*118 Decisions will be entered under Rule 50.
1. Petitioners made lump-sum sales of citrus groves having growing crops on the trees. Held, that the gain realized, which was attributable to the fruit on the trees, is taxable as ordinary income. Watson v. Commissioner, 345 U.S. 544">345 U.S. 544.
2. Held, further, that two of the petitioners may return such ordinary income on the installment basis, under section 44 (b) of the Internal Revenue Code.
*616 The respondent has determined deficiencies in income tax against the petitioners for the taxable year 1945, as follows:
| Docket No. | Petitioner | Deficiency |
| 25471 | Ann Edwards Trust | $ 39,982.34 |
| 25472 | Nancy Edwards Trust | 68,412.28 |
| 30884 | W. F. Edwards | 83,374.83 |
| 30885 | L. C. Edwards, Jr | 83,946.80 |
*119 The questions to be determined are: (1) whether that part of the gain realized upon sale of a citrus grove, which is attributable to the growing crop on the trees at the time of sale, is taxable as ordinary income or as long-term capital gain, and (2) if that part of the gain realized by the petitioners Ann Edwards Trust and Nancy Edwards Trust, which was properly allocable or attributable to the growing crop, was ordinary income, whether they may return such income on the installment basis under section 44 of the Internal Revenue Code.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found as stipulated.
Petitioners Ann Edwards Trust, L. C. Edwards, Jr., Trustee, and Nancy Edwards Trust, L. C. Edwards, Jr., Trustee, are trusts for which the indicated trustee is the fiduciary, both having their principal office at Tampa, Florida. Petitioners W. F. Edwards and L. C. Edwards, Jr., are individuals and brothers who reside at Dade City, Florida. For the taxable year 1945 fiduciary income tax returns were filed on behalf of the trusts and individual income tax returns were filed by W. F. Edwards and L. C. Edwards, Jr., with the collector of internal revenue for Florida.
*120 The two trusts, one for the benefit of each daughter, were created by L. C. Edwards, Jr., in 1940, by gifts of citrus groves as follows: The Pasadena Grove to the Ann Edwards Trust, and the Paris Grove to the Nancy Edwards Trust.
The Edwards brothers owned undivided one-half interests in two citrus groves referred to as Fechtig Grove and Thonotosassa Grove.
Petitioners sold their respective groves to the Triple E. Development Company on the following dates and for the following lump-sum considerations:
| Petitioner | Grove | Date sold | Consideration |
| Ann Edwards Trust | Pasedena | Aug. 9, 1945 | $ 225,000 |
| Nancy Edwards Trust | Paris | Aug. 9, 1945 | 200,000 |
| W. F. Edwards | Fechtig | Sept. 24, 1945 | 322,500 |
| L. C. Edwards, Jr | Thonotosassa | Oct. 15, 1945 | 200,000 |
The Edwards brothers each received $ 261,250 for their respective undivided interests in their two groves.
*617 On the respective dates of the sales in question there were growing crops of citrus fruit on the trees which fruit was not then mature and for that reason not then susceptible of being harvested.
The consideration of $ 225,000 for the Pasadena Grove was payable to the Ann Edwards Trust, as follows: $ 50,000 within 90*121 days and $ 50,000 annually from the date of the transaction. The only payment made to petitioner Ann Edwards Trust during the taxable year 1945 was the amount payable within 90 days.
The consideration of $ 200,000 for the Paris Grove was payable to the Nancy Edwards Trust, as follows: $ 25,000 payable in cash, $ 25,000 in 90 days, and $ 50,000 annually from the date of the transaction. The only payments made to petitioner Nancy Edwards Trust during the taxable year 1945 were the cash amount and the amount payable within 90 days.
On their income tax returns for the taxable year 1945, the Ann Edwards Trust and Nancy Edwards Trust each elected to treat the above sales in toto as installment sales under section 44 of the Internal Revenue Code.
Each of the citrus groves disposed of by petitioners had been held in excess of 6 months.
All expenses of cultivation and fertilization and other operating expenses, concerning the groves sold and incurred prior to the date of sale, were taken as deductions against ordinary income by the petitioners in their income tax returns for the taxable year involved.
None of the petitioners reserved any right in or any part of the properties sold.
Each *122 of the petitioners was engaged in the business of citrus farming and their respective groves were used by them in their citrus farming business. Each petitioner produced and normally sold mature citrus fruit only. Petitioners never inventoried citrus fruit on the trees either before or after maturity.
In the above sales petitioners realized gain from the sale of citrus fruit as follows: Ann Edwards Trust, $ 66,831.83; Nancy Edwards Trust, $ 107,150.13; W. F. Edwards, $ 129,415.29; L. C. Edwards, Jr., $ 129,415.29.
The citrus crops on the trees in the respective groves at the time the groves were sold were being held by petitioners primarily for sale to customers in the ordinary course of their trades or businesses.
OPINION.
The issue common to the four petitioners is whether the gain from the sale of the fruit on the trees at the time they sold their respective citrus groves was ordinary income, the fruit at the *618 time of the sale not being mature and not, therefore, ready to be harvested.
This question has been recently decided by the Supreme Court, in Watson v. Commissioner, 345 U.S. 544">345 U.S. 544, affirming 197 F. 2d 56*123 and 15 T. C. 800. It was held that on the sale of an orange grove with immature fruit on the trees, such part of the gain realized as was attributable to the crop was ordinary income because realized on the sale of property held primarily for sale to customers in the ordinary course of business. That decision controls this issue, and the respondent is sustained.
The other issue relates only to the trust petitioners, who contend that they may return such ordinary income on the installment basis under section 44 of the Internal Revenue Code. 2
*124 On this issue, we think that the petitioners have met the requirements of the statute. If the fruit be regarded as personal property, the facts show that the sales in question were casual sales and not sales in the ordinary course of the petitioners' trade or business, even though the fruit on the trees at the time of the sale was held primarily for sale to customers in the ordinary course of such trade or business. Furthermore, there can be no question, we think, that a growing crop of citrus fruit would not be "property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year." If, on the other hand, the growing crop was realty, the statute carries no conditions or limitations on the right of a taxpayer to report its gain under section 44 (b), other than the limitations as to the amounts and times of the payments, and as to those conditions there is no argument that they have not been met. On this issue we accordingly hold for the petitioners.
Decisions will be entered under Rule 50.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: Docket No. 25471, Ann Edwards Trust; Docket No. 25472, Nancy Edwards Trust; Docket No. 30884, W. F. Edwards; Docket No. 30885, L. C. Edwards, Jr.↩
2. SEC. 44. INSTALLMENT BASIS.
(a) Dealers in Personal Property. -- Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit realized or to be realized when payment is completed, bears to the total contract price.
(b) Sales of Realty and Casual Sales of Personalty. -- In the case (1) of a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year), for a price exceeding $ 1,000, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed 30 per centum of the selling price (or, in case the sale or other disposition was in a taxable year beginning prior to January 1, 1934, the percentage of the selling price prescribed in the law applicable to such year), the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, be returned on the basis and in the manner above prescribed in this section. As used in this section the term "initial payments" means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.↩