-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 thePage: Previous 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 Next
Last modified: May 25, 2011