Court Opinion

ID: 4624232
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:54:43.226893+00
Date Added: 2024-06-11T07:56:29.537152
License: Public Domain

WILLIS O. GARRETT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Garrett v. CommissionerDocket No. 40721.United States Board of Tax Appeals19 B.T.A. 1256; 1930 BTA LEXIS 2228; May 29, 1930, Promulgated *2228  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 Mirs. E. A. Giffin,19 B.T.A. 1243">19 B.T.A. 1243, followed.  Willis O. Garrett pro se.  Maxwell E. McDowell, Esq., for the respondent.  ARUNDELL*1256  For the year 1925 the respondent determined a deficiency in tax in the amount of $638.  Of this amount $431.06 is in controversy.  The issue is whether, in reporting on the installment basis the taxable *1257  profit from a sale of real estate, petitioner may deduct a commission and expenses from the initial payment received on the sale.  The facts were stipulated.  FINDINGS OF FACT.  On December 25, 1918, petitioner acquired by gift an unimproved lot in a subdivision known as Garden of Eden in the city of Miami, Dade County, Fla.  The fair market value of the lot at that time was $2,500.  In 1925 petitioner sold the lot for a contract sale price of $85,000 and in that year conveyed title to the purchaser by general warranty deed.  He received $20,000 of the sale*2229  price in cash in 1925, but no part of the balance was due, payable, or paid to the petitioner in that year.  The balance of the purchase price, to wit, $65,000, was represented by four promissory notes maturing in the years 1926, 1927, 1928, as follows: six months, one, two, and three years, respectively, and payment of the notes was secured by a first mortgage on the land, which mortgage and notes were made and delivered by the purchaser to petitioner in the year 1925.  The petitioner expended $261.50 in 1925 for revenue stamps, abstract and recording fees, and accrued taxes and legal fees incident to and in connection with the sale of the real estate.  The petitioner paid a commission of $5,000 to a real estate broker other than the purchaser in the year 1925 for and in consideration of services rendered by said broker in negotiating the sale of the 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 real estate broker under which the commission was paid was completely performed in the year 1925.  The liability of petitioner to pay the*2230  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.  The commission paid was reasonable in amount.  The petitioner did not keep books of account during the year 1925, and he reported his income for said year on the cash receipts and disbursements basis.  Petitioner was not a dealer in real estate in the year 1925.  *1258  The petitioner and the respondent computed the taxable profit on the sale here involved as follows: PETITIONER'S METHODSale price:Cash$20,000.00Mortgage65,000.00$85,000.00Cost, acquired by gift December 25, 19182,500.00Total profit to be realized82,500.00Percentage of profit, 97%.97% of $20,000.00 initial payment19,400.00Commission and selling expenses$5,161.50Tax to date of sale100.005,261.50Realized cash profit14,128.50RESPONDENT'S METHODSale price$85,000.00Cost$2,500.00Commission and selling expenses5,161.507,661.50Total profit to be realized77,338.50Percentage of profit, 90.98 11/17%.90.98 11/17% of $20,000.00, initial payment$18,197.29Less taxes100.00Net taxable profit for 192518,097.29*2231  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.