*257 Decision will be entered under Rule 50.
Held, section 107 (b), I. R. C., is inapplicable where the author of a book receives in one year less than 80 per cent of the royalties from sale of the book over the statutory period up to and including the subsequent 12 months. Held, further, the doctrine of constructive receipt is inapplicable to royalties which were not subject to the author's unrestricted right of demand and use in the year in question.
*179 *663 The respondent determined a deficiency in the petitioner's income tax for the year 1943 in the amount of $ 9,954.67. The sole question presented, after agreement upon another issue, is whether the petitioner is entitled to the benefits of section*258 107 (b), I. R. C., in computing the tax for 1942 to be treated as part of the petitioner's income tax liability for 1943 pursuant to the Current Tax Payment Act of 1943.
FINDINGS OF FACT.
James Gould Cozzens, the petitioner, is an author, a resident of Lambertville, New Jersey, who filed his income tax return for the year in question with the collector of internal revenue for the third district of New York. The petitioner has written several novels dealing with persons engaged in professional occupations. In 1935 he became interested in a murder trial which took place in Doylestown, Pennsylvania, and noted articles of interest to him concerning the trial. In 1937, the petitioner borrowed a set of Blackstone's Commentaries and formed an intention to write a novel concerning the processes of law and justice. The petitioner began reading books and treatises on law to prepare himself adequately upon the subject for his book.
In January 1938, the petitioner accepted an editorial position with "Fortune" magazine and continued in this capacity until November 1938. During the period he was so employed, the petitioner kept up his reading and study of the law. In 1939, after terminating*259 this employment, the petitioner continued his study of law while finishing a manuscript for a book entitled "Ask Me Tomorrow." He began the actual writing of the book concerning the law in January 1939. The petitioner attended trials held in Doylestown, Pennsylvania, beginning in February 1939 in connection with the preparation of material for the book he intended to write. From the time the book "Ask Me Tomorrow" was finished in the fall of 1939 until the spring of 1942, the petitioner was engaged principally in writing the book about *664 the legal process. In April 1942, the book was finished and delivered to the publisher. The petitioner's final work in connection with the book was performed in July 1942. The book was published under the title "The Just and the Unjust" in July 1942.
The book was published pursuant to a contract dated March 24, 1942, between the petitioner and Harcourt, Brace and Company, Inc. The agreement provided that the publishers would pay the petitioner an advance of $ 1,000. The agreement provided further that settlement of accounts up to each January and July would be made on April 25 and October 25 respectively. Under the terms of the agreement, *260 the petitioner was entitled to no payment of royalties in 1942 with respect to "The Just and The Unjust" other than the $ 1,000 paid in March 1942.
The petitioner's wife, Bernice Cozzens, was a literary agent, employed by the firm, Brandt and Brandt, which acted as the petitioner's agent. The petitioner's wife, aware of the possible tax advantages, requested the president of the publishing firm to make advance payments on account of the royalties on the book so that 80 per cent of such royalties might be received in 1942. The president of the publishing house did not express a willingness to pay any specific amount in 1942 nor was an understanding reached that any specific amount was subject to withdrawal. The president of the publishing firm was willing to make advancements in 1942 from amounts accrued from the sale proceeds of the book. On April 24, 1943, a royalty statement was compiled by the publisher for the 6 months ending December 31, 1942.
The gross amount received by Brandt and Brandt for the petitioner as income from "The Just and The Unjust" in all taxable years up to and including the year ended December 31, 1943, was $ 40,944.28. The amount of $ 31,700, which included*261 the initial advance of $ 1,000 plus $ 200 from the sale of Swedish publication rights, was actually received in 1942 by the petitioner's agent as royalties on 1942 sales of the book. The sum of $ 7,337.36 was actually paid to the petitioner's agent in 1943 as royalties on 1942 sales of the book.
Of the total of $ 38,837.36, representing royalties on 1942 sales of the book, the publisher estimated that $ 31,257.50 in royalties from "The Book-of-the-Month Club, Inc." sales and $ 5,667.38 in royalties from regular sales of "The Just and The Unjust" were received by the publisher by the end of 1942. The petitioner's income tax return for 1942 was filed on the cash receipts and disbursements *180 basis of accounting and reported $ 29,280.60 as total receipts as an author.
The petitioner received in the year ended December 31, 1942, less than 80 per cent of the gross income derived from the sale of "The Just and The Unjust" up to and including the year ending December 31, 1943.
*665 OPINION.
The sole question to be determined is whether the petitioner is entitled to the benefits of section 107 (b) of the Internal Revenue Code. 1 The respondent urges that this section is inapplicable*262 principally because the petitioner did not receive 80 per cent of the proceeds from the book, "The Just and The Unjust," in 1942 as required by the statute. It is agreed that the total royalties received by the end of 1942 and during the subsequent twelve months aggregated $ 40,944.28. Eighty per cent of that sum is $ 32,755.42. The petitioner's agents received a total of $ 31,700 in 1942 and the remainder in 1943. The petitioner, through his agents, thus received less than 80 per cent of the gross income derived from the sale of the book in the period specified by the statute.
*263 The petitioner contends, however, that in addition to the amount actually received, more than $ 5,000 was constructively received in 1942. See Ross v. Commissioner, 169 F. 2d 483. This claim is based upon the fact that the publisher of his book was willing to allow the petitioner advances in 1942 against royalties payable in 1943. The contract between the parties called for payment of an advance of $ 1,000 in 1942 and an accounting in April 1943 for royalties on sales made during the 6 months following publication in July 1942. No obligation to pay any specific sum in 1942 in excess of $ 1,000 was incurred by the publisher nor did it otherwise agree to pay any such amount. The president of the publishing house, however, was willing to make advancements to the petitioner from amounts accrued from sales and actually paid him $ 31,500 in 1942 on this basis. The petitioner was on the cash basis and reported as his gross income for 1942 and 1943 only the royalties actually received by him in those years. It is impossible to reconcile, with petitioner's present position, this failure to return as 1942 income the royalties here under discussion, amounting*264 to some *666 $ 5,000. If they were capable of being determined and were then considered to have been constructively received, they should have been returned in 1942. H. A. Eckhard, 12 T. C. 384, reversed on other grounds, 182 F.2d 547">182 F. 2d 547.
To constitute constructive receipt, the income must be credited to the taxpayer's account without restriction or set aside for his use under his unrestricted control. Pedro Sanchez, 6 T. C. 1141, affd. 162 F.2d 58">162 F. 2d 58. Such is not the case here. The monies received by the publishers upon the sale of the books were not set aside or credited to the petitioner's account without restriction in 1942. No accounting was called for by the contract or made until April 1943. Nor was the petitioner vested with an unrestricted right to the royalties in 1942 by other means as in James J. Cooney, 18 T.C. 883">18 T. C. 883.
As above noted, the contract between the petitioner and his publisher gave the petitioner no right to royalties in 1942 in excess of the $ 1,000 advanced. This contract was neither abrogated nor amended. *265 If the petitioner did not possess the right to demand the royalties until the following year, the doctrine of constructive receipt cannot apply in 1942. J. D. Amend, 13 T. C. 178. It is true that the publisher allowed the petitioner's agents to withdraw sizable amounts from the 1942 sales receipts as advances to accommodate the taxpayer. However, neither the publishing firm nor its president agreed at any time to pay more than $ 1,000 in 1942 and no understanding existed that the petitioner could *181 withdraw any specific amount beyond that which he actually received. Were there such an agreement with the president of the publishing firm this assurance would not be tantamount to corporate action without steps being taken to bind the corporation. Van W. Peabody, 5 T. C. 426. Moreover, the petitioner did not acquire the right unqualifiedly to demand the royalties even if such a promise or understanding existed. Avery v. Commissioner, 292 U.S. 210">292 U.S. 210.
The petitioner was able to obtain the advances in excess of $ 1,000 in 1942 solely because of the willingness of the publisher, in its volition, *266 to allow the withdrawals. It was a purely gratuitous arrangement. Petitioner could not have demanded them as a matter of right. The publishing firm could, at any time, refuse the petitioner's request and the taxpayer would have been without legal basis for challenging the action. The petitioner points out that none of his requests for advances were refused but this fact does not establish an unrestricted right to funds which he did not receive.
We conclude that the petitioner did not receive, constructively or otherwise, the 80 per cent of the income specified by Congress for purposes of section 107 (b), I. R. C. For this reason we need not extend this discussion into the other requisites of the statute.
Decision will be entered under Rule 50.
Footnotes
1. Sec. 107. COMPENSATION FOR SERVICES RENDERED FOR A PERIOD OF THIRTY-SIX MONTHS OR MORE AND BACK PAY.
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(b) Patent, Copyright, Etc. -- For the purposes of this subsection, the term "artistic work or invention", in the case of an individual, means a literary, musical, or artistic composition of such individual or a patent or copyright covering an invention of or a literary, musical, or artistic composition of such individual, the work on which by such individual covered a period of thirty-six calendar months or more from the beginning to the completion of such composition or invention. If, in the taxable year, the gross income of any individual from a particular artistic work or invention by him is not less than 80 per centum of the gross income in respect of such artistic work or invention in the taxable year plus the gross income therefrom in previous taxable years and the twelve months immediately succeeding the close of the taxable year, the tax attributable to the part of such gross income of the taxable year which is not taxable as a gain from the sale or exchange of a capital asset held for more than 6 months shall not be greater than the aggregate of the taxes attributable to such part had it been received ratably over that part of the period preceding the close of the taxable year but not more than thirty-six calendar months.
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