Taxation – Federal Income Tax – Contract Right Income to Cash Method Taxpayer Who Refused Cash Offer

During 1951 petitioner, a cash method taxpayer, executed a mineral lease. As part of the consideration petitioner was to receive an unconditional bonus or advance royalty of fixed amount. The lessee was ready, able and willing to pay the entire amount on execution, but at petitioner’s request the contract provided for a small payment on execution with one-half the balance due on January 5th of each of the next two years. About one month before each due date the contract rights were discounted at a bank of which petitioner was a director. The lessee remained ready, able and willing to make full payment of the unpaid portion at all times after execution. Respondent Commissioner assessed a deficiency because petitioner had not included the discounted value of the future payments in his gross income for 1951. In a Tax Court proceeding, held, for respondent, two judges dissenting. Where a cash offer is refused, if the unconditional contract right actually received is readily and immediately convertible to cash, its face amount is taxable income to a cash method taxpayer in the year of execution. Frank Cowden, Sr., 32 T.C. No. 73 (1959).