The Enright case, supra, involved the construction of the word 'accrued' under Sec. 42 and the Supreme Court indicated that a definition restricted according to the taxpayer's method of accounting would not be of use but that a much broader construction in line with the congressional purpose underlying the enactment of the section would be followed. In that case the Court held that Sec. 42 required the inclusion, as accruable items, in a decedent's gross income for the period ending with his death, of his share of the earned portion of the estimated receipts from the unfinished business of the partnership, valued as of the date of his death, although both the decedent partner and his firm kept their accounts and made their income tax reports on a calendar year cash receipts and disbursements basis. Justice Reed, speaking for the Court, stated:
'While 'accrue' and its various derivatives are not new to the nomenclature of accounting or taxation, its use has not sufficed to build it into a word of art with a definite connotation when employed in describing items of gross income. * * * That the meaning to be attributed to 'accrued' as used in Sec. 42 is to be gathered from its surroundings is emphasized by Sec. 48, Definitions, which says:
"(c) Paid, incurred, accrued. The terms 'paid or incurred' and 'paid or accrued' shall be construed according to the method of accounting upon the basis of which the net income is computed under this Part.'
'It is to be noted that no change was made by the 1934 Act in the Sec. 48 definition of 'accrued'. Yet, it is obvious that the definition is inapplicable since a taxpayer on a cash basis cannot have a 'method of accounting' by which the meaning of accrual is fixed. Consequently it is beside the point to give weight to provisions of the regulations or accounting practices which do not recognize accruals until a determination of compensation. Such provisions when applied bring the income into succeeding years. It has been frequently said, and correctly, that Sec. 42 was aimed at putting the cash receipt taxpayer on the accrual basis. But that statement does not answer the meaning of accrual in this section. Accounts kept consistently on a basis other than cash receipts might treat accruals quite differently from a method designed to reflect the earned income of a cash receipt taxpayer. Accruals here are to be construed in furtherance of the intent of Congress to cover into income the assets of decedents, earned during their life and unreported as income, which on a cash return, would appear in the estate returns. Congress sought a fair reflection of income.'
"Keeping accounts and making returns on the accrual basis, as distinguished from the cash basis, import that it is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income.' The completion of the work in progress was necessary to fix the amount due but the right to payment for work ordinarily arises on partial preference. Accrued income under Sec. 42 for uncompleted operations includes the value of the services rendered by the decedent, capable of approximate valuation whether based on the agreed compensation or on quantum meruit. The requirement of valuation comprehends the elements of collectability. The items here meet these tests and are subject to accrual.' 312 U.S.at pages 643-645, 61 S. Ct.at page 781, 85 L. Ed. 1093.
In line with this decision courts have recognized that accrued income under Sec. 42 'may be something different than what a living taxpayer on a accrual basis may record as accrued income.' Bach v. Rothensies, 3 Cir., 124 F.2d 306, 307, 142 A.L.R. 210, certiorari denied 316 U.S. 366, 62 S. Ct. 1035, 86 L. Ed. 1742.
The lump sum of $ 91,458.33 which the plaintiffs received as executors of the decedent's estate unquestionably represents compensation due decedent for services rendered by him. That sum was payable pursuant to the employment contract and, therefore, the right to the payment represented consideration for the services rendered by the decedent. As such it clearly was an item of gross income within the definition of Sec. 22(a) of the Revenue Act of 1938, 26 U.S.C. § 22(a). See U. S. v. Archer, 1 Cir., 174 F.2d 353, 356.
Furthermore, the work under the employment contract had been performed by the decedent up to the date of his death and thus, the right to the additional compensation, then accrued to his credit for the benefit of his estate. Suit could have been brought under the contract to enforce the right of payment. I cannot agree with plaintiffs that death was an event which had to occur before the amount in question 'accrued', as that term is used in Sec. 42. All conditions to be performed by decedent under the contract had to occur prior to his death and his death merely determined the incidence and time of payment. In the light of the interpretation of Sec. 42 by the Supreme Court in the Enright case, the amount paid to the executors under the terms of the employment contract accrued as of the date of decedent's death in 1940 and was properly includible in the income tax of the decedent for that year.
Moreover, if the view of the plaintiffs were to be sustained, the amount in question would now escape income taxation altogether. Plaintiffs argue that this situation is not a ground for imposing a tax without statutory authority. But, this is the very situation which Sec. 42 was designed to avoid and thus this result becomes important in the interpretation of the section. This is unlike the situation presented in the case of Putnam's Estate v. Commissioner, 324 U.S. 393, 65 S. Ct. 811, 89 L. Ed. 1023, cited by the plaintiffs. In that case there was no question that an income tax was to be imposed. The only issue was whether the taxpayer should be the decedent, or his estate, or the beneficiaries. It became important upon whom the tax fell as the sum assessed might vary according to the bracket of the taxpayer. In the instant case, if the plaintiffs had wished to shift the incidence of the income tax to either the estate or the beneficiaries thereunder, they could have taken advantage of the relief section provided for in the Revenue Act of 1942 which was designed to minimize the effect of including in the final return of the decedent, filed for the period prior to his death, gross income that could have been received over a period had the decedent lived. Section 134(a) of the Revenue Act of 1942 amended Sec. 42 of the Internal Revenue Code so as to provide that 'In the case of the death of a taxpayer * * * amounts * * * accrued only by reason of the death of the taxpayer shall not be included in computing net income for the period in which falls the date of the taxpayer's death.' Section 126(c)(1) of the Internal Revenue Code, 26 U.S.C. 126(c)(1), enacted in Sec. 134(e) of the Revenue Act of 1942 provided that the amount of all items of gross income of a decedent not properly includible in the taxable period in which falls the date of his death or a prior period shall be included in the gross income for the taxable year when received, or either the estate of the decedent, or the person who acquires the right to the amount from the decedent's estate. Section 134(g) of that Act gave this provision a retroactive effect which would have included the period here in question, provided that there were filed with the Commissioner of Internal Revenue certain consents by the fiduciaries representing the estate and by designated beneficiaries. However, the plaintiffs have failed to file the necessary consents so as to make these ameliorative provisions applicable to their case. That the plaintiffs, as executors, had already elected to take the lump sum payment prior to the passage of these provisions and thus could not have taken advantage of reporting the income in nine separate installments does not derogate from the scope of coverage of Sec. 42(a) to a period prior to the date of the passage of the 1942 Revenue Act nor from the effect of the ameliorative provisions of that Act.
Conclusion of Law
It follows, therefore, that the Collector properly included the amount received by the plaintiffs, pursuant to the decedent's contract of employment in the gross income of the decedent for the taxable period ending with his death and he is entitled to judgment in his favor that plaintiffs' suit should be dismissed.
An order in conformity with this opinion should be settled.