*169 Decision will be entered under Rule 50.
Petitioner's action in reporting compensation received in 1945 under section 107 (a), Internal Revenue Code, held on the facts to constitute inclusion of the entire amount in gross income rendering erroneous respondent's reliance on the 5-year limitation of section 275 (c), Internal Revenue Code, on the ground that more than 25 per cent of gross income was omitted.
*518 Respondent determined a deficiency in income tax for 1945 of $ 10,234.07. Petitioner assails respondent's determination that the provisions of section 107 of the Internal Revenue Code were not available to him in the computation of his tax for 1945, and respondent's determination that section*170 275 (c) of the Internal Revenue Code was operative to allow the determination of the deficiency more than three years after the return was filed. Respondent by his answer denies each allegation of error and answering affirmatively alleges as follows:
On his return for the taxable year ended December 31, 1945, petitioner reported gross income of $ 25,347.48, whereas the correct gross income to be reported was $ 56,818.14.
In petitioner's return for the taxable year ended December 31, 1945, the petitioner omitted from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return.
Some of the facts are stipulated.
FINDINGS OF FACT.
The stipulated facts are hereby found.
Petitioner, a resident of New York, New York, filed his individual income tax return for 1945 with the collector for the third district of New York. He employed the cash receipts and disbursements method of accounting for reporting his income.
Petitioner received a check dated May 11, 1945, from J. A. Harris in the amount of $ 37,675.05 as compensation for personal services rendered by him. Accompanying the check was a letter which read as *171 follows:
*519 Mr. M. H. Van Bergh,
521 Fifth Avenue,
New York, N. Y.
Dear Mr. Van Bergh:
I am enclosing herewith my check to your order in the amount of $ 37,675.05 in full payment for all your services to me, including your expenses, in accordance with our understanding.
Very truly yours,
J. A. Harris, 3rd.In his income tax return filed for 1945 (Form 1040) petitioner reported on page one thereof income from dividends and interest of $ 197.50 and "other income" of $ 18,040.90 for a total of $ 18,238.40. The "other income" was more particularly explained on page 2 in Schedule C "PROFIT (OR LOSS) FROM BUSINESS OR PROFESSION" and Schedule E "INCOME FROM PARTNERSHIPS, ESTATES AND TRUSTS, AND OTHER SOURCES."
Under Schedule C petitioner's business was listed as that of an industrial consultant. The following "Total receipts" were reported:
$ 18,795.30 plus $ 6,552.18 allocation of compensation under Sec. 107 -- $ 25,347.48
From this figure were deducted business deductions, i. e., salaries, rent, and the like, leaving a "net profit" of $ 17,890.61.
In Schedule E $ 150.29 income was reported from the "Estate of Belle B. Freeman" for a total income from the two sources of $ *172 18,040.90.
Petitioner itemized his personal deductions, noting as to the deductions for contributions, interest, and medical and dental expenses the total amount of the claimed deductions and typed in the space afforded the reference, "Per schedule attached."
Adjusted gross income of $ 18,238.40 was listed on page 3 of the return under that portion devoted to tax computation. On line 15, page 3 of the return whereon is usually noted the tax due, petitioner reported $ 3,961.03. The designation "This is your tax" was stricken with this explanation, "See attached schedules for correct tax liability." At the bottom of page 1 of the return there is also noted this language, "See attached schedules."
The first page of the attached schedules to the return contains this recital:
MAURICE H. VAN BERGH -- 1945Schedules and Computations under Sec. 107 (a), I. R. C.
The taxpayer was retained as an industrial consultant to perform personal services for Mr. J. A. Harris for a period commencing June 1, 1943 and ending December 31, 1946. The agreed compensation for said services was, by agreement, fixed at $ 37,675.05 which sum was entirely paid during the calendar year 1945.
*520 *173 Since the services rendered and to be rendered under this single contract for personal services extends over a period of more than 36 months (June 1, 1943-December 31, 1946), and since more than 80% of the compensation for such services was received in the calendar year 1945, taxpayer has elected to and does hereby avail himself of the privelege [sic] afforded by Section 107 (a) of the Internal Revenue Code in the following manner:
| Compensation received in 1945 | $ 37,675.05 | |
| Service began June 1, 1943 | ||
| Compensation received May 11, 1945 | ||
| Elapsed time in whole months, 23 | ||
| 1943 allocation (June 1-Dec. 31) | 7/23 | 11,466.32 |
| 1944 allocation (Jan. 1-Dec. 31) | 12/23 | 19,656.55 |
| 1945 allocation (Jan. 1-Apr. 30) | 4/23 | 6,552.18 |
| 23/23 | $ 37,675.05 |
The third page of the attached schedules contains these recitals: "Net income including $ 37,675.05 as above" and "Entire compensation received in 1945 from J. A. Harris 37,675.05."
The summary of income tax liability computed under the provisions of section 107 (a) of the Internal Revenue Code is reported on page 5 of the schedule as follows:
| MAURICE H. VAN BERGH -- 1945 | ||||
| Summary of Income Tax Liability | ||||
| Under the Provisions of Sec. 107 (a), Internal Revenue Code | ||||
| 1945 tax excluding $ 37,675.05 | $ 1,517.69 | |||
| 1945 tax attributable to | $ 37,675.05 | $ 21,968.48 | ||
| 1945 tax shown on return | $ 3,961.03 | |||
| 1945 tax without $ 6,552.18 | 1,517.69 | |||
| 1945 tax attributable to | $ 6,552.18 | $ 2,443.34 | ||
| 1944 tax excluding $ 19,656.55 | ||||
| 1944 tax attributable to | ||||
| $ 19,656.55 | 5,186.45 | 5,186.45 | ||
| 1943 tax excluding $ 11,466.32 | ||||
| 1943 tax attributable to | ||||
| $ 11,466.32 | 1,812.18 | 1,812.18 | ||
| Total for 3 years separately | 9,441.97 | 9,441.97 | ||
| Income tax -- 1945 | $ 10,959.66 |
*174 Respondent determined the deficiency of $ 10,234.07 for 1945 more than three years and within five years of the time the return for that year was filed.
Petitioner reported in gross income for 1945 the $ 37,675.05 received from J. A. Harris as compensation for personal services.
OPINION.
Petitioner claimed the benefit of section 107 in reporting his 1945 income. We are faced at the threshold with the question whether such treatment constitutes a failure to report more *521 than 25 per cent of his income, thus invoking the 5-year statute of limitations under section 275 (c), Internal Revenue Code. 1 For if not respondent's claim is barred in any event.
*175 We fail to see how this question can be answered in the affirmative from the standpoint of either the facts or the law. Treating the issue as one fact, it is stipulated that "Petitioner received a check * * * in the amount of $ 37,675.05 as compensation for services. Petitioner reported said compensation in his return for 1945 * * *." This stipulation is borne out by the return itself which shows a reference on the first page to "See attached schedules" and in the schedules computing the tax due under section 107 reference is made to this item not once but at least four times as "The agreed compensation for said services was * * * $ 37,675.05 which sum was entirely paid during the calendar year 1945"; "Compensation received in 1945 $ 37,675.05"; "Net income including $ 37,675.05 as above," and "Entire compensation received in 1945 from J. A. Harris, 37,675.05." We have accordingly found as a fact that petitioner has reported the receipt of the compensation as a part of his 1945 gross income.
The very circumstance that petitioner claimed the benefit of section 107 would indicate as a legal matter that the amount in question was included in his gross income, the section being applicable*176 by limiting "the tax attributable to any part thereof which is included in the gross income of any individual * * *." 2 (Emphasis added.) Thus, it could hardly be consistent to say that a taxpayer claiming the benefits of the tax computation of section 107 has omitted "from gross income" 3 the very amounts upon which the statute operates only if included in gross income.
*177 Curiously enough, there is no item on the Individual Income Tax Return Form expressed as indicating "gross income." It cannot hence be argued that the mere failure to insert the figure at any designated place in the return constitutes its omission from "gross income." Line 5 of the return at which point the total of the income items appears is characterized on page 3 of the return as "Adjusted *522 Gross Income." 4 A reference to section 22 (n), Internal Revenue Code, demonstrates that gross income and adjusted gross income are not the same. 5
Added to this is the fact that the tax under section 107 is conceived as a tax on income of the year received. Federico Stallforth, 6 T. C. 140. This was so notwithstanding that in some situations in order to observe*178 the mandate of the statute that the tax shall not be greater than it would have been had the receipt taken place in installments over other years, some heed must be given to tax computations so arrived at. William F. Knox, 10 T. C. 550. Cf. Edward C. Thayer, 12 T.C. 795">12 T. C. 795.
We conclude that by computing his tax and reporting his income so as to avail himself of the benefits of section 107, petitioner did not omit from gross income any part of the compensation affected; and that accordingly not the 5- but the 3-year statute of limitations applies. It being conceded that the deficiency notice was issued beyond the 3-year limit, respondent's action is barred and it becomes unnecessary to consider the substantive question whether or not petitioner was entitled to the tax computation he claimed.
Decision will be entered under Rule 50.
Footnotes
1. (c) Omission from Gross Income. -- If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 5 years after the return was filed.↩
2. SEC. 107. * * *
(a) Personal Services. -- If at least 80 per centum of the total compensation for personal services covering a period of thirty-six calendar months or more (from the beginning to the completion of such services) is received or accrued in one taxable year by an individual or a partnership, the tax attributable to any part thereof which is included in the gross income of any individual shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual.↩
3. See footnote 1.↩
4. "(1) Entire amount shown in Item 5, p. 1. This is your adjusted gross income."↩
5. (n) Definition of "Adjusted Gross Income." -- As used in this chapter the term "adjusted gross income" means the gross income minus --↩