1 The Honorable John J. Pajak, Special Trial Judge. See 26 U.S.C. § 7443A. 

## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 05-1325

___________ Keith Scherbart; Janet Scherbart, *
* Appellants, * * Appeal from the v. * United States Tax Court.
* Commissioner of Internal Revenue, *
* Appellee. *

___________ Submitted: March 13, 2006 Filed: July 5, 2006

___________ Before ARNOLD, JOHN R. GIBSON, and SMITH, Circuit Judges.

___________ ARNOLD, Circuit Judge. Keith and Janet Scherbart appeal the ruling of the tax court 1 that they were not entitled to defer as income on their joint tax returns payments that Mr. Scherbart received from a corn-processing cooperative. We affirm.

Mr. Scherbart, a corn farmer, was a me mber of the Minnesota Corn Processors (MCP) cooperative during 1994 and 1995. As a member of MCP, Mr. Scherbart was obligated to make three deliveries of corn per year, with the total number of bushels-2- delivered equaling the number of "units of equity participation" that he held in the cooperative. MCP processed the corn that it held and sold th e processed product to third parties. Its members received contemporaneous payments for their deliveries, as well as "value-added" payments derive d by splitting MCP's net proceeds at the end of each fiscal year among the units of equity participation.

In August of 1994 and 1995, Mr. Scherb art received letters from MCP that advised him that value-adde d payments would be calculated after MCP's annual audit and would be paid out in mid-November. Th e letters offered the option to have these payments deferred until January of the next taxable year. Each year, Mr. Scherbart elected to defer the value-added payment. The Scherbarts filed joint tax returns that listed the value-added payments as income for the years that Mr. Scherbart received them.

In 1998, the IRS issued a notice of defi ciency to the Scherbarts based on the contention that they could not defer the value-added payments as income because those payments were earne d and payable in the preceding taxable year. The Scherbarts filed a petition with the tax cour t challenging the decisi on, and the tax court ruled in favor of the IRS. The tax court held that MCP wa s Mr. Scherbart's agent, and that because the proceeds from the sale of Mr. Scherbart's corn were in MCP's possession during its fiscal year and Mr. Scherbart imposed the limitation that kept MCP from sending him the payments in Nove mber, the proceeds we re received by the taxpayers at that time.

The parties agree that MCP acted as Mr. Scherbart's agent for purposes of processing and marketing the corn, and a written agreement between MCP and its members reflects the agency relationship. Cf. Bot v. Commissioner , 353 F.3d 595, 601 (8th Cir. 2003). The parties disagree, how ever, on the legal consequences of the relationship. The Commissioner contends that receipt by MCP, the agent, amounts to receipt by Mr. Scherbart. The Scherb arts, however, maintain that the IRS is-3- required by statute to treat the deliveries of corn to MCP as an installment sale and that under the installment method of reporti ng, the value-added payments should have been recognized in the ta xable years in which they were sent by MCP. See 26 U.S.C. § 453. We review the factual findings of th e tax court for clear error, and review its interpretation of the tax laws de novo

. See id.

Under the Internal RevenueCode, an "installment sale" is "a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs," and th e income from such sales generally will be accounted for by using the "installment me thod." 26 U.S.C. § 453(a), (b)(1). While the installment method is not used for "dealer dispositions," which include dispositions of personal property by someone who regularly disposes of property of a particular type on the installment pl an, 26 U.S.C. § 453 (b)(2)(A), (l)(1)(A), the disposition of farm property such as the cornin this case is not considered a "dealer disposition" and thus the installment me thod may be used, 26 U.S.C. § 453(l)(2)(A). The Scherbarts argue that because Mr. Sche rbart made dispositions of corn to MCP, the value-added payment is simply a final in stallment in payment for that corn. Under § 453(l)(2)(A), recognition of the value-a dded payments would thus occur in the taxable year in which MCP transf erred them to the Scherbarts.

The success of the Scherbarts' installm ent-sale theory depends entirely on characterizing the corn deliveries and subse quent payments as sales transactions. An equity disclosure statement, which descri bes the obligations of MCP and its members, however, does not refer to the transactions as sales. It talks about deliveries and payments, but at no point does the agreement establish that ownership of the corn passes from the member to MCP. We noted in Bot , 353 F.3d at 601-02, that MCP's "program operated on the basis that [the me mbers] were producers or owners of the corn delivered under the program and thatMCP acted as their agent in further processing and marketing the corn." Bot 's holding would collapse into nonsensicality if MCP owned the corn in question; MCP' s agency with regard to processing and-4- marketing is meaningful only if the corn is owned by the member after delivery. Since Bot dealt with the same type of relati onship and transaction as this case does, we hold that the transactions at issue here were not sales.

Because the value-added payments ar e not installments pursuant to an installment sale agreement, we turn to the Scherbarts' argument that Mr. Scherbart did not receive the payments when MCP first made them available to members. They contend that because Mr. Scherbart elected to defer receipt of any post-audit valueadded payment in August, be fore MCP had calculated whether such a payment would be made at all, the payment should be r ecognized as income in the following taxable year, not the taxable year in which he ha d the first opportunity to receive the valueadded payment.

The general rule is that receipt by an agent is equivalent to receipt by the principal, Maryland Casualty Co. v. United States , 251 U.S. 342, 347 (1920), even if the agent agrees not to distribute income to the principal until the following year. See Crimmins v. United States , 655 F.2d 135, 138 (8th Cir. 1981). Self-imposed limitations on receipt do not trump this rule. Arnwine v. Commissioner , 696 F.2d 1102, 1109 (5th Cir. 1983). Because Mr. Sche rbart's deferrals of the value-added payments were self-imposedlimitations, the payments we re received when they were held by Mr. Scherbart's agent, MCP, in th e years before the payments were sent to Mr. Scherbart.

The Scherbarts seek to rely on Schniers v. Commissioner , 69 T.C. 511, 516 (1977), which permitted a farmerto report income from what were termed "Deferred Payment Contract[s]" for the year in which he received th e payments; the court ruled for the taxpayer because the Commissioner faile d to show that the sales agreements, which specifically required the defe rred payments, were "shams." Id. at 519. But in Schniers the transaction was unquestionably a sale, and the paym ents were to be received by the taxpayer-seller fro m the agent for the buyer. Id. at 516-19. Here, the-5- relevant sale was between MCP and the buyers of proce ssed corn products, not MCP and the Scherbarts, and MCP wa s Mr. Scherbart's agent. Therefore requiring that the Commissioner prove that any sale was a sh am in order to i nvalidate the deferred payment agreement is inapposite; the agreemen t in question here is simply not a sale.

Given the agency relationship betw een MCP and Mr. Scherbart and the voluntary nature of the deferral, the tax court did not err in finding that the Scherbarts received the value-added payments in the taxable years in which they were calculated. The Scherbarts received the value-adde d payments in November of 1994 and 1995. They were therefore not entitled to defer r ecognition of the payments as income until the next taxable year.

We affirm the judgment of the tax court.

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