*209 Decision will be entered under Rule 50.
Where petitioner, as a surviving partner, during the taxable year 1937 received a single check in payment of an attorney's fee for services rendered partly by a partnership which terminated in 1929 by the death of his copartner and partly by himself individually in years subsequent to the dissolution of the partnership, and during the taxable year petitioner paid the amount he determined as owing to the estate of his deceased partner and deposited the balance in his own business banking account, and during the taxable year the executor of the estate of the deceased partner orally informed petitioner that the estate would make a claim for more of the fee but did not state the amount of the claim until March of the following year, and in April of that year the parties agreed upon a division of the fee and the amount agreed upon as being the share of the deceased partner was paid over to the executor of his estate after taking into account the amount already paid in 1937, held:
(1) Retroactive effect will be given to this agreement in determining petitioner's income tax liability for 1937. Lillie C. Pomeroy et al., Executors, 24 B. T. A. 488,*210 affd., 68 Fed. (2d) 411, followed.
(2) A part of the payment to the estate represented a capital expenditure by petitioner for the good will of the deceased partner in the practice and was income to petitioner. City Bank Farmers Trust Co., Executor, 29 B. T. A. 190, followed.
*761 The respondent determined an income tax deficiency of $ 25,774.81 against petitioner for the calendar year 1937. Instead of the deficiency petitioner claims a refund of $ 43,791.48.
In the statement attached to the deficiency notice the respondent made two adjustments to petitioner's net income as disclosed by his 1937 income tax return. Adjustment (a) was labeled "Increase in income from former partnership $ 39,602.80" and was explained as follows:
(a) The entire contingent fee of $ 228,068.44, less $ 6,816.15, the amount ultimately paid to the Estate of Ambrose H. Burroughs (Deceased) under a former partnership agreement for the period prior to his death, is held to constitute income to you for 1937 under section 22 (a) of*211 the Revenue Act of 1936.
Petitioner by appropriate assignments of error contests this adjustment and alleges that, instead of the determined increase in petitioner's net income, the respondent erred "in failing to reduce the net income reported in the petitioner's return for 1937 by the sum of $ 67,981.97 erroneously included by petitioner in his income tax return for 1937 on account of the said legal fee" and that in any event the respondent "in his attempted allocation of the sum of $ 14,995.50 that was paid by the petitioner in his trust capacity as surviving partner to the estate of his deceased partner on account of said legal fee, erred in assigning only 5/11 thereof or $ 6,816.15 to the period of joint interest prior to the death of the deceased partner and as much as 6/11 or $ 8,179.35 to the period of six months immediately after death."
Adjustment (b) was a decrease in income of $ 550 and is not contested.
FINDINGS OF FACT.
Petitioner is a citizen of the State of New York and resides at 765 Fifth Avenue, New York City. He filed his Federal income tax return for the calendar year 1937 with the collector of internal revenue for the third district of New York.
Petitioner kept*212 his books of account and made his return on the basis of cash receipts and disbursements.
Petitioner is a lawyer. On July 2, 1923, he and Ambrose H. Burroughs became associated as partners in the practice of law in New *762 York City under the firm name of Burroughs & Brown. Under that agreement the partners agreed to share equally in the income and expenses of the firm. The agreement provided in part as follows:
VII. The death of either of the parties hereto at any time after the date of this agreement shall not effect a dissolution of the partnership, which shall on the contrary be continued for six months thereafter; and the estate of such deceased partner, for such period of six months, and as payment for the good will of the deceased partner in the practice, shall share in the income and expenses of the firm to the same extent that he would have done if he had lived.VIII. In case of the dissolution of the firm by the death of one of the partners, the survivor may continue the practice alone or in conjunction with others under the firm name of Burroughs & Brown, or under some other firm name in which that of the deceased partner may be a part, without paying anything *213 therefor to the estate of the deceased partner.
On May 9, 1927, the original agreement of July 2, 1923, was amended in certain particulars not here material. It was further supplemented on March 19, 1929, by adding the following:
As to work being done by the firm at the time of dissolution, whether pursuant to notice or six months after the death of one of the partners as provided in the contract, the fees and compensation for such work when and as collected shall be apportioned as follows: (1) to the firm such part thereof as will fairly represent the value of the service rendered during the existence of the firm, having in view the amount and character of such service as compared with the entire service; and (2) the rest to the partner completing the service after dissolution, or if both partners participate in the work after dissolution, then to each of them in proportion to the fair value of the service rendered by them respectively. This method of division shall be applicable whether the compensation be on a contingent basis or otherwise.
Burroughs is the individual whose estate was involved in the case of City Bank Farmers Trust Co., Executor, 29 B. T. A. 190.*214
At the time of the formation of the partnership of Burroughs & Brown, the members were representing the plaintiff in a patent infringement suit pending in the United States District Court for the District of New Jersey. A decision of the District Court rendered on August 14, 1925, in favor of the defendant in that suit was reversed by the Circuit Court of Appeals for the Third Circuit on March 1, 1927. 1 Under that decision the Southern Electro-Chemical Co., the client of Burroughs & Brown, became entitled to an accounting for profits and damages growing out of the patent infringement. During the period 1925 to 1929 the firm of Burroughs & Brown received a retainer from the Southern Electro-Chemical Co., principally for services in the litigation and in supervising and giving advice regarding the company's general affairs.
*215 On January 25, 1929, the firm of Burroughs & Brown entered into a fee agreement under which the firm became entitled to a contingent *763 interest in the ultimate recovery from the litigation. This agreement was with the Alper Chemical Corporation, whose interest in the matter arose from an agreement between it and the Southern Electro-Chemical Co. with respect to the conduct of the litigation. The agreement is in the form of a letter addressed to the Alper Chemical Corporation by the firm of Burroughs & Brown, the body of which is as follows:
This confirms the arrangement arrived at in the course of the conference between Mr. Allen, Mr. Perkins and the writer at your offices yesterday with reference to the accounting now about to commence in the case of Southern Electro-Chemical Company vs. du Pont, namely:
We will take active charge of the accounting and conduct the same and as occasion arises in this connection will seek the advice and guidance of Mr. Gifford and his firm. You will continue to pay us monthly at the rate of $ 10,000.00 per year, and in addition to that we will be entitled to the following percentages on any amount that the defendant may pay on account of*216 the infringement involved, namely:
(a) On such amount as will represent all expenses of the litigation, including what has already been charged on the books of the Southern Electro-Chemical Company and/or Alper Chemical Corporation, as well as expenses of the litigation that may arise or accrue hereafter, including bills for services that may hereafter be or already have been rendered, but bills for which have not been submitted, or if submitted, have not been paid, -- our firm will receive nothing;
(b) On the next $ 500,000 ten per-cent to our firm;
(c) On all amounts over the amounts specified in (a) and (b) above, twenty per-cent to our firm.
You will pay all the expenses of the accounting, including fees of associate counsel, experts, stenographers' bills, and the like.
Notwithstanding this arrangement you will have authority at any time to discontinue the accounting, or to make any compromise thereof that to you may seem best.
If this accords with your understanding, will you kindly sign the memorandum at the foot, and return one part to us.
Burroughs died June 19, 1929. At all times material herein the City Bank Farmers Trust Co. was the executor of his estate. Since the death*217 of his partner, with the exception of an eight-month period not here material, the petitioner has continued the practice of law as sole proprietor under the firm name of Burroughs & Brown.
Petitioner as surviving partner continued the accounting in the patent infringement litigation until September 21, 1937, when a final settlement was reached. The compensation (sometimes referred to as the Alper Chemical Corporation fee) owing under the terms of the contingent fee agreement of January 25, 1929, amounted to $ 228,068.44. On October 22, 1937, the Southern Electro-Chemical Co. delivered to petitioner its check for that amount payable to the order of Burroughs & Brown. Under the partnership agreement the Burroughs estate thereupon became entitled to participation in some part of one-half of that fee, depending upon an allocation thereof between the period of joint interest and the period thereafter.
*764 Upon receipt of the check for $ 228,068.44, petitioner deposited the same in an account with the Chase National Bank which he maintained under the name of Burroughs & Brown and used exclusively for the law office that he was conducting as an individual under that style. Moneys*218 received by him which belonged to others were also deposited in that account. Generally the monthly balance therein was never more than $ 5,000. In addition to the petitioner, his wife and Clyde D. Sandgren, an employee, each had authority to draw against that account. From October 22, 1937, until December 31, 1937, the lowest balance in the Burroughs & Brown account was $ 117,930.41. Petitioner maintained such a high balance during that period because he and the executor of the Burroughs estate had not yet agreed upon the estate's share of the Alper Chemical Corporation fee.
On October 28, 1937, petitioner forwarded to the executor of the Burroughs estate a check drawn on his Burroughs & Brown account in the sum of $ 7,982.40. The check was accompanied by a letter in which petitioner set forth his views concerning a division of the fee, which letter is in part as follows:
The arbitration with reference to the fee of Burroughs & Brown under their contract of January 25, 1929, with Alper Chemical Corporation has been decided in favor of this office and distribution made accordingly.
I have been over the record rather carefully and, after taking all the elements into consideration, *219 have reached the conclusion that the estate of Mr. Burroughs is fairly entitled to about 3 1/2% of the fee, and I am enclosing herewith a check made out on that basis, as per computation enclosed.
* * * *
I should like very much for you to have someone from the Trust Company come up to my office, by appointment, and go over the correspondence files and such other records as we have in the office bearing on the subject so that you may have a report from someone in your own organization which would be a basis for you to check the reasonableness of my conclusions.
While the present check is sent as representing my idea of a fair division, it is not intended in any manner to bind the Trust Company because I recognize that you are not at this time in possession of sufficient information to form a judgment as to the correctness of my own conclusions, and I am very anxious indeed both that you should have this opportunity and that when the whole ground has been covered the ultimate figure will be one that is entirely acceptable to you, and more particularly the beneficiaries, as I am sure it will be to me, whatever that figure may turn out to be.
At the time of the receipt of petitioner's*220 check for $ 7,982.40 and his letter of October 28, 1937, the executor had assumed that the estate's share would be very much greater and felt that the beneficiaries of the Burroughs estate would expect a larger division. The beneficiaries were widely scattered. The executor called in its own counsel for assistance. The check tendered by petitioner was received and cashed without prejudice.
From the outset of negotiations between petitioner and the representatives of the executor a real dispute existed between them with *765 respect to the period of joint interest. The petitioner contended that the period of joint interest in the fee covered only the eleven-month period from January 25, 1929, the date of the contingent fee agreement, to December 19, 1929, the end of the six-month period following the death of Burroughs. The executor contended that the fee represented compensation for the whole period of the infringement litigation and that, therefore, the period of joint interest extended from the inception of the litigation in 1920 until December 19, 1929, or a period of approximately ten years.
By letter dated March 10, 1938, the executor claimed that the Burroughs estate*221 was entitled to the total sum of $ 46,052.25 on account of the Alper Chemical Corporation fee. That was the first statement made by the executor in writing concerning the amount of its claim, and it confirmed the figure that had been communicated to the petitioner orally only a few days before. The difference between the total amount thus claimed by the estate ($ 46,052.25) and the amount previously paid to the estate on October 28, 1937, ($ 7,982.40), or $ 38,069.85, was withdrawn from the joint bank account of petitioner and his wife on March 14, 1938, and deposited with the National City Bank of New York in a joint account between the petitioner and the executor to await a final division after agreement of the parties. The signatures of both parties were required in order to draw against that account.
Thereafter on April 27, 1938, petitioner and the executor agreed in writing that the Burroughs estate was entitled to the total sum of $ 14,995.50 on account of the Alper Chemical Corporation fee. In accordance with that agreement, the $ 38,069.85 fund on deposit in the joint account with the National City Bank of New York was thereupon divided, $ 7,013.10 ($ 14,995.50 minus the*222 above amount of $ 7,982.40) to the executor, and the remaining $ 31,056.75 to the petitioner.
In fixing the estate's total participation in the Alper Chemical Corporation fee at $ 14,995.50, the parties in their agreement of April 27, 1938, agreed that the period of joint interest extended from October 15, 1925, to December 19, 1929, or a period of approximately fifty months.
In his allocation of the $ 14,995.50 payment between the period of joint interest prior to the death of Burroughs and the six-month period of joint interest after his death, the respondent treated the total period of joint interest as extending from January 25, 1929, to December 19, 1929, or a period of approximately eleven months. On a time basis he determined that five-elevenths, or $ 6,816.15 thereof, was applicable to services rendered prior to the death of Burroughs, and six-elevenths, or $ 8,179.35 thereof, was applicable to services rendered during the period of six months immediately after his death.
In his Federal income tax return for the calendar year 1937 petitioner *766 included as income on account of the Alper Chemical Corporation fee the sum of $ 182,016.19, being the full amount of the *223 fee, $ 228,068.44, less the sum of $ 46,052.25, the amount first claimed on March 10, 1938, by the Burroughs estate as its share of the fee.
The respondent determined that there should be included in petitioner's income for the calendar year 1937, on account of the Alper Chemical Corporation fee, the sum of $ 221,252.29, being the entire amount of said fee of $ 228,068.44 less the sum of $ 6,816.15 ultimately paid to the estate under the partnership agreement and allocated by him to the period of joint interest prior to Burroughs' death. 2
On his Federal income tax return for 1937 which was filed on March 15, *224 1938, petitioner computed a tax liability of $ 101,921.32 which he paid in four installments as follows:
| Mar.15, 1938 | $ 25,480.13 |
| June15, 1938 | 25,480.13 |
| Sept.20, 1938 | 25,480.13 |
| Dec.13, 1938 | 25,480.93 |
On February 26, 1940, within three years after the payment of his taxes for 1937, petitioner filed with the collector for the third district of New York a claim for the refund of $ 43,450.48 (amount now claimed is $ 43,791.48) of the income taxes paid by him for that year. That claim is based upon the ground that in 1937 petitioner was taxable on only one-half of the total fee to which he was unqualifiedly entitled in that year; that he held the other half as trustee pending an agreement as to its allocation; and that since an agreement was not reached until 1938 his share of the remaining half is not taxable until that year.
OPINION.
The question in this proceeding is to determine how much of the $ 228,068.44 fee paid in 1937 to petitioner by the Alper Chemical Corporation is taxable to petitioner in that year. Petitioner in his return for that year reported $ 182,016.19 as taxable. This amount represented the difference between the full amount of the fee and $ *225 46,052.25 claimed by the Burroughs estate in the letter of its executor dated March 10, 1938, just five days before petitioner filed his return for 1937. Although the respondent has added $ 39,602.80 to the amount reported by petitioner in his return, we understand from *767 his brief that he does not now contend that any more than $ 221,252.29 of the entire fee is taxable to petitioner in the taxable year 1937. He arrives at this amount in the following manner. First, he treats the total period of joint interest in the fee as extending from the date of the agreement with Alper Chemical Corporation to six months after the death of Burroughs or from January 25, 1929, to December 19, 1929, a period of approximately eleven months. He then allocates five-elevenths of the $ 14,995.50 actually paid to the Burroughs estate, or $ 6,816.15, to the period of joint interest prior to Burroughs' death and six-elevenths thereof, or $ 8,179.35, to the period of joint interest after Burroughs' death. This latter amount the respondent determined was a payment by petitioner "for the good will of the deceased partner in the practice" and was income to petitioner upon the authority of City Bank Farmers Trust Co., Executor, supra.*226 In other words, the respondent determined and contends that the entire fee, less the $ 6,816.15 he allocated to the period of joint interest prior to Burroughs' death, or $ 221,252.29, is taxable income to petitioner in 1937.
Petitioner primarily contends that he erred in reporting $ 182,016.19 of the fee as taxable income in his 1937 return; that he should have reported only one-half of the fee or $ 114,034.22 as taxable income in 1937; that he held the other one-half of the fee in trust for himself and the estate of his deceased partner until the ownership thereof could be determined which determination did not occur until 1938. Petitioner in making this contention relies principally upon Sara R. Preston, 35 B. T. A. 312, and E. P. Madigan, 43 B. T. A. 549. The latter case, says petitioner, "is squarely in point, even as to all of the material facts." We think both cases are distinguishable upon their facts.
In the Preston case, two lawyers received a check payable jointly to them. They could not agree as to the amount to which each was entitled; so the check was deposited in a bank to the joint account of both, *227 and there was drawn from the joint account during the taxable year such amount as each conceded the other entitled to, the balance to be drawn only upon final settlement of the differences between them. We held in that case that each attorney in the taxable year was taxable only on the amount withdrawn from the joint account for his respective use and that the balance was not taxable until there was a final settlement. There neither could draw on the joint account without the consent of the other. That situation is not present in the instant proceeding. All the money received by petitioner in the collection of the fee in 1937 was entirely under his control except the $ 7,982.40 which he paid to the Burroughs estate in October 1937.
In the Madigan case, petitioner was the coach and athletic director of St. Mary's College. His compensation was $ 7,000 a year plus 10 *768 percent of St. Mary's share of the football receipts. He reported his income on the cash basis. His share of the receipts of 1934 and 1935 amounted to $ 21,690.62, but prior to November 1936 he had not been paid. In November 1936 St. Mary's received a check for $ 38,324.15, as the result of a game played*228 with Fordham University, which the president of St. Mary's endorsed to petitioner "with the stated understanding that petitioner was to take the $ 21,690.62 due him for 1934 and 1935 and was to hold the balance in trust until the accounting could be completed for the 1936 season." In March 1937 the accounting was completed and Madigan was permitted to keep all except $ 1,339.71, which he turned over to St. Mary's. The Commissioner determined that Madigan must return as income in 1936 the entire check for $ 38,324.15. We held Madigan taxable on only $ 21,690.62 and that the Commissioner was in error in adding any additional amount of the Fordham check. This case is clearly distinguishable from the instant proceeding. There the petitioner was to hold $ 16,633.53 "in trust until the accounting could be completed for the 1936 season." In the instant proceeding petitioner deposited the check which he received for the fee in question in the bank account which he used for his law business. He wrote a letter to the executor of the Burroughs estate in which he enclosed his check for $ 7,982.40 and gave it as his judgment that this amount represented the division of the fee to which the*229 Burroughs estate was entitled and that he was entitled to keep the balance. In this connection petitioner stated in his letter of October 28, 1937, to the Burroughs estate, as follows:
I have been over the record rather carefully and, after taking all the elements into consideration, have reached the conclusion that the estate of Mr. Burroughs is fairly entitled to about 3 1/2% of the fee, and I am enclosing herewith a check made out on that basis, as per computation enclosed.
In the face of these circumstances it seems altogether unreasonable for petitioner to contend that under the doctrine of the Preston case and the Madigan case, both supra, that petitioner is taxable on only one-half of the fee in 1937 and that his part of the balance of the fee should be deferred for taxation until 1938. Moreover, the facts which are in evidence, oral and documentary, show that the bulk of the fee belonged to petitioner. It is perfectly clear that the greater part of the work for which the fee was paid was done after Burroughs' death. Just how much of the fee the Burroughs estate was entitled to receive was not easy to determine, but by no stretch of the imagination, we think, *230 could anyone contend that the Burroughs estate was entitled to one-half of the fee. The legal representatives of the Burroughs estate made no such contention at any time. Therefore, it is clear that petitioner's contention that he is taxable on only one-half of the fee in 1937 under the doctrine of the Preston case and Madigan case can not be sustained.
*769 If petitioner's contention in this respect is to be denied, then what is the amount of the fee upon which petitioner is taxable in 1937? We think there is some plausibility for the argument that he is taxable on all of it, except the $ 7,982.40 check which he sent to the executor of the Burroughs estate October 28, 1937. The balance of the fee was either transferred to the joint account of petitioner and his wife or left in petitioner's law firm account of which he was the sole proprietor and upon which he could check at will.
Respondent contends that under North American Oil Consolidated v. Burnet, 286 U.S. 417">286 U.S. 417, petitioner was taxable on the entire amount except $ 6,816.15, the amount ultimately paid to the estate of Burroughs under the partnership agreement for the period prior*231 to Burroughs' death. While, as above stated, we think there is some plausibility in this contention of respondent, nevertheless, there are important elements of distinction in the facts of the instant case and those present in the North American Oil Consolidated case, supra. In the latter case, as the Supreme Court pointed out in its opinion, the taxpayer had received the earnings in question under a claim of right, and in the taxable year was unrestricted in the disposition of such earnings. Under such circumstances the Supreme Court held that North American Oil Consolidated was taxable on the income so received, "even though it may be claimed that the taxpayer is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent." The instant case is different from the North American Oil Consolidated case, we think, in this important respect. Petitioner's claim to at least some indefinite part of the amount retained after sending the executor of the estate the check for $ 7,982.40 was a qualified claim of right, for in his letter transmitting the check, petitioner, among other things, wrote:
While the present check*232 is sent as representing my idea of a fair division, it is not intended in any manner to bind the Trust Company because I recognize that you are not at this time in possession of sufficient information to form a judgment as to the correctness of my own conclusions, and I am very anxious indeed both that you should have this opportunity and that when the whole ground has been covered the ultimate figure will be one that is entirely acceptable to you, and more particularly the beneficiaries, as I am sure it will be to me, whatever that figure may turn out to be.
We have before us evidence as to what the division of the fee turned out to be. On April 27, 1938, an agreement was reached between petitioner and the legal representatives of the Burroughs estate under which the Burroughs estate's share of the fee was fixed at $ 14,995.50, and the remainder of the fee, it was agreed, belonged to petitioner. Now that we have that information at hand it would seem proper to use it in determining petitioner's income tax liability for 1937 rather than to make some kind of a theoretical allocation of the fee between the parties when it was received in 1937, for, as we have already said, *770 *233 it was clear that petitioner was entitled to much more than one-half of the fee. We, of course, are well aware that the general principles of Federal income taxation require the determination of income at the close of taxable years without regard to the effect of subsequent events. Burnet v. Sanford & Brooks Co., 282 U.S. 359">282 U.S. 359; Penn v. Robertson, 115 Fed. (2d) 167. But there are exceptions. Cf. E. B. Elliott Co., 45 B. T. A. 82.
There is precedent, we think, in the type of case we have here for using the actual figures agreed upon by the parties early in 1938 rather than to make some kind of theoretical allocation at the end of 1937. See Lillie C. Pomeroy et al., Executors, 24 B. T. A. 488; affd., 68 Fed. (2d) 411. In the Pomeroy case the taxable years which we had before us were the years 1922 and 1923. A small deficiency for 1924 was conceded. The sole issue was as to the correct allocation between Pomeroy and the estate of Josiah Dives of the net profits derived from the operation of a business conducted under the*234 name of Dives, Pomeroy and Stewart for the periods September 21 to December 31, 1992, and January 1 to June 30, 1923. There were two partners, Dives and Pomeroy. Dives died September 21, 1922. The income from the business previously conducted as a partnership was as follows:
| Sept. 20 to Dec. 31, 1922 | $ 361,447.54 |
| Jan. 1 to June 30, 1923 | 191,223.93 |
| Total | 552,671.47 |
On April 23, 1923, the executors of the Dives estate and Pomeroy agreed that $ 176,250 was to be paid to the Dives estate "in full settlement of any claim * * * for profits accrued to the partnership business from the date of the death of said Josiah Dives." The Board held that the amount of the earnings to be taxed to Pomeroy should be determined as follows:
| 1922 | 1923 | |
| Earnings of entire business | $ 361,447.54 | $ 191,223.93 |
| Less 361,447.54/552,671.47 of 176,250 | 115,267.63 | |
| Less 191,223.93/552,671.47 of 176,250 | 60,982.37 | |
| Amount taxable to Pomeroy | 246,179.91 | 130,241.56 |
In affirming the Board the Court of Appeals of the District of Columbia said in part:
While the agreement (of April, 1923) was made later than at the close of the first accounting period, it was made before the close*235 of the second period, "when", as stated in petitioners' reply brief, "it could not be known whether there would be profits or not." This may have been the reason why the heirs were willing to accept 6 per cent, interest instead of sharing prospective profits. At all events, the good faith of the parties in entering into the contract is not impugned in any way. As it turned out, Pomeroy (who died September 13, 1925) made a good bargain. His estate should pay taxes on what he actually received.
*771 While in the instant case we do not have both the years 1937 and 1938 before us, as we had both the years 1922 and 1923 before us in the Pomeroy case, nevertheless, it is true that in the Pomeroy case retroactive application of an agreement made by the parties in 1923 was made in determining the taxpayers' income tax liability for the year 1922. In that important respect the two cases are similar.
Since we now know what the facts are as to the division of the fee in question and since petitioner received all the money in 1937 and only disbursed $ 7,982.40 of it to the Burroughs estate, we shall tax petitioner in 1937 on the basis of the known facts as shown by agreement*236 reached in the early part of 1938, under the doctrine of the Pomeroy case, supra. Cf. E. B. Elliott Co., supra.
Having thus held, it becomes necessary to consider petitioner's alternative contention. In the alternative, petitioner contends that if the April 27, 1938, agreement between petitioner and the executor of the Burroughs estate be given retroactive effect, as respondent contends, then in any event the total period of joint interest in the fee as stated in the April 27, 1938, agreement "was from October 15, 1925, to December 19, 1929, or four years and two months"; that based upon a period of joint interest of 50 months instead of 11 months, 44/50 of the $ 14,995.50 actually paid to the Burroughs estate, or $ 13,196.04, should be allocated to the period of joint interest prior to Burroughs' death and 6/50, or $ 1,799.46, should be allocated to the period of joint interest after Burroughs' death; and that, therefore, no more than $ 214,872.40 ($ 228,068.44 less $ 13,196.04) is taxable to petitioner in the calendar year 1937. In this contention we think petitioner must be sustained.
The agreement of April 27, 1938, which we are applying*237 in reaching our decision, shows that there was a direct connection between the period of joint interest therein agreed upon and the amount of the estate's participation. In allocating the estate's share between the periods of joint interest before and after the death of Burroughs, the Commissioner had no more right to disregard the period of joint interest fixed in the agreement than he had to disregard the rest of the agreement. If any of the agreement is to be given effect, it seems to us that all of it must be given effect and that the Commissioner is inconsistent in doing otherwise in his determination of the deficiency. The Commissioner's allocation in his deficiency notice, based upon an eleven-month period of joint interest contrary to the agreement of the parties, it seems to us is clearly wrong and can not be sustained. We so hold.
For the purpose of allocating the $ 14,995.50 payment to the Burroughs estate which was agreed upon in April 1938 between the 44-month period of joint interest prior to the death of Burroughs and the six-month period of joint interest after his death, the evidence convinces us that an allocation on a time basis would be reasonably *772 *238 commensurate with the value of the services rendered during the two periods. Eighty-eight percent thereof, or $ 13,196.04, is, therefore, applicable to the 44-month period of joint interest prior to the death of Burroughs and the remaining 12 percent thereof or $ 1,799.64 is allocable to the six-month period of joint interest after his death. It is necessary to make this allocation because both parties agree that under our decision in City Bank Farmers Trust Co., supra, the amount of the fee which was paid the Burroughs estate for the six-month period after Burroughs' death was a capital payment in part for Burroughs' interest in the partnership and the parties are in agreement that this part of the payment is taxable income to petitioner. It probably should be pointed out that the above $ 1,799.64 is not the only capital payment that was made by petitioner for Burroughs' interest in the partnership. Other very considerable amounts were paid in prior years. Some of these are shown in the City Bank Farmers Trust Co. case, but they are not involved in any way in this proceeding and are, therefore, not set out here.
The allocation which we have*239 made above should be used in a recomputation under Rule 50.
Decision will be entered under Rule 50.
Footnotes
1. Southern Electro-Chemical Co. v. E. I. Du Pont De Nemours & Co., 9 Fed. (2d) 69; reversed at 20 Fed. (2d) 97↩; rehearing denied May 27, 1927.
2. Although the parties have stipulated the figures found in this paragraph, there is an unexplained discrepancy of $ 366.70 illustrated as follows:
↩
Amount of fee reported on return by petitioner as stipulated $ 182,016.19 Amount added by respondent in adjustment (a) above 39,602.80 Amount actually included by respondent 221,618.99 Amount stipulated as being included 221,252.29 Discrepancy 366.70