SYNOPSIS:
Petitioner wheat farmer sought review of the decision of respondent Commissioner of Internal Revenue (commissioner), which determined deficiencies in the farmer's tax return based on the doctrine of constructive receipt, as defined in Treas. Reg. § 29.42-2.
OVERVIEW: The farmer entered into a contract to sell his wheat to a purchaser in August 1944, but was not paid until January 1945. The farmer used the cash basis method of accounting and paid tax on the payment from the purchaser as part of his gross income in 1945, the year that he actually received it. The commissioner determined that the farmer had the unqualified right to receive his money for the wheat in 1944; that all he had to do to receive his money was to ask for it; and that, therefore, the doctrine of constructive receipt applied.
HOLDING:
The court held that the contract between the farmer and the purchaser was a bona fide arm's-length transaction and that the farmer did not have the right to demand the money for his wheat until January 1945; therefore the doctrine of constructive receipt did not apply.
ANALYSIS:
The farmer returned as a part of his gross income the checks which he actually received in payment for his wheat and complied with the income tax laws governing a taxpayer who keeps his accounts and makes his returns on the cash basis.
OUTCOME: The court found that the commissioner erred in applying the doctrine of constructive receipt to the payment which the farmer received for his wheat in 1945.