*3194 1. Under the circumstances herein, it is held that the sale of certain property in February, 1920, by petitioner constituted a completed transaction as of that date, and that the gain resulting therefrom should be reported in its entirety as income for 1920.
2. Alleged losses disallowed.
*716 The Commissioner determined a deficiency of $3,219.20 in income tax for 1920. The petitioner claims that the Commissioner erred (1) in his determination of the gain derived from the sale of a certain plantation, the personal property thereon, and two claims for money against certain parties, and (2) in disallowing losses of $7,030 claimed in the return for 1920.
*717 FINDINGS OF FACT.
Petitioner is a resident of Lambert, Miss., where he had for some time operated a cotton plantation of which he was the owner.
Sometime in the latter part of 1919 he entered into a contract with A. B. Shelton for the sale of his plantation, certain personal property thereon, and for the assignment of two claims for money due himself, and, before December 31 of*3195 such year, received the amount of $4,000 from Shelton to be applied on the purchase price of the property.
February 4, 1920, petitioner and his wife, pursuant to the contract to sell, by deed, conveyed, transferred, and assigned to Shelton, the plantation, the personal property thereon, and the two claims for money, and received payment as follows: cash, $15,200; indebtedness of petitioner assumed by Shelton, $14,736.44; and six purchase money notes with an aggregate face value of $46,063.55, bearing interest at the rate of 6 per cent per annum, maturing over a period of five years, and secured by a trust deed which was inferior to other liens on the property. The fair market value of the promissory notes was 75 per cent of their face amount.
February 4, 1920, Shelton, by warranty deed, conveyed, transferred and assigned the plantation, personal property and money claims acquired from petitioner to C. L. Sively, and others, who, in return, assumed payment of petitioner's indebtedness in the amount of $9,336.44, and of the payment of Shelton's deferred purchase money notes in the amount of $46,063.55. The difference of $5,400 between petitioner's indebtedness assumed by Shelton*3196 and afterwards assumed by Sively and associates, represents a note of the petitioner due the Planters Bank of Clarksville, which was paid by or for the account of A. B. Shelton.
Sively and associates did not meet and discharge the obligations of and to the petitioner, the responsibility for which they assumed pursuant to the deed from Shelton to themselves when they became due. In December, 1920, after some negotiations, Sively and associates by quitclaim deed, conveyed, transferred, and assigned to the petitioner the plantation and money claims, but not the personal property originally sold and transferred by petitioner to Shelton, the fair market value of which was $1,500. As consideration for such conveyance, transfer and assignment, the petitioner gave to Sively and associates his promissory note for $1,500, bearing interest at 6 per cent per annum, and secured by lien upon the land quitclaimed, agreed to pay that part of his indebtedness which had been assumed by Shelton and later assumed by Sively and his associates in the amount of $9,336.44, together with the accrued interest thereon, *718 marked paid and canceled the purchase money notes given by Shelton and assumed*3197 by Sively and associates in the amount of $46,063.55, and recorded the satisfaction of the trust deed which he held as security therefor. As further consideration for the conveyance and transfer of the plantation and claims to him, petitioner agreed to pay, and did pay, taxes on the plantation for the year 1920 in the amount of $740.
During the time in 1920 while the plantation was in the possession of Sively and associates, the pice of cotton declined to low levels, the buildings and other improvements were neglected, and, in part, dismantled, and the property, as a whole, depreciated in value. During the same period there was a considerable decline in cotton land values in Mississippi.
February 12, 1920, petitioner entered into a contract to purchase a plantation in Arkansas for a consideration of $33,000. This contract provided for a cash payment of $6,600, at date, and for an additional cash payment of $6,600 on or before January 1, 1921, and that, after such second payment, the petitioner should give the vendor three notes in the amount of $6,600 each, payable on January 1, 1922, 1923, and 1924, respectively. A forfeiture clause of the contract provided as follows:
*3198 Should second party [the petitioner] fail to make the second payment of $6,600 on or before the 10th day of January, 1921, then the money this day paid is to be forfeited to the said Clay Sloan [first party].
Petitioner was unable to make the second payment of $6,600 in accordance with the terms of the contract of February 12, 1920, and, on January 21, 1921, petitioner made a written acknowledgment of forfeiture in which the following language appears:
I, the said A. W. Shaw, do by these presents, acknowledge that by reason of the failure to make an additional payment of $6,600, either on January 1, 1921, or at any time thereafter, I have forfeited said sum (the $6,600 paid on February 12, 1920, and elsewhere specified in the acknowledgment of forfeiture) so paid to said Clay Sloan and all rights I may or might have had at any time to proceed with the purchase of said lands, and disclaim any present or further interest therein, under or by reason of said sum of money thereunder.
The Commissioner determined that the sale of February 4, 1920. whereby petitioner conveyed, transferred and assigned the plantation, personal propoerty thereon, and the money claims to Shelton, *3199 constituted a completed transaction, and that the gain derived therefrom is returnable in its entirety as income for the year 1920, and that the transaction of December, 1920, by which petitioner acquired the plantation and money claims from Sively, and associates, was an independent transaction unrelated to, and having no effect upon, the sale to Shelton. The Commissioner, also, in determining the deficiency disallowed a deduction of $7,030 alleged by petitioner to represent *719 losses sustained by him during 1920 as the result of a payment of $6,600 forfeited to Sloan, as set forth above, and an additional loss of $430.
OPINION.
LITTLETON: Petitioner's first contention is that the transaction of December, 1920, whereby he reacquired from Sively and associates the plantation and money claims which he sold to Shelton in February of the same year, amounted, in effect, merely to a rescission of the sale to Shelton, thereby leaving him to account for as gain from the sale to Shelton only so much of the selling price as he actually received in cash in the year 1920. We are unable to agree with the petitioner in this respect.
The sale to Shelton on February 4, 1920, of*3200 the plantation, personal property and money claims constituted a completed transaction, as is evidenced by the warranty deed of the same date executed by petitioner and his wife, whereby the property in question was, without qualification or restriction, conveyed, transferred and assigned to Shelton for the consideration named therein, to wit: a part cash payment, the assumption by Shelton of certain of petitioner's indebtedness, and the deferred purchase money notes. Petitioner's evidence shows that the notes of Shelton were worth 75 per cent of their face value. The contract to sell the property in question entered into between petitioner and Shelton was, therefore, fully executed. Likewise, the conveyance, transfer and assignment of the property by Shelton to Sively and associates, was a completed and unqualified sale thereof.
In December, 1920, after some negotiations relative thereto, Sively and associates conveyed and assigned the plantation and money claims to petitioner for a consideration of $1,500, evidenced by a note secured upon the land, the assumption of the unliquidated indebtedness theretofore assumed by Shelton and themselves, the assumption of the accrued taxes, *3201 and the cancellation of the purchase money notes. It is obvious that in this transaction the subject matter thereof was not the same as was involved in the sale of February 4, 1920, and, that the consideration was not limited to the obligations of Sively and associates but, on the contrary, included a payment by petitioner which was entirely foreign to the original sale. The parties were not placed in statu quo ante and apparently no attempt was made so to place them. We are of the opinion, therefore, that the reacquisition by the petitioner of the same property, except the personalty, under the circumstances just described, constituted a purchase of the property conveyed and assigned by Sively and associates was not a rescission of the original sale and had no *720 moe effect upon the gain or loss realized or sustained upon the original sale to Shelton than if petitioner had purchased other property from Sively and associates. Accordingly, it becomes necessary to determine the gain resulting from the sale of the property to Shelton on February 4, 1920.
The evidence shows that petitioner received in the year 1920, $15,200 in cash, Shelton's notes of the face value*3202 of $46,063.55, and that Shelton assumed certain indebtedness of petitioner in the amount of $14,736.44. Also, it is shown that $4,000 in cash was paid sometime in 1919 to be applied on the purchase price of the property sold. Thus, the total consideration for the property amounted, on its face, to $79,999.99.
It appears that in determining the gain resulting from the sale of the property in question the Commissioner included in the sales price the purchase money notes at their face value of $46,063.55, and also the indebtedness assumed by Shelton in the amount of $14,736.44. There is nothing in the record to indicate that either Shelton or Sively , and associates, were unable to pay the purchase money notes or to satisfy the indebtedness which they had assumed. The fair market value of Shelton's promissory notes of $46,063.55 at the time received by petitioner was 75 per cent of face value. With this modification the Commissioner's determination of the gain derived from the sale to Shelton is approved.
As to the second issue, the evidence is conclusive that the petitioner sustained a loss in the amount of $6,600, which he forfeited through his failure to make the second*3203 payment on his contract to purchase a farm in Arkansas on or before January 10, 1921. This loss was not definitely sustained, however, until January of 1921. The contract, dated February 12, 1920, relating to the proposed purchase of the Arkansas property, specifically provides for forfeiture of the first payment of $6,600 only upon failure to make the second payment on or before January 10, 1921. The acknowledgment of forfeiture was made January 21, 1921. We can not speculate as of December 31, 1920, as to the petitioner's prospects or how the situation might work out. The loss, though imminent, was contingent December 31, 1920, and was not actually sustained until January, 1921.
There is no evidence of record to establish the loss of $430 which the petitioner alleges he sustained in addition to the amount of $6,600, which he forfeited in connection with his purchase of a plantation in Arkansas. As to these losses the action of the Commissioner is sustained.
Reviewed by the Board.
Judgment will be entered under Rule 50.