Justia Federal District Court Opinions

Sec. 453. Installment Method

(a) Dealers in Personal Property.--

(1) In general.--Under regulations prescribed by the Secretary or his delegate, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit, realized or to be realized when payment is completed, bears to the total contract price.

(b) Sales of Realty and Casual Sales of Personalty.--

(1) General rule.--Income from--

(A) a sale or other disposition of real property, or

(B) a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year) for a price exceeding $1,000, may (under regulations prescribed by the Secretary or his delegate) be returned on the basis and in the manner prescribed in subsection (a).

(2) Limitation.--Paragraph (1) shall apply--

(A) * * * only if in the taxable year of the sale or other disposition--

(ii) the payments (exclusive of evidences of indebtedness of the purchaser) do not exceed 30 percent of the selling price.

The reasoning of the Tax Court is shown in the following summary excerpt-from the opinion:

To what extent, if any, should the transactions here be comminuted or fragmented?

On the stipulated record here we are presented with a factual situation in which petitioners sold certain interests with respect to two distinct entities-- the corporation and the partnership. On the one hand, the inference seems strong that the function of the corporation and the function of the partnership were complementary and that when taken together the two entities comprised a larger operation which might loosely be called a "business." On the other hand, the record proves that the "business" was operated, and recognized to be operating, in a mixed form for income tax purposes. Thus, the "business" existed as two separate taxable entities and there is no evidence that Hormel would not have been happy to obtain either one without the other.

The facts here presented are that petitioners made the choice to conduct their "business" in mixed form and to have the separate entities of corporation and partnership recognized for income tax purposes. Petitioners then cast their sales to Hormel in this same form and respondent's determinations have adopted and confirmed it. Recognizing this posture we can only conclude that petitioners have not carried their burden of proving that the substance of their actions was the single sale of the "business" and we cannot permit them to ignore the existence of the separate entities in accounting for the gains from such sales. Therefore, we hold that for the purposes of section 453 the transactions of August 19, 1967, amounted to two sales--(1) a sale by each petitioner of all of his shares in the corporation and (2) a sale by each petitioner of either his interest in the partnership or of his interest in each of the partnership assets transferred to Hormel.