Leo and Alla Goldberg - Page 55

                                        -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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