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June 15, 1973

Pittsburgh-Des Moines Steel Company, Plaintiff,
United States of America, Defendant

The opinion of the court was delivered by: TEITELBAUM

 The principal issue in this case is whether the gain from the sale of stock by taxpayer, Pittsburgh-Des Moines Steel Company (PDM), is taxable in 1960 or in 1961. The Government claims that the sale was taxable in 1960 and the taxpayer contends that the gain was taxable when payment was made in 1961. Both parties have moved for summary judgment.

 In 1960 PDM held 15,960 shares of stock of Horton Steel Works, Limited (Horton). The remainder *fn1" of Horton stock was owned by Chicago Bridge & Iron Company (Chicago Bridge), which was desirous of obtaining complete control of Horton. Following a period of tentative negotiations, on September 30, 1960, PDM offered to sell all of its Horton stock to Chicago Bridge for $2,043,657.45. On November 17, 1960, Chicago Bridge counteroffered to buy 15,865 shares for $2,021,828.73, plus all subsequently acquired shares at cost. By letter dated November 21, 1960 the taxpayer accepted the counteroffer, adding that it assumed that Chicago Bridge would pay the United States and Canadian transfer tax. On November 22, 1960, PDM delivered the endorsed stock certificates by mail to Chicago Bridge.

 The next day, November 23, 1960 PDM executives learned for the first time that 1960 would not be a profitable year for the company. This situation made it advantageous for PDM to defer recognition of the capital gain realized on the sale of the Horton stock until 1961. Thus, on November 23, 1960, executives of PDM and Chicago Bridge conferred by telephone in an attempt to resolve the problem. Following that conversation, taxpayer sent a new letter to Chicago Bridge, backdated to November 21, 1960, requesting that payment of $205,344.90 be made immediately and that payment of $1,825,451.90 be made on January 3, 1961. *fn2" Also, on November 23, a Chicago Bridge executive wrote to PDM suggesting that PDM should pay the United States transfer tax (amounting to $812.64), while Chicago Bridge paid the Canadian tax ($638.40).

 This plan was subsequently carried out as agreed upon. On December 1, 1960, PDM received a Chicago Bridge check for $205,334.90 for 2020 shares of Horton stock. On January 5, 1961, taxpayer received a check for $1,825,451.90, which represented the balance of the purchase price for the shares. The taxpayer's proceeds in each instance were reduced by the amount of United States transfer tax while Chicago Bridge paid the Canadian tax on each occasion.

 The Government urges that PDM and Chicago Bridge entered into a valid contract calling for the payment of the entire purchase price in 1960 on November 21, 1960 when the taxpayer unequivocally accepted Chicago Bridge's terms. *fn3" PDM on the other hand cites this Court to Cohn v. Penn Beverage Co., 313 Pa. 349, 352, 169 A. 768, 769 (1934) wherein it was held that "to constitute a contract the acceptance of the offer must be absolute and identical with the terms of the offer." PDM contends that its original November 21 letter added a new condition to the acceptance of Chicago Bridge's offer of $2,021,828.73 for the stock, namely that Chicago Bridge pay both the United States and Canadian transfer taxes, thus constituting a counteroffer.

 Thus, the parties in their briefs suggest that this issue be decided in accordance with the rules of contract law which govern an acceptance which varies the terms of an offer. I find it unnecessary to utilize this ground for decision. *fn4" I find that the parties entered into a legally binding and valid amendment or modification of their contract on November 23, 1960, by virtue of their telephone conversations on that date and their later correspondence which incorporated the mutually agreed upon changes as to schedule of payment and sharing of transfer taxes. *fn4"

 There is no question but that PDM sought to modify (and succeeded in modifying) its original agreement of sale with Chicago Bridge in order to avoid incurring a long-term capital gain *fn6" in 1960 which would have eliminated whatever tax advantage it would have enjoyed from the anticipated net operating loss in that year. In itself, there is nothing legally wrong with such a course of action. The taxpayer has a right to minimize his federal income tax obligations. Gregory v. Helvering, 293 U.S. 465, 79 L. Ed. 596, 55 S. Ct. 266 (1935).

 The question is not whether this taxpayer has the right to minimize his tax obligations, but whether there exists a doctrine of tax law which renders the means employed unavailable to him. The Government suggests that the doctrine of constructive receipt is such a device.

 Under the doctrine of constructive receipt, income which is subject to the unfettered command of a taxpayer and which he is free to enjoy at his option is taxed to him, despite the fact that he has exercised his own choice to turn his back on that income. See 2 Mertens, Law of Federal Income Taxation, Section 10.02. The doctrine then, embodied in Treasury Regulations, Section 1.451-2(a) *fn7" is one by which the form of a transaction is ignored in order to get to its substance. Constructive receipt has particular applicability to questions of the proper taxable year and has been applied most often as to individual taxpayers earning income in one period who attempt to derive its benefits at a later time.

 In the instant situation, certain facts exist which might, standing alone, lead to the conclusion that PDM constructively received income in 1960, rather than 1961. First is the fact that PDM and Chicago Bridge, at PDM's urging, structured the transaction so as to lead to taxability in the most advantageous year. As has been noted above, this can lead to no inference in and of itself of wrongdoing or taxability. Second is the fact that immediately after the initial agreement calling for immediate payment was reached, PDM delivered the endorsed Horton certificates to Chicago Bridge. This fact is effective to raise the inference that on November 22, 1960, prior to the parties' amendment of their contract of sale, PDM had an unfettered right to demand payment immediately.

 It is important to note however that even assuming PDM had an unfettered right to the money in 1960, it only had such right for a period of hours -- the period after the initial agreement was reached on November 21, 1960, and before PDM received the information on November 23, 1960 which led it to seek and obtain modification of the contract. Once the modification had been accomplished, PDM and Chicago Bridge were bound by their contractual obligation that PDM should receive the bulk of the payment in January of 1961.

 Therefore this Court finds that even if PDM had an unfettered right to receive payment in 1960, such right only existed in the taxpayer for a matter of hours and is de minimis to the considerations here at hand. An effective modification of the contract of sale having been accomplished, this case is governed by the reasoning used in Commissioner v. Oates, 207 F.2d 711 (7th Cir. 1953) and Commissioner v. Olmsted Inc. Life Agency, 304 F.2d 16 (8th Cir. 1962).

 In Oates, the taxpayers were insurance agents who, at retirement, amended their agency contract with the insurance company to provide that future renewal commissions should be paid to them in equal monthly installments over a 15 year period, regardless of when and in what amounts the renewal commissions would have become due under the original agency agreement. The Commissioner determined that the agents were taxable on the renewal commissions as they accrued under the original contract. Both the Tax Court (18 T.C. 570) and the Seventh Circuit rejected the Commissioner's contention and found that the amended contract constituted a ...

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