Cavanaugh v. Commissioner , 19 B.T.A. 1251 ( 1930 )

FRANK CAVANAUGH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Cavanaugh v. Commissioner

Docket No. 36275.

United States Board of Tax Appeals

19 B.T.A. 1251; 1930 BTA LEXIS 2226;

May 29, 1930, Promulgated

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Selling costs incident to the sale of real estate by one not a dealer, the profit being reported on the installment method, held to constitute a reduction of selling price and not a deduction from income. Decision in Mrs. E. A. Giffin,19 B.T.A. 1243">19 B.T.A. 1243, followed.

Douglas D. Felix, Esq., for the petitioner.

Maxwell E. McDowell, Esq., for the respondent.

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ARUNDELL

The deficiency of $111.43 in income tax determined by the respondent for the year 1925 arises out of the difference between the methods used by petitioner and respondent in determining the taxable profit realized from a sale of real estate. The facts were stipulated.

FINDINGS OF FACT.

The petitioner sold lots 9 and 10, block 79, North City of Miami, in 1925 for a contract sale price of $115,000, and title to said real estate was transferred by petitioner to the purchaser in that year by general warranty deed.

Petitioner received $15,000 of the sale price in cash in the year 1925, but no part of the $100,000 balance of the contract price was due, payable or paid to the petitioner in that year.

The balance of the purchase price, to wit, $100,000, was represented by promissory notes maturing in years subsequent to 1925, and the payment of said notes was secured by a first mortgage on the above-described land, which mortgage was made and delivered by the purchaser to petitioner in the year 1925.

The petitioner expended $450 in 1925 for revenue stamps, abstract fees and other expenses incident to and in connection with the sale of the above-described real estate.

In the year 1925 the petitioner contracted to pay and paid a commission of $5,750 to a real estate broker, which broker was a different person from the purchaser referred to hereinabove, for and in consideration of services rendered by said broker in negotiating the sale of the aforesaid real estate. The services so rendered were the sole consideration for the payment of the commission, and said services were completely performed in 1925. The contract between the petitioner and the real estate broker under which the commission was paid was completely performed in the year 1925. The liability of petitioner to pay the broker his commission was not in any respect contingent upon the above-mentioned promissory notes, representing the deferred payments, being paid, and in the event of default in the payment of said deferred payment notes petitioner had no claim whatsoever for the recovery of any part of the commission paid to the broker in the year 1925. The commission paid was reasonable in amount.

The cost of the real estate to the petitioner was $15,000.

The petitioner did not keep books of account during the year 1925, and he reported his income for that year on the cash receipts and disbursements basis. The petitioner was not a dealer in real estate in the year 1925.

Petitioner and respondent computed the taxable profit from the sale of real estate as follows:

PETITIONER'S METHOD
Contract sale price		$115,000.00
Cost		15,000.00
Gross profit		100,000.00
Cash received, $15,000.00 (13% of selling price).
Unrealized gain of 87% of $100,000.00		87,000.00
Gain realized in 1925		13,000.00
Commission and expenses		6,200.00
Net gain to be reported in 1925		6,800.00
RESPONDENT'S METHOD
Contract sale price		$115,000.00
Selling expenses:
Commission	$5,750.00
Other expenses	450.00
		6,200.00
Selling price less offsets		108,800.00
Cost price, 1920		15,000.00
Total profit to be realized		93,800.00
Purchase price to vendee		115,000.00
Total contract price		115,000.00
Initial payment		15,000.00
Taxable profit:
3,800/5,000 of $15,000 equals		12,234.78

OPINION.

ARUNDELL: The question presented in this case is the same as that in , and in accordance with our decision in that case we affirm the respondent's determination.

Decision will be entered for the respondent.