*1179 Where a taxpayer on the cash basis has consistently followed the practice over a long period of years of excluding from his return income which he did not receive in such years, but which he could have received had he so desired, he may not invoke the doctrine of constructive receipt when such income is actually received and thus have the income placed in a year where a tax thereon may not be collected.
*1154 This proceeding involves a deficiency in income tax as determined by the Commissioner for 1928 in the amount of $4,787.10 and has for its only issue the question whether certain interest received by the petitioner's decedent in 1928 constituted taxable income in that year.
FINDINGS OF FACT.
The facts were stipulated as follows:
1. Petitioner is the duly qualified executrix of the Estate of Thomas J. Moran, deceased, late of 20 Summit Street, Pawtucket, Rhode Island, who died testate on June 3, 1930.
2. That the respondent has included in the gross income for 1928 of Thomas J. Moran the amount $12,887.11*1180 representing interest actually received by him in 1928 on certificates of deposit issued by Rhode Island Hospital Trust Company, a Rhode Island banking corporation, as is disclosed by the following tabulation:
| Date of | Certificate | Date of | Principal | Interest |
| Payment of Interest | No. | Certificate | Amount | |
| 1928 | ||||
| March 13 | P48 | Sept. 6, 1923 | $10,350.00 | $1,870.93 |
| March 13 | P58 | Oct. 22, 1923 | 20,000.00 | 3,513.42 |
| March 13 | P77 | Jan. 3, 1924 | 25,100.00 | 4,131.52 |
| March 1 | 5701 | Jan. 19, 1915 | 9,783.84 | 3,371.24 |
| Total | $12,887.11 |
3. That the respondent has included in the gross income for 1928 of Thomas J. Moran the amount $12,098.01, representing interest actually received by him in 1928 on certificates of deposit issued by Industrial Trust Company, a Rhode Island banking corporation, as is disclosed by the following tabulation:
| Date of | Certificate | Date of | Principal | |
| Payment of | No. | Certificate | Amount | |
| Interest | Interest | |||
| 1928 | ||||
| March 13 | A885 | July 16, 1915 | $10,501.10 | $3,194.99 |
| March 13 | A886 | July 16, 1915 | 10,000.00 | 3,049.88 |
| March 13 | 1084 | Sept. 23, 1920 | 820.04 | 245.14 |
| March 13 | 1256 | Feb. 19, 1926 | 14,798.80 | 1,221.65 |
| March 13 | 1263 | May 5, 1926 | 20,000.00 | 1,484.45 |
| March 13 | 1279 | Jan. 15, 1927 | 20,080.00 | 930.37 |
| March 13 | 1308 | Jan. 24, 1928 | 20,080.00 | 104.86 |
| September 26 | 1313 | Mar. 13, 1928 | 100,000.00 | 1,866.67 |
| Total | $12,098.01 |
*1181 *1155 The customary practice of the Rhode Island Hospital Trust Company and Industrial Trust Company in regard to certificates of deposit during the years 1915 to 1928, inclusive, was as follows:
Certificates of deposit were issued by these institutions at a varying rate of interest dependent upon the length of time that each certificate was held by the customer. The rate of interest might vary upon notice by the bank to the customer. All interest on the aggregate deposits of the bank, including certificates of deposit and saving or participation account deposits, was accrued at least monthly on the books of the bank, the aggregate amount thereof being credited to one general interest accrued account until called for by the individual depositors or certificate holders.
4. (a) Interest on certificates of deposit was not credited to the certificate holder until the certificate was actually presented at the bank for payment at any time after the maturity date thereof. In the instant case only interest on certificates of deposit is involved.
4. (b) Interest on certificates of deposit is credited to the individual certificate holder when the certificate of deposit is*1182 presented for the payment of interest or principal. Any time after maturity date of the certificate of deposit the petitioner could have demanded the payment of interest accruing on the certificates of deposit held by him and the company would have paid the interest accrued on the date of petitioner's demand. In the instant case the petitioner did not demand interest on any of the certificates of deposit involved in this appeal until 1928. Interest was paid when certificates of deposit were presented for payment, and it was not essential to the securing of interest that the certificate holder should withdraw the principal represented by said certificate.
5. Of the total amount of $12,887.11 interest received by the petitioner on certificates of deposit held by him in the Rhode Island Hospital Trust Company in 1928 the amount of $508.82 was attributable to 1928 and $12,378.29 was attributable to prior years, and could have been demanded by the petitioner, and, according to the general practice of Trust Company, would have been paid had such demand been made at any time prior to 1928. [The foregoing payments represented interest accumulated as follows:
| Certificate No. | |
| P48 | From Sept. 6, 1923 to Mar. 13, 1928 |
| P58 | From Oct. 22, 1923 to Mar. 13, 1928 |
| P77 | From Jan. 31, 1924 to Mar. 13, 1928 |
| 5701 | From July 19, 1919 to Mar. 1, 1928] |
*1183 6. Of the total amount of $12,098.01 interest received by the petitioner in 1928 on certificates of deposit held by him in the Industrial Trust Company $2,581.12 was attributable to the year 1928, and $9,516.89 was attributable to *1156 prior years, and was subject to demand by the petitioner and payment by the bank in the manner described in paragraph 5 above. [The foregoing payments represented interest accumulated as follows:
| Certificate No. | |
| A885 | From Aug. 1, 1920 to Mar. 13, 1928 |
| A886 | From Aug. 1, 1920 to Mar. 13, 1928 |
| 1084 | From Sept. 23, 1920 to Mar. 13, 1928 |
| 1256 | From Feb. 19, 1926 to Mar. 13, 1928 |
| 1263 | From May 5, 1926 to Mar. 13, 1928 |
| 1279 | From Jan. 15, 1927 to Mar. 13, 1928 |
| 1308 | From Jan. 24, 1928 to Mar. 13, 1928 |
| 1313 | From Mar. 13, 1928 to Sept. 26, 1928] |
7. The income tax returns of Thomas J. Moran for 1928 and prior years were prepared and filed on the cash receipts and disbursements basis. None of the amount of $24,985.12 here in question was at any time reported on any of the petitioner's prior year income tax returns, as a result of which no Federal income tax thereon had ever been assessed and/or paid by the petitioner.
*1184 OPINION.
SEAWELL: From 1915 to 1928 the petitioner's decedent had issued to him certificates of deposit on account of money deposited by him in certain trust companies. The certificates, which were submitted in evidence, indicate that from 1915 to 1919 he periodically (about every six months) presented the certificates to the respective trust companies and had the interest credited thereon and paid to him. How he accounted for this interest in his income-tax returns during that period does not appear, though apparently it was reported in the years when credited and paid to him. From 1919 through 1927, inclusive, he did not present his certificates to have the interest credited to him, nor was the interest paid to him, although by the presentation of the certificates the interest would have been credited and paid to him. In 1928 the certificates were presented and interest was then credited and paid to him not only for 1928, but also for the years from 1919 to 1927, inclusive. He reported his income on the cash basis and, apparently in accordance with his theory of "receipt," did not report any income in his returns from 1919 to 1927, inclusive, on account of interest on*1185 the certificates of deposit in question during that period. However, when he came to report his income for 1928, the year when interest was paid to him for 1928 and prior years, which was likewise on the cash basis, he reported only the amount applicable to 1928 and excluded the amount applicable to prior years on the theory that such latter amount had been constructively received by him in prior years and therefore should not be included in gross income for 1928. As a result none of the amount applicable to 1927 and prior years has been included in any income-tax return and no tax has been paid thereon. What the Commissioner did was *1157 to include the entire amount received in 1928 (that for 1928 as well as for prior years) as income taxable in 1928.
Can the procedure followed by the petitioner's decedent be sustained? In other words, the question is, may the interest for 1927 and prior years be excluded from the return for 1928, the year of actual receipt, because it was constructively received in prior years, though in those years it was not considered as having been constructively received? Our answer must be in the negative. *1186 The doctrine of constructive receipt at most is a conceptual device whose "primary function is to bring about a fair and reasonable application of the income tax. Its application may vary with varying circumstances and its ordinary tests may fail in an extraordinary situation." . And as we said in , "Constructive receipt is an artificial concept which must be sparingly applied * * *." Since the petitioner's decedent is not here to explain his actions, we do not know upon what theory he excluded the interest in question from his returns for 1927 and prior years, but unless we impute fraudulent motives to him (which we are unwilling to do), it must have been on the theory that the failure to reduce to possession the interest then accruing was tantamount to a failure to receive the same and that therefore, since he was on the receipts basis, the amount not received should not be reported. As we said in , "This omission is a substantial matter when those who availed themselves of it and thus deprived the Government of the revenue*1187 which it might otherwise have collected now seek to avoid the natural results of the omission and seek justification under a doctrine at variance with the facts."
We thus have the situation where the petitioner's decedent consistently proceeded on the theory that interest which he could have received but did not choose to receive did not then constitute taxable income to him, and then, after the statute of limitations had run with respect to at least some of the years where the interest would have been returned and when he chooses to receive the interest in a physical sense, he asks us to agree with him that it is not then income, but that the doctrine of constructive receipt should be applied retroactively in such a manner that he would not be required to pay tax at any time on at least a part of this income. We can not believe that the doctrine of constructive receipt should be carried that far. Certainly we have here an "extraordinary situation" where the "ordinary tests" as to constructive receipt must fail and where the "omission is a substantial matter." It is not a case where the Commissioner is seeking to change a consistent policy followed, but rather where he is insisting*1188 that a consistent policy followed by *1158 the petitioner's decedent over a long period shall not now be changed to the detriment of the public revenues and have substituted therefor a mere conceptual device. As we said in , "To allow such a claim in the circumstances herein would make a farce of the statutes of Congress and render the collection of the public revenues unreasonably costly and difficult." We think the Commissioner's action was proper and it is accordingly sustained.
Reviewed by the Board.
Judgment will be entered for the respondent.