*1860 Where petitioner, prior to March 1, 1913, rendered services to a corporation under an oral agreement that he was to be compensated therefor when the company came into funds, and where the amount of such compensation was not fixed until 1925, when paid, and no proof was offered as to value of petitioner's claim as of March 1, 1913, held, that as of that date his claim for compensation was contingent, indefinite and unliquidated and that the amount ultimately paid him is taxable when received.
*529 This proceeding involves the redetermination of a deficiency in income tax for the calendar year 1925 in the amount of $689.65. The errors alleged are (1) that respondent erroneously increased petitioner's taxable income by $5,600, being a part of the payment received in 1925 from the Waterford Electric Light, Heat & Power Company for services rendered by petitioner to said company prior to 1913, and (2) that respondent failed to reduce petitioner's reported net income by $2,400, being a part of the payment received in 1925*1861 from the same company for services rendered to it prior to 1913.
FINDINGS OF FACT.
Petitioner is an individual residing in Troy, N.Y., and is the president of the Charles H. Dauchy Company, which is engaged there in the paint, oil and glass business.
The Waterford Electric Light, Heat & Power Company, hereafter referred to as the Power Company, was incorporated under the laws of the State of New York in November, 1900. Petitioner's next-door neighbor was his uncle, Joseph A. Powers, who was the principal promoter of the Power Company and, after its incorporation, the owner of 50 per cent of its capital stock. The only other stockholder of the company was J. T Christie, who likewise owned 50 per cent of the capital stock. The Power Company was organized to build a power dam across the Hudson River above the village of Waterford, N.Y.
From 1897 until the organization of the Power Company, except for about six months when he served in the Spanish-American War, petitioner was identified with Powers in the various transactions leading up to the incorporation of the company and continued his services after the company was formed. He put in many evenings, Sundays, and parts*1862 of working days, amounting to one or two months each year, working in the interests of the company. With Powers he laid out the plans and projects for the company. With Powers and the engineers he examined the site for the proposed dam, and consulted with them about the construction plans. He assisted Powers in locating and acquiring the necessary properties and consulted the attorneys who examined the titles. The Power Company acquired the proposed dam site and overflow lands at a cost of about $100,000. Petitioner conferred with Powers and the attorneys relative to obtaining a contract with the village of Waterford for *530 lighting its streets, and later assisted in placing a $500,000 mortgage upon the company's properties for the purpose of obtaining funds with which to build its dam and power plant.
Powers, as the principal promoter of the Power Company before its incorporation and as its active general manager until his death in August, 1912, agreed that petitioner was to be paid for his services. The books of the company did not disclose any obligation to petitioner, nor did they disclose any obligation to any other employee. It was first agreed between Powers*1863 and petitioner that petitioner should be paid for his services when the company reached the point where it could carry on. When the first of the company's properties were taken over by the State in 1910, it was then agreed between Powers and petitioner that petitioner should be paid when the company came into funds. Both these agreements were oral. The amount of petitioner's compensation was not determined until 1925, and prior to that time the company was without funds with which to pay him.
Although petitioner owned no stock in the company, he became one of its directors in 1910 and served as such until the company's dissolution in 1926. During a part of this period he also served as vice president of the company. Except for attendance at directors' meetings, signing of necessary corporation reports, and other minor routine maters, all of petitioner's services to the company were rendered before the State took over its properties. After that time he rendered but nominal services.
In 1901 the Legislature of New York passed an act authorizing the Power Company to build the proposed dam and giving it certain riparian rights (Laws 1901, ch. 164). Petitioner assisted in securing*1864 the passage of this act by consulting with Powers, the attorneys, and with various members of the Legislature.
In 1903 the Legislature of New York passed the Barge Canal Act (Laws 1903, ch. 147) and in pursuance thereof in 1910 the State began to appropriate the properties of the Power Company. By the first certificate of appropriation, served March 17, 1910, the State took over the properties intended for the dam site. These properties were indispensable units in the company's proposed development and when the State took these, the company was deprived of its water power. By successive appropriations, the last of which was served in June, 1913, the State took over all the properties of the company.
After the first appropriation, petitioner and Powers entered into negotiations with officials of the State in an effort to induce the State to take over only the land, leaving the surplus water to the Power Company and permitting it to operate in accordance with its original plans. These negotiations were carried on until Power's death late in 1912.
*531 Cases involving the company's claims against the State of New York were tried in the Court of Claims of New York, *1865 upon appeal to the Appellate Division of the Supreme Court of that State and finally on appeal to the Court of Appeals of New York, being finally determined upon February 3, 1925. Interest upon the damages found was allowed from July 15, 1910. In March, 1925, the award was paid by the State to the Power Company, and in the same month the Power Company by the unanimous action of its stockholders authorized the payment of $8,000 to petitioner for services previously rendered. These services were reasonably worth the amount paid, to wit, $8,000.
Petitioner in his income-tax return for the calendar year 1925 returned, of the above payment, the amount of $2,400. To this respondent added the remaining $5,600 of said payment, thus determining that the whole of petitioner's compensation for such services was taxable in the year 1925. From this determination petitioner brings this appeal.
OPINION.
GOODRICH: This proceeding is submitted upon the pleadings and upon two depositions taken on behalf of petitioner. There is but one issue involved, namely: whether all or any part of a payment of $8,000 made to petitioner in 1925 by the Waterford Electric Light, Heat & Power Company*1866 as compensation for his services rendered in prior years is taxable income to petitioner in 1925, or whether said sum, or any part thereof, is a nontaxable realization upon a capital asset owned by petitioner prior to March 1, 1913.
Petitioner contends that as of March 1, 1913, he had a valuable property right, a chose in action, which was a capital asset, and that the subsequent realization thereof was not income, taxable when received. With this contention we can not agree. While it is true that petitioner had rendered services to the Power Company prior to March 1, 1913, under an oral agreement that he would be compensated therefor "when the company came into funds," his claim, and the value thereof on March 1, 1913, was contingent, indefinite and unliquidated. This fact is clearly shown by petitioner's own testimony when he says, after stating that the amount of salary he was to receive had not been agreed upon prior to March 1, 1913:
I had a legitimate claim for services at that time which was recognized but the amount of the claim could not be determined until the end of 1925 when the state finally closed the matter.
There is no proof as to the value of petitioner's*1867 claim as of March 1, 1913, and in the absence of any agreement as to the amount of salary to be paid him and in view of the contingency that the company *532 might never come into funds sufficient to meet its obligations, including the compensation due petitioner, we are not justified in attempting to fix any value for petitioner's claim as of the basic date, even though we find that his services were reasonably worth the amount ultimately paid to him.
Therefore we must hold that the compensation paid to petitioner for his services rendered prior to March 1, 1913, is taxable to him in the year in which received. This case, upon its facts, is clearly controlled by the several decisions of this Board and of the courts bearing upon the issue here raised. See ; , affirming ; ; ; *1868 ; certiorari denied, ; ; .
Reviewed by the Board.
Decision will be entered for the respondent.