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September 13, 1957

CITY STORES COMPANY (as common parent of an affiliated group of corporations)
Francis R. SMITH and Joseph F. J. Mayer

The opinion of the court was delivered by: DUSEN

The trial judge makes the following Findings of Fact and Conclusions of Law:

I. Findings of Fact

 Paragraphs 2, 3, 4, 5 (including Exhibit C attached to the complaint), 6, 7 (including Exhibit D attached to the complaint), 8, 9, 10, 11, 12 (including Exhibit A attached to the stipulation), 13, 14, 15, 16 (including Exhibit A attached to the complaint), 17, 18 (including Exhibit B attached to the complaint), and 19 of the stipulation filed January 16, 1957, and paragraphs 1, 2, 3, and 4 of the supplemental stipulation filed June 19, 1957, are adopted as the Findings of this court.

 II. Discussion

 Section 44(c) of the Internal Revenue Code of 1939 (hereinafter called 'Code'), 26 U.S.C.A. § 44(c), provides as follows:

 '(c) Change from accrual to installment basis. If a taxpayer entitled to the benefits of subsection (a) elects for any taxable year to report his net income on the installment basis, then in computing his income for the year of change or any subsequent year, amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded.'

 Where a taxpayer had used the accrual method of accounting in the years prior to this change to the installment basis provided for in § 44(a) *fn1" of the Code, the effect of this provision has been to subject the 'amounts actually received during any such year on account of sales * * * made in any prior year' to double taxation. This has been upheld as a valid exercise of legislative power not imposing an unconstitutional direct tax. See Willcuts v. Gradwohl, 8 Cir., 1932, 58 F.2d 587, rehearing denied 1932; Jackson Furniture Co. v. McLaughlin, 9 Cir., 1936, 85 F.2d 606, 608; Hoover-Bond Co. v. Denman, 6 Cir., 1932, 59 F.2d 909. See, also, Commissioner of Internal Revenue v. South Texas Lumber Co., 1948, 333 U.S. 496, 501-503, 68 S. Ct. 695, 92 L. Ed. 831. *fn2"

 Plaintiff contends that the sales by its subsidiaries, *fn3" Lowenstein and Maison Blanche, of installment accounts to the Union Bank and the National Bank, respectively, prevents the imposition of the second tax, since neither plaintiff nor its subsidiaries during the taxable year here involved 'actually received' any collections on such installment accounts.

 The defendant initially replies that the provisions of such sales (see Exhibits C and D attached to the complaint which have been adopted in the Findings of Fact above) and all of the circumstances existing at the time the purported sales were made to the banks make clear that the transfers were more in the nature of loans, borrowings or advancements of funds made by the banks and, therefore, should not be recognized as bona fide sales for the purpose of determining whether the receipts were includible in plaintiff's income tax return and the provisions of § 44(c) were applicable.

 Though the Commissioner of Internal Revenue refused to treat the transfer of plaintiff's installment accounts to the banks as sales effecting 'closed' transactions (stipulation, paragraph 13), the Appellate Division -- Philadelphia Region, Internal Revenue Service, 'conceded that the contracts transferring the installment receivables to the respective banks constituted sales of said receivables' (stipulation, paragraph 17). *fn4"

 Considering all of the circumstances, *fn5" particularly the creation of Installment Payment Reserve Accounts in both instruments by which plaintiff stood to lose substantial sums of money, and the principles of law in East Coast Equipment Co. v. Commissioner of Int. Rev., 3 Cir., 1955, 222 F.2d 676, 677, *fn6" the hearing judge concludes that these contracts did constitute sales effecting completed transactions. *fn7"

 Defendant, in the alternative, contends that if the transactions are sales, the requirement of § 41 of the 1939 Code, 26 U.S.C.A. § 41, *fn8" would be violated if the 'amounts actually received' under § 44(c) by plaintiff's subsidiaries from these installment sales during the taxable year were excluded from plaintiff's income tax return.

 Further, defendant contends that Congress intended by § 44(c) to require the collections on installment accounts during the period of transition to be included in computing income during that period as a consequence of permitting a taxpayer to change his method of accounting from the accrual to the installment basis. *fn9" But since the collections made by plaintiff's subsidiaries on behalf of the purchasing banks, and the transmittal of such collections to the banks were a condition of the sales, plaintiff did not obtain any beneficial interest in the amounts collected after the sales.

 Treasury Regulations 111, § 29.44-1, 26 C.F.R.Cum.Supp., Chapter 1, Part 29, provides, in part, as follows:

 'The general rule prescribed is that a person who regularly sells or otherwise disposes of personal property on the installment plan, whether or not title remains in the vendor until the property is fully paid for, may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total or gross profit (that is, sales less cost of goods sold) realized or to be realized when the property is paid for, bears to the total contract price. Thus, the income of a dealer in personal property on the installment plan may be ascertained by taking as income that proportion of the total payments received in the taxable year from installment sales (such payments being allocated to the year against the sales of which they apply) which the total or gross profit realized or to be realized on the total installment sales made during each year bears to the total contract price of all such sales made during that respective year. No payments received in the taxable year shall be excluded in computing the amount of income to be returned on the ground that they were received under a sale the total profit from which was returned as income during a taxable year or years prior to the change by the taxpayer to the installment basis of returning income.' *fn10"

 It is clear that these installment payments were not actually 'received' by plaintiff or its subsidiaries and, therefore, cannot be included as part of plaintiff's income in such taxable year. The statutory language of §§ 41 and 44(a) and (c), and the Treasury Regulations interpreting them, do not appear to require the result defendant contends for and, therefore, in view of the principle that a construction of statutory wording which will result in double taxation must be avoided unless required by express words, *fn11" plaintiff must be granted a refund of the overpayments claimed herein. *fn12"

  A taxpayer has the legal right 'to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits;' and 'the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make unlawful what the statute allows.' Gregory v. Helvering, 1935, 293 U.S. 465, 468, 469, 55 S. Ct. 266, 267, 79 L. Ed. 596. See Chisholm v. Commissioner of Internal Revenue, 2 Cir., 1935, 79 F.2d 14, 15, certiorari denied Helvering v. Chisholm, 1935, 296 U.S. 641, 56 S. Ct. 174, 80 L. Ed. 456; United States v. Cumberland Pub.Serv. Co., 1950, 338 U.S. 451, 455, 70 S. Ct. 280, 94 L. Ed. 251; and Superior Oil Co. v. State of Mississippi, 1930, 280 U.S. 390, 395-396, 50 S. Ct. 169, 74 L. Ed. 504. Cf. Parks-Chambers v. Commissioner of Int. Rev., supra, 131 F.2d at page 66, where the court said:

 'Where the taxpayer's acts are unequivocal, as here, and their tax consequences clear, questions, of the intent with which he did the act, or the supposed equitable or inequitable result of this or that view are wholly immaterial. What the taxpayer did, and not what he intended to do, is the controlling inquiry.' *fn13"

 III. Conclusions of Law

 Plaintiff's requested Conclusions of Law Nos. 1 to 11, inclusive, are adopted as the Conclusions of Law of this Court.

 All requests for Conclusions of Law which are inconsistent with the foregoing are denied.

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