the approval of the National*229 War Labor Board within the provisions of this Order. * * *
4. In order to effectuate the purposes and provisions of this Order and the Act of October 2, 1942 [Stabilization Act of 1942], any wage or salary payment made in contravention thereof shall be disregarded by the Executive Departments and other governmental agencies in determining the costs or expenses of any employer for the purpose of any law or regulation, including the Emergency Price Control Act of 1942 or any maximum price regulation thereof, or for the purpose of calculating deductions under the Revenue Laws of the United States or for the purpose of determining costs or expenses under any contract made by or on behalf of the Government of the United States.
Title VI -- General Provisions.
* * * *
2. Salaries and wages under this Order shall include all forms of direct or indirect remuneration to an employee or officer for work or personal services performed for an employer or corporation, including but not limited to, bonuses, additional compensation, gifts, commissions, fees, and any other remuneration in any form or medium whatsoever (excluding insurance and pension benefits in a reasonable amount as determined*230 by the Director); but for the purpose of determining wages or salaries for any period prior to September 16, 1942, such additional compensation shall be taken into account only in cases where it has been customarily paid by employers to their employees. "Salaries" as used in this Order means remuneration for personal services regularly paid on a weekly, monthly or annual basis.
An agreement for increased compensation for services made during the period the Stabilization Act was in force and for which increase the approval required by that Act and the orders and regulations *1083 issued thereunder was not obtained was illegal and unenforceable. De La Rama S. S. Co. v. Pierson, 174 F. 2d 84; In re Pringle Engineering & Manufacturing Co., 164 F. 2d 299; Kells v. Boutross, 53 N. Y. S. 2d 734; Del Re v. Fremkes, 81 N. Y. S. 2d 97; Morford v. Bellanca Aircraft Corporation, 67 A.2d 542">67 A. 2d 542. Even though such an agreement provided that payment of the increase would be made after the lifting of stabilization controls it*231 was nevertheless illegal and was unenforceable after such controls were lifted. De La Rama S. S. Co. v. Pierson, supra;In re Pringle Engineering & Manufacturing Co., supra;Lefkowitz v. Enoz Chemical Co., 92 N.E.2d 216">92 N. E. 2d 216.
Prior to 1942 the petitioner had paid the Wilson brothers and Sharp commissions of 20 per cent on sales. The resolution adopted by the directors in 1943 stated that commissions for that year should be 25 per cent. Such increase in commissions was subject to the provisions of the Stabilization Act and the approval required by that Act was necessary before payment could be made legally during the period the stabilization controls were in force or before an enforceable liability for payment after the lifting of such controls could be incurred. Whatever may have been the intention of the petitioner's officials respecting an application for approval of the increase at the time the resolution was adopted, such approval, so far as shown, was never sought nor obtained. Nor is there any showing as to why such approval was not sought. Furthermore, the record is silent as to *232 whether the petitioner made any entries on its books recording as an accrual the amount of the increase or any portion of it.
Before adopting the resolution the petitioner's directors had been informed by petitioner's auditor as to the governmental regulations relating to salary and wage increases. Doubtless in adopting the resolution they were well aware that for it to be effective the required approval would be necessary. Since it is an implied condition of every contract or undertaking that a party will not be required to do anything that is unlawful and since it does not appear that the petitioner ever sought the required approval, it is our opinion that the resolution is not to be regarded as an attempt, in contravention of law, to pay, in 1943, or to incur in that year a liability for subsequent payment of, increased compensation. The factual and legal situations being as they were, the resolution at the most could only indicate an existing intention on the part of the corporation to incur such an obligation when the Stabilization Act would no longer be in force. It is accordingly our conclusion that there was no liability accrued or accruable in 1943 for the added commissions*233 and that the respondent's contention to the contrary must be denied.
By Executive Order No. 9299, 10 F. R. 10155, issued August 18, 1945, the President lifted stabilization restrictions to the extent that employers might make wage and salary increases without obtaining the *1084 approval required by the Stabilization Act on the condition that such increases would not be used in whole or in part as the basis for seeking an increase in price ceilings, or for resisting otherwise justifiable reductions in price ceilings, or, in the case of products or services being furnished under contract with a Federal procurement agency, would not increase the costs to the United States.
After the restrictions on wage and salary increases had been lifted by the Executive Order, cited above, the petitioner did incur and pay to Sharp and the Wilson brothers $ 7,945.70 as commissions on sales made by them in 1943, that amount being 5 per cent of the said sales. We have already stated our conclusion that the salaries and commissions actually paid to them by the petitioner in 1943, plus the added commissions paid in 1945, did constitute reasonable compensation for services*234 rendered by them to the petitioner in 1943. Such being the case, the petitioner's claim of deduction for the $ 7,945.70 in question is well taken, and the disallowance thereof by the respondent is denied. Lucas v. Ox Fibre Brush Co., 281 U.S. 115">281 U.S. 115; Atlumor Manufacturing Co., 12 T.C. 949">12 T. C. 949.
Because of other items involved in the respondent's determination of the deficiencies herein, which are not in controversy, recomputation of the deficiencies is required.
Decision will be entered under Rule 50.