Berry v. Commissioner

¶1dissenting: I respectfully dissent. I think the holding in the case of Raleigh Properties, Inc., supra, is clearly wrong. It is based upon a passing observation in Elliott Paint & Varnish Co., 44 B.T.A. 241, with respect to a principal and interest table set forth in the taxpayer’s brief wherein the author of the opinion commented that if the parties “had actually adopted such a table as a part of their agreement it might be pretty strong evidence in support of the petitioner’s contention.” Such a statement does not even rise to the dignity of dictum.

¶2The reasoning and conclusion reached in Elliott Paint & Varnish Co., supra, is strong authority for petitioner’s position here, as is also Clay B. Brown, 37 T.C. 461, affd. 325 F. 2d 313, certiorari granted 377 U.S. 962.

¶3The majority opinion is clearly contrary to the many holdings of this and other courts, all to the effect that an installment sale contract that does not provide for interest on deferred payments camiot be construed by the tax collector as involving the payment of interest.

¶4In addition to Elliott Paint & Varnish Co. and Clay B. Brown, both supra, which are authority for petitioner, the following are the citations of a few other cases decided before and since the holding in Raleigh Properties, Inc., which support petitioner: Carl Lang, et al., 3 B.T.A. 417; Daniel Bros. Co. v. Commissioner, 28 F. 2d 761 (affirming opinion of this Court); Henrietta Mills v. Commissioner, 52 F. 2d 931 (affirming opinion of this Court); Hundahl v. Commissioner, 118 F. 2d 349; and Kingsford Co., 41 T.C. 646.

¶5This case is stronger for the taxpayer than most of the cited cases. Here the contract between the parties not only did not provide for interest but specifically provided against any interest, in that it stipulated the deferred payments were to be without interest. Not only was petitioner’s evidence all to the effect that the contract was to be without interest but respondent’s one witness, Palmer Johnson, who represented the purchaser, testified to the same effect.1 Respondent’s position here is that the contract which the seller rejected (price $2,800,000 and 4%-percent interest on deferred payments) and the buyer admitted he could not get, was the true agreement between the parties. The parties were free to contract for an installment sale without providing for interest on the deferred payments. Respondent writes a new contract for them when he fails to give effect to the no-interest provision.

¶6The fact that the purchaser agreed to pay the final purchase price without interest on deferred payments because it was close to (but not identical with) his original offer with interest on deferred payments is immaterial. Elliott Paint & Varnish Co., supra. That fact should not have given the purchaser interest deductions and it should not give the seller interest income. The prepayment discount schedule is likewise immaterial on the issue of whether or not the installment contract provided for interest. A discount from the deferred payment price for cash or early payment does not render the discount interest. Kingsford Co., supra; Hundahl v. Commissioner, supra. The fact that ha the event of default the buyer was liable for the full purchase price shows conclusively that the discount was not interest.

¶7I feel we made a mistake when we allowed the purchaser the interest deduction in Raleigh Properties, Inc. That should not prevent us from now refusing to hold the seller received interest income when all of the facts and the applicable law practically command such a conclusion.