Court Opinion

ID: 9467518
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:50:44.731249+00
Date Added: 2024-06-11T17:40:23.233069
License: Public Domain

HILL, Circuit Judge,
dissenting:
I dissent. Nothing in the record convinces me that the taxpayer in this case constructively received or had the beneficial use in 1971 of the proceeds of the sale of the Cooper stock. See Rushing v. Commissioner, 441 F.2d 593, 598 (5th Cir. 1971). Neither the Installment Sale Agreement nor the Escrow Agreement, as I read them, provided the taxpayer with any rights to those proceeds other than the right to receive monthly installment payments. Thus, I believe the taxpayer is entitled to the tax benefit provided by section 453(b).
It is not disputed that the taxpayer complied with the technical requirements of section 453(b). Rather, the Commissioner argues that the requirements of section 453(b) were not met in substance because the arrangement between the taxpayer and his son was not a “true” installment sale. See Griffiths v. Commissioner, 308 U.S. 355, 60 S.Ct. 277, 84 L.Ed. 319 (1939).
The question is not an easy one. The fact that the sale was between members of the same family gives rise to suspicion, but it is not dispositive. See, e. g., Nye v. United States, 407 F.Supp. 1345 (M.D.N.C.1975). Nor is the fact that the taxpayer and his son prearranged that the installments were to be payable from stipulated mutual funds dispositive. See generally Pityo v. Commissioner, 70 T.C. 225 (1975). Likewise, it is not dispositive that the taxpayer fully expected the stock to .be resold and the proceeds reinvested in assets which would be placed in escrow and from which the installments would be paid. See generally Roberts v. Commissioner, 71 T.C. 311 (1978). The decisive issue, as I understand the Rushing test, is whether the taxpayer had control over and access to the proceeds of the initial sale.
No such access is in evidence here. Under this arrangement, the taxpayer is legally entitled to nothing more than the monthly installment payments. The taxpayer needed the approval of his son to obtain a greater portion of the funds, and there is evidence indicating that the son would exercise his independent judgment before providing such access. The fact that the taxpayer enjoyed a “good relationship” with his son does not suggest that the taxpayer could control the funds his son held in trust. Furthermore, there is evidence indicating that the son refused to provide all of the security for the installment sale which the taxpayer suggested; thus it is clear that the taxpayer did not dictate the terms of the arrangement. It is true that the taxpayer did bear the risk that the security would decrease in value, but it is also true that he would not benefit if the security increased in value. Finally, the fact that the taxpayer could, upon certain contingencies, accelerate the installment payments does not suggest that he had control over or access to the fund from which the payments were made. The taxpayer should be held liable for the tax consequences if and when he opts to accelerate; he should not be taxed because he may accelerate.
Finally, it should be noted that the son here was not a mere conduit. He had independent economic reasons for entering into this arrangement: he would benefit from any growth in the escrowed mutual funds. The taxpayer too had economic reasons: the arrangement was in part designed to transfer some of his assets to his children. This was not an arrangement merely to delay the transfer of the purchase price to the taxpayer. Cf. Williams v. United States, 219 F.2d 523 (5th Cir. 1955).
Accordingly, I disagree with the court’s decision to deny the taxpayer the benefit provided by section 453(b).