-55-
Again any analogy of this case to the present one
fails. The time during which the option could be
exercised was largely uncertain--at any time six months
after the owner's demise running the term of the lease
of twenty-five years. The primary purpose seemed to be
to provide an elderly widow with an income for her
lifetime and it was held in effect, that as such, the
$25,000 payment was to be regarded as rent or income in
advance and hence was includable in her taxable income
when she received it. [Commissioner v. Dill Co., 294
F.2d 291, 299 (3d Cir. 1961), affg. 33 T.C. 196
(1959).]
In the present case, the option term was certain, expiring in
June 1991. The primary purpose of the option payment was to
allow the Woods time to arrange funds for a downpayment.
For cash method taxpayers, such as petitioners, section
451(a) provides that an item of income shall be included in gross
income in the taxable year in which it is received by the
taxpayers. One exception to this rule of recognition is that,
when it cannot be determined whether payments received will, at
some future date, represent income or a return of capital, they
are not taxed until their character becomes fixed. Burnet v.
Logan, 283 U.S. 404, 413 (1931); Dill Co. v. Commissioner, 33
T.C. 196, 200 (1959), affd. 294 F.2d 291 (3d Cir. 1961); Virginia
Iron Coal & Coke Co. v. Commissioner, 37 B.T.A. 195, 198 (1938),
affd. 99 F.2d 919 (4th Cir. 1938). Respondent argues that the
option payment received by petitioners falls within this
exception.
The deferral of the taxability of option payments is based
on two considerations: (1) The grantor of an option must wait
until the option is exercised or lapses to determine whether the
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