S.D.N.Y. 1942, 46 F.Supp. 64. Hence, the earliest year the taxpayer may insist upon as the one in which he should report his gain from the condemnation proceedings is 1944.
The facts in the Kieselbach case, supra, were these: In 1930 the City of New York began condemnation proceedings in the state court to obtain title to the Kieselbachs' property. By resolution of a Board of Estimate made pursuant to the Greater New York Charter, title of the property vested in the city on January 3, 1933. On March 31, 1937 a judgment with legal interest was entered on a jury's verdict of just compensation which the Kieselbachs received on May 12, 1937. Our Circuit Court, after it ascertained the length of time the property was held by the Kieselbachs, referred only to the Internal Revenue Act effective for the calendar year in which they received the payment to determine the percentage of gain to be recognized in computing their net income. For this reason it seems to us that one of the holdings of that case is that in determining how gains realized from condemnation proceedings are to be taxed, a taxpayer should apply the income tax law in effect at the time the taxpayer, on a cash basis, received payment for his property. Unquestionably this was one of the holdings in Patrick McGuirl, Inc., v. C.I.R., 2 Cir., 1935, 74 F.2d 729; Winter Realty & Construction Co. v. C.I.R., 2 Cir., 1945, 149 F.2d 567
and Keneipp v. United States, 1950, 87 U.S.App.D.C. 242, 184 F.2d 263.
On appeal of the Kieselbach case to the Supreme Court of the United States, the only question raised, unfortunately, was whether the 'amount designated as interest in the condemnation award was part of the price * * * or was 'true' interest, taxable as ordinary income.' The Supreme Court, in affirming the Circuit Court's holding on that issue, made statements in its opinion, 317 U.S. 399, 63 S. Ct. 303, which gives the taxpayer before us some hope of ultimately recovering in this action. These statements are as follows:
On page 403 of 317 U.S., on page 305 of 63 S. Ct.: 'The property was turned over in January, 1933, by the resolution. This was the sale. Title then passed. * * * The transaction was as though a purchase money lien at legal interest was retained upon the property.' And on page 406 of 317 U.S., on page 307 of 63 S. Ct.: 'In the present case, the purchase price was settled as of January 3, 1933, when the property was taken over.'
We have been told that when a taxpayer sells his property (capital asset) and receives as the purchase price or as a part thereof a purchase-money mortgage from the buyer, gain to the taxpayer as a result of the sale is to be earmarked as net income in the taxpayer's income tax return for the calendar year in which the sale was made, and the market value of the purchase money mortgage is to be considered as part of the sales price in determining the amount of gain. Shubin v. C.I.R., 3 Cir., 1933, 67 F.2d 199; Piper v. C.I.R., 5 Cir., 1936, 84 F.2d 560. Had the taxpayer in the case before us sold the property in question on April 4, 1944 for $ 18,825 and accepted as consideration a down payment of $ 5,370 and a purchase-money mortgage for the balance of $ 13,455 payable in 1946 at interest of 6% per annum, the Commissioner would concede that the sale and gain to the taxpayer occurred on April 4, 1944.
If we were to assume that the comparison or analogy used by the Supreme Court in the Kieselbach case were to hold for the transaction here, we would be required to determine whether the 'purchase money mortgage' (possible future claim against the United States) has a fair market value, and if so, what that value was as of April 4, 1944, the date title to the 21.476 acres of land vested in the United States. If we were to conclude that it had a fair market value as of that date
, we would attain a result contrary to that reached in the Kieselbach opinion by our Court of Appeals, and the Patrick McGuirl, Inc., Winter Realty & Construction Co., and Keneipp cases, supra. Also see Burnet v. Logan, 1931, 283 U.S. 404, 412-413, 51 S. Ct. 550, 75 L. Ed. 1143. Consequently, we must rule that the taxpayer received no money and no property having a fair market value prior to 1946, and the gain to him from the condemnation proceedings occurred in 1946, the year in which he received payment.
In the alternative, the taxpayer argues that the $ 5,370 deposited in the registry of the court in 1944 was constructively received by him in that year and therefore, he should be taxed as though he received that sum in 1944 since it was in excess of the adjusted basis for the condemned land. In other words, he claims that regardless of whether or not he was entitled to the entire amount of the deposit, he would have included the gain resulting therefrom in his income tax return for the calendar year 1944 if he had withdrawn the deposit in that year. The Government meets this argument on two grounds. First, it says, the deposit was in no sense a measure of the amount the taxpayer was to receive, citing United States v. Miller, 1943, 317 U.S. 369, 63 S. Ct. 276, 87 L. Ed. 336, and therefore it was too uncertain in 1944 whether there would be any gain. Second, the deposit was not constructively received, because it does not appear of record that the taxpayer could have withdrawn it in whole or in part prior to his receiving payment in 1946.
We think the answer to taxpayer's argument is a simple one. We agree that if he had withdrawn the deposit in any one of the two years immediately preceding 1946, he could have reported the gain in his income tax return for that year. United States v. Lewis, 1951, 340 U.S. 590, 71 S. Ct. 522, 95 L. Ed. 560; Winter Realty & Construction Co. v. C.I.R., supra; Keneipp v. United States, supra, 184 F.2d at page 267. However, the taxpayer neither elected to report that amount in his returns for those years, nor did he actually withdraw that amount from the registry of the court in those years. He will not now be permitted to assert that he could have done so, and receive a tax benefit as if he did. Moran v. C.I.R., 1 Cir., 1933, 67 F.2d 601.
Accordingly, judgment may be entered in favor of the United States and against the taxpayer.