¶1OPINION.
¶2The main question to be decided is whether the amount petitioner received from Anaconda upon the purchase of the property in question is taxable income, as determined by respondent, or is a reduction in the purchase price of the property, as contended by petitioner.
¶3We do not think the facts support respondent’s position.
¶4The evidence shows Hicks, the owner, received for his property the net amount of $47,250, which amount he would have accepted had he not been obligated to pay or if he had been released from the requirement to pay or bear a 10 per cent brokerage commission on the sale. He was obligated to pay a commission to Hortt, his real estate broker, and was not interested as to whom, if anyone, Hortt would pay part of his commission. As far as Flicks was concerned he was glad to accept what he was offered and was paid for the property.
¶5The evidence further shows, in our opinion, that the cost of the property to petitioner was not $52,500 as respondent claims, but was a lesser amount.
¶6After petitioner became interested in purchasing the property on his own account he considered three things in deciding what he would pay for the property, the going price of the property, the questionable title to that part of the property represented by the abandoned street, and the amount that under normal conditions he would receive as a commission if he sold the property to an outside party. He realized that because the property was listed with Hortt the latter would receive his commission and that under the customary practice and the understanding between Hortt and Anaconda, Anaconda would receive 50 per cent of Hortt’s commission. He knew at the time he made the offer he would receive back a definite amount to which he would ordinarily have been entitled. In other words, his offer to buy was based on the proposition that the actual cost of the property to him would be $52,500, the amount of the formal offer, less $1,837.50, or $50,662.50.
¶7Had petitioner not been a real estate salesman and had he offered to buy the property at a cost of $47,250 to the seller plus a commission of 5 per cent, instead of 10 per cent, for Hortt, and the offer had been accepted, would it be said that he had realized a taxable gain in not paying the full 10 per cent commission? We think not. He is in no different position than he would have been had he made an offer to his employer to buy the property by paying $47,250 to the owner, $2,625 to Hortt, and $787.50 to Anaconda. It is true that petitioner first called Hortt with the idea of selling the property to some third party and had he done so, Anaconda and he would have earned and realized a commission on the basis of their arrangement with Hortt. He thereafter became interested in the property as an investment of his own. He was not as the transaction resulted a salesman but a purchaser of the property at a cost to him of $50,662.50, and we think the respondent erred in determining that petitioner realized a commission on his purchase. We so hold. Cf. Benjamin v. Hoey, 139 F. 2d 945.
¶8Petitioners paid an income tax for the year 1951 in the amount of $10,108.60 and the income they reported on their joint return for 1952 showed a tax liability of $23,722.06, yet on their declaration of estimated tax for 1952, they disclosed an estimated tax of only $7,500. It is obvious that that amount is less than 80 per cent of their tax liability and also substantially less than the tax they paid for 1951. Consequently, they are liable for an addition to tax under section 294 (d) (2) of the 1939 Code for substantial underestimation of their 1952 estimated tax. The statute makes it mandatory for such addition to be paid. See A. E. Hickman, 29 T. C. 864; DeWitt M. Sherwood, 20 T. C. 733; and H. R. Smith, 20 T. C. 663.
¶9Reviewed by the Court.
¶10Decision will he entered under Bule 50.