*36 This is a proceeding for the redetermination of a deficiency in income tax for 1923 in the amount of $18,075.92. The errors assigned are (1) that the Commissioner failed to find that petitioner's interest in 2,500 shares of stock of the German-American Portland Cement Works standing in the name of the Portland Cementfabrik Hemmoor, of Hemmoor, Germany, had a March 1, 1913, value of $78,125, and (2) that the respondent failed to find that the petitioner's interest in the above mentioned 2,500 shares of stock was a capital asset.
FINDINGS OF FACT.
The petitioner is an individual who prior to 1899 was employed by the Portland Cementfabrik Hemmoor, a German corporation located at Hamburg, Germany, hereinafter referred to as the German company. The German company manufactured cement. In 1899 the German-American Portland Cement Works, hereinafter called the American company, was organized with a capital of $450,000, consisting of 4,500 shares of $100 par value each. The American company had its place of business at La Salle, Ill. The German company paid*2182 in cash for 2,500 shares of the American company in the amount of $250,000, and 2,000 shares were sold to independent individuals in Germany, America, and England.
The petitioner acted as agent for the Germany company. The American company was operated by William Bussing as president. He resided at Hamburg, Germany. There was a disadvantage in having the control of the American company at such a great distance from its place of business. The company had not been successful and it had a loan of $150,000 which became due in 1905.
In 1904 the petitioner went to Germany to discuss the situation with the directors of the German company as to the operation of the American company. The petitioner was then elected president and general manager of the American company with considerably enlarged powers. The stock certificate representing the 2,500 shares in the American company owned by the Germany company was sent to the petitioner in 1904 and placed by him in a bank.
When the petitioner returned to the United States from Germany, after his consultation with the officers of the German company, to *37 take charge of the operation of the American company, the German company*2183 agreed that, if he made a success of the American company, in return "he would be given one-fourth interest in the enhancement of the value of the stock owned by the German company above par." At that time the stock was worth considerably less than par, due principally to the fact that the American company was facing the payment of a $150,000 mortgage and did not have the money to pay it.
It was agreed by the petitioner and the German company that he was to have one-fourth of the enhanced value of the stock in case of a sale thereof, or in the event that he resigned from the American company there was to be an accounting, and if he died his estate would receive the benefit thereof.
The petitioner was successful with the American company, increased the production, paid off the mortgage indebtedness, built up the plant, and the value of the stock became stable and on March 1, 1913, was at least $200 per share. The petitioner had no right to receive any dividends from the stock and had no control or ownership thereof on March 1, 1913.
The stock certificate representing the 2,500 shares being in the possession of the petitioner as president of the American company, it was turned*2184 over by him to the Alien Property Custodian during the World War, who operated the American company. American directors were appointed by the Alien Property Custodian, but the petitioner was kept in his position. The stock was sold by the Custodian in 1919 for $286 per share, or a total of $715,000, and distribution was made in 1923. In 1923 the Custodian paid to the petitioner $100,000, being a part of the sale price of the stock less certain deductions. Twenty-five per cent of the sale price would have been $116,250.
The petitioner in his income tax return for 1923 reported a net income of $30,827.96 from the above payment of $100,000 computed by deducting from the sale price a March 1, 1913, value of a one-fourth interest in the 2,500 shares at $225 per share, less $6,000 attorney fees and a concession of $1,297.04 which the petitioner made to the German company when he received his interest from the Alien Property Custodian.
The Commissioner in the audit of the return considered that the $100,000 received in 1923 less $7,000, the amount retained by the Custodian and for attorney fees, was income for that year and accordingly increased the taxable income by $62,172.04.
*2185 OPINION.
TRAMMELL: While the first assignment of error is based on the failure of the Commissioner to find that the petitioner's interest in *38 the 2,500 shares of stock had a certain value on March 1, 1913, the real question is whether the petitioner owned by any interest in this stock on March 1, 1913. It was stipulated that the value of the stock on March 1, 1913, was $200 per share. In our opinion the petitioner did not own a vested interest in the 2,500 shares of stock on March 1, 1913. He was to have a one-fourth interest in the value of the stock over and above the par value when the stock was sold, when he resigned from the company, or his estate would receive that interest when he died. He was not to receive with any definiteness any interest in the stock itself at any time, but only an interest in the enhanced value over par. If the petitioner had resigned from the company or the stock had been sold or he had died, it may well be that when such event occurred there might have been no enhanced value of the stock over par. On March 1, 1913, while the stock had a stable value of at least $200 a share, the petitioner had no right to receive anything at that*2186 time. He had not been given the stock, or any interest in it, at that time. He had no right to demand any portion of the stock. He had no right to receive dividends on the stock. He had no definite assurance that he would ever receive anything from the stock. The right to do so was contingent on the fact that the stock at the time sold or at the time he resigned should have a value in excess of par, or, in the event of his death, if its value were in excess of par, his estate would receive the excess.
This situation is materially different from the case of a vested interest in property where the use and enjoyment thereof has been postponed. This is not a case of postponing the use and enjoyment, but a case of a contingent right to receive anything. The fact that the stock was worth substantially more than par in 1913 does not mean that the petitioner had a vested interest in it at that time. The company merely promised to give him an interest when the stock was sold or when he resigned, or to give it to his estate if and when he died. His interest in any event was contingent upon the value of the stock aside from the other conditions. If business conditions had become*2187 less favorable so that the stock would have become reduced in value to par the petitioner would have had no interest whatever. In other words, the question as to whether the petitioner had an interest at all or not depended upon conditions existing at the time of the sale of the stock, or at the time of his resignation or death. On March 1, 1913, the petitioner had no present right or title to any stock or interest therein over which he had the right of possession or enjoyment or alienation. He merely had a future right which may never have materialized or ripened into title, possession, or enjoyment. Under these facts and conditions *39 we do not think that the petitioner had a vested right or interest of any particular or ascertainable value on March 1, 1913.
The petitioner cites the case of , and , which was affirmed by the United States Supreme Court, U.S. ; 7 Am.Fed. Tax Rep. 8871; and also the case of *2188 . We do not think that either one of these cases supports the view of the petitioner in this case. In all of those cases the taxpayer had something on March 1, 1913, out of which profits were subsequently realized and an allocation was made in order to determine how much of the profits accrued subsequent to March 1, 1913.
In this case, however, the taxpayer merely had a contingent right of an indefinite character. This case is more closely analogous of the case of , affirmed by the , and the case of . In the latter case the Court said, in speaking of insurance commissions:
No doubt they were earned by work done and money spent in the earlier years; the agent's work was complete when he obtained the application and the society issued the policy; his right to commissions on future renewals came then into being; and he himself was required to do no more. He had earned his pay, and had received a part of it; to the rest, he then*2189 acquired a right, such as it was, but no determination could then be made (as to) how much the rest would be, and in no event could he receive it except in annual installments. Although the right had value, it lacked an essential element; no renewal premium might ever be paid, and in that event he would receive nothing more; or renewals might be paid only in part, and then he would be entitled to commission on that part only. The insured might die before a given renewal fell due, or he might allow his policy to lapse, and in either event the right of the agent to future commissions perished. The right, therefore, was contingent; his contracts so provided, for they declared that commission should accrue only as premiums should be paid in cash, and certainly until such payment should be made, he had no collectible claim against the society. He had a property right that had value, but contained also an element of risk, and unless he turned it into money it remained contingent. The act taxes money or its equivalent, or its representative, and a contingent right such as this is not "income" in the sense used by the act.
*2190 The Court held that the value on March 1, 1913, of the right to receive insurance commissions, although earned previous to that date, should not be offset against the commissions actually received in subsequent years due to the uncertainties and contingencies surrounding them, but here there was more uncertainty, indefiniteness and more of a contingency than existed in the Lewellyn case and the other cases above cited. We do not think that the case of , is contrary to the *40 views herein expressed. In that case the Court held that the contract was of great value on March 1, 1913. The question there was the valuation of the contract. The question here with which we are concerned is not so much valuation, but whether the petitioner had anything on March 1, 1913, to which a March 1, 1913, value may be attributed. Clearly, he did not own any stock on March 1, 1913, and his right at that time to ever acquire any or any interest therein was indefinite, uncertain, and entirely contingent upon the happening of something in the future which might never happen, and in the event it did happen, that is, if the petitioner*2191 had resigned or the German company had sold its stock, there might have been no excess over par. The petitioner's resignation was the only event over which he had control.
In view of the foregoing, it is our opinion that the petitioner was not vested with a property right in the stock or a definite right therein on March 1, 1913, which should be offset against the amount received when the stock was sold. We therefore approve the Commissioner's determination with respect to this issue.
The second issue is whether the profit on the sale of the stock should be computed under the capital gain provisions of section 206(a) of the Revenue Act of 1921. The petitioner contends that his interest in the 2,500 shares of stock was acquired in 1904 and was held by him continuously as an investment from that date until the property was sold by the Alien Property Custodian and he received a share of the proceeds in 1923. Regardless of whether otherwise this transaction might come under the capital gain provisions, we do not think that it does in any event come under section 206(a) of the 1921 Act, for the reason that the sale was consummated in 1919, and the capital gain provisions of the*2192 1921 Act specifically related to sales or exchanges of capital assets consummated after December 31, 1921. It therefore becomes unnecessary to discuss further whether the sale of this stock constituted a sale of capital assets of this petitioner held by him for profit or for investment for more than two years.
Judgment will be entered for the respondent.