The opinion of the court was delivered by: BURNS
The parties in this case have filed a comprehensive stipulation of facts which, insofar as pertinent, is herewith adopted. Many of the facts recited in the stipulation will be reiterated in the findings set forth below.
1. Plaintiff resides and maintains his place of business and office in Erie, Pennsylvania.
2. The office of defendant, the duly appointed Collector of Internal Revenue for the 23rd District of Pennsylvania, is in Pittsburgh, Pennsylvania.
3. On or about December 30, 1943, plaintiff sold to one James W. Vicary, of Erie, Pennsylvania, 61 2/3 shares of common stock, $ 100 par value, of the Erie Enameling Company (hereinafter called 'Enameling'), a Pennsylvania corporation whose principal place of business is in Erie, Pennsylvania.
5. On the same date, Vicary executed a written assignment to plaintiff of all future cash dividends on those aforementioned shares of stock. This assignment was to continue until the $ 49,218.75 balance had been paid. A special provision in the event that Vicary died before the total balance had been paid is included in the assignment.
6. The cost basis of the 61 2/3 shares, when plaintiff purchased them in 1922, was $ 6,166.67.
7. At the same time as Vicary assigned the Enameling dividends to plaintiff, he gave plaintiff a 3% promissory note, executed by himself, in the sum of $ 49,218.75. The note, non-negotiable and non-assignable without Vicary's written consent, stated that the sum due was to be paid solely out of (a) Enameling dividends, which Vicary thereafter expected to receive, (b) payments to be made to him as participant in the Enameling bonus fund, and (c) such amounts from his personal resources as he wished to make. A similar recital is contained in the assignment dated December 30, 1943.
8. Plaintiff reported the transaction with Vicary as an installment sale of personal property governed by Section 44(b) of the Internal Revenue Code, 26 U.S.C.A. § 44(b). Figuring his sale price as $ 54,687.50 and his gross profit as being 88,7238%. Taking that percentage of $ 5,468.75 (the down payment made by Vicary), plaintiff computed a gain of $ 4,851.96,
50% of which was reported as a long-term capital gain.
9. On December 30, 1943, Vicary also bought a like amount of stock of Enameling from one H. Eric Schabacker. The terms of this transaction were the same. Schabacker, Vicary, and plaintiff thereafter constituted the board of directors of Enameling, each director owning the same amount of stock.
10. Enameling neither declared nor paid cash dividends in 1944 or 1945.
11. In 1944, Enameling paid Vicary a cash bonus of $ 2,157.92. Out of that bonus, Vicary paid plaintiff $ 760, to be applied against the principal sum due on his note. No interest payment was made to plaintiff.
12. In 1945, Enameling paid Vicary a cash bonus of $ 755.95. Of that, Vicary paid plaintiff $ 350, to be applied against the principal sum due on his note. No ...