Court Opinion

ID: 4480826
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:33.137514+00
Date Added: 2024-06-11T15:03:35.834318
License: Public Domain

Hill, J., dissenting: The conclusions reached by the majority herein are stated to be supported by the case of Michael Flynn Mfg. Co., 3 T. C. 932; appeal dismissed. I tliink that decision is sound, but in my opinion it is not authority for the result reached in the present case. The facts in that case amply warranted a finding that the salaries in question were credited to the accounts of the officers without restriction and that the officers of the company deliberately refrained from withdrawing the amounts so credited. The financial condition of the taxpayer was such that the moneys so accrued and credited to the accounts of the officers were theirs for the asking. Under those circumstances we held that those sums were constructively received by the officers and, therefore, section 24 (c) (2) did not apply. In the present case it is my opinion that the facts show that at the .time the salaries were credited it was agreed between petitioner and the officers-creditors that these sums were not to be payable within the years of accrual. This restriction was not present in the Michael Flynn Mfg. Co. case. In the majority opinion it is found as a fact that there was no understanding or agreement that the salaries credited to the accounts of the officers could not be withdrawn at any time the brothers desired to do so, that it was understood that the salaries were available to the two brothers at any time. That conclusion is used to support the ultimate finding that the amounts credited to the accounts of the Lazaruses were constructively received by them and therefore were properly includible in their income for the tax years in question and section 24 (c) (2) is not applicable. I can not agree that such finding and conclusion are supported by the evidence. It is clear that petitioner through the Lazaruses, acting in their capacity as officers in absolute control of petitioner, agreed with the Lazaruses as creditors that no money or other property was to be made available for payment of these amounts within the year of accrual. Petitioner’s president testified that, without borrowing, these amounts could not have been paid within the year of accrual, but possibly could have been paid without borrowing within thirty days thereafter. He further testified that he and his brother did not want to strip the corporation of any cash because they did not need it. To me the conclusion is inescapable that it was the understanding and intention of petitioner, acting through the Lazaruses as its officers, and the intention of the Lazaruses, as petitioner’s creditors, that the unpaid part of the salaries should not be paid in the year of accrual. Such understanding and intention constituted an agreement between petitioner and its officers-creditors that the unpaid salaries would not be payable within the years of accrual. In my opinion a more effective or more comprehensive restriction against payment could not have been imposed. In the face of such arrangement it seems to me obvious that the bookkeeping entries can not be held to reflect truthfully an unrestricted crediting oi the salaries. It would appear equally obvious that a finding that there was no restriction against withdrawal of the moneys is not supported by the evidence. In view of the definition contained in the regulations as to what constitutes constructive receipt, it is my opinion that the agreement between petitioner and its officers is a sufficient restriction on the right of the officers to withdraw the amounts to justify a finding that these sums were not properly includible in their incomes for the tax years in question. ARUNDEll, J., agrees with this dissent.