Richardson v. Commissioner

*532 This proceeding is to redetermine a deficiency in income tax of $12,674.17 for the year 1922. The issue is whether or not petitioner received a profit on the sale of an interest in real estate.

FINDINGS OF FACT.

In February, 1921, petitioner and one W. N. Andrews entered into a lease of and agreed to purchase certain real estate known as *533 the Palace Hotel property, in the City of Cincinnati. Petitioner and Andrews each paid $50,000 and became the owners of an undivided one-half interest in the property. The lease and agreement was negotiated on their behalf by one Lloyd Baker, of Cincinnati, acting as their agent. The lease was made to Baker and immediately assigned by him to Andrews and the petitioner. The property was acquired in the expectation of reselling it. It was agreed between them that Baker was to receive for his services a commission of $50,000 when the property was*3785 sold and also one-third of the net profit that might result from the sale. The property was to be managed in the meantime by Baker, and he was to share in the operating profit to the extent of $3,000 a year. The agreement between them was oral.

In 1922 the petitioner, desiring to be relieved of further liability, had Baker enter into negotiations with Andrews with the object of selling to him petitioner's interest in the property. As a culmination of such negotiations, the following letter, prepared by Baker, was signed by petitioner and accepted by Andrews:

LLOYD BAKER, REAL ESTATE,

UNION TRUST BUILDING,

Cincinnati, September 21, 1922.

Newport, Kentucky.

I will assign to you all my right, title and interest in the Northwest corner Sixth and Vine Streets, Cincinnati, Ohio, known as the Palace Hotel property, in consideration of Fifty Thousand ($50,000.00) Dollars in cash, and ten notes for Five Thousand ($5,000.00) each, due and payable at intervals one year apart plus one-third of the operating profit to date of transfer. All notes to be dated October 1, 1922, to bear interest at the rate of six per cent per annum, to become due and*3786 payable on September 30, 1923, and on each succeeding September 30, until the last note shall have been paid on September 30, 1932.

This offer is open for your acceptance until September 30, 1922.

Accepted:

Thereafter, petitioner assigned all of his interest in the property to Andrews and received $50,000 in cash, and there were delivered by Andrews to Baker ten promissory notes of $5,000 each, which were retained by Baker. The notes were drawn by Andrews, payable to himself, and endorsed in blank. Andrews released petitioner from any further liability with respect to the property. At the same time it was agreed orally between Baker and petitioner that the latter would participate to the extent of 50 per cent in Baker's one-third of the net profits which might be derived from the sale of the property. Both Baker and Andrews have since died.

The Commissioner determined that the $50,000 of notes were received by Baker as agent of petitioner and he included them in *534 petitioner's income, at a valuation of $45,000, as profit realized from the sale of petitioner's interest.

OPINION.

LOVE: The petitioner's contention is*3787 that he received only $50,000 for his interest in the Palace Hotel property, and hence derived no profit from its sale. He denies the notes were received by Baker on his (petitioner's) account or that he ever had any interest therein or received any of the proceeds. He explains the receipt of the notes by Baker as being payment of the commission of $50,000 which the latter was to receive upon the sale of the property, and that his permitting Baker to get his commission at that time was the consideration for Baker's agreement to pay petitioner one-half of Baker's share of any net profits.

On the other hand, we have in evidence the written offer to sell. Petitioner states this was prepared by Baker, at whose request he signed it without more than glancing at it. However, the paper was signed by petitioner and accepted by Andrews, by his signing it. It states explicitly that the consideration for petitioner's interest shall be $50,000 in cash and ten notes of $5,000 each. It is difficult to comprehend why all three parties should be satisfied to have the consideration thus expressed if it did not correspond with the facts. We do not think petitioner's explanation overcomes the*3788 weight of this document as evidence. He would, in any event, nor have been liable for the whole of Baker's commission. We do not question his testimony that the notes were retained by Baker. Their retention by Baker is entirely consistent with the respondent's finding that they were received and were retained in the right of petitioner, since the latter received from Baker a right to participate in Baker's share of any profit. It also appears that petitioner received a substantial amount from Baker's estate on account of claims he asserted against Baker on account of this and another real estate transaction.

Judgment will be entered for the respondent.