without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition.'
Although the Government contends that this language and the doctrine of constructive receipt are inapplicable here because possession by the agent was possession by the principal,
this language of the Treasury Department is pertinent in view of the facts of this case, including the following:
A. The record makes clear that the check for $ 246,398.57 was received by the agent as joint agent for two principals
with the understanding that $ 39,630 should be paid as commissions from it and the balance divided between them. Under these circumstances, accepting the Government's position that receipt by the agent is receipt by the principal, the check to Mr. Unger's order was equivalent to a joint check made out to Mr. Cronheim and Mrs. Kamm, who was in Florida, and the joint payees had agreed that $ 39,630 of the joint check was to be distributed for insurance and real estate commissions, making it essential that the check be cashed or deposited.
B. The affidavit filed by the Government as to the practice of the bank on which the check was drawn shows that at least three conditions
would have had to be fulfilled before a check of this size would be cashed by it, including the condition that the bank would check 'with the maker thereof.' The drawee bank was located at Broadway and 38th Street (about 25 blocks, being 2 1/2 miles, from the place of settlement at 598 Madison Avenue).
The portion of this check allocable to Mrs. Kamm was not 'made available to her so that it may be drawn at any time and its receipt brought within (her) own control and disposition'
during the period between the delivery of the check after 2 P.M. Friday, December 30, and midnight of December 31, 1949.
In order to subject Mrs. Kamm's share of the above-mentioned check to her, or her agent's, control during the year 1949, the agent would have had to either carry approximately a quarter million dollars in cash on the streets of New York City during the afternoon of the last business day of the year or he would have had to set up a bank account in her name in a New York City bank. The hearing judge concludes that the federal income tax cases do not support a holding that a jury could find, beyond a reasonable doubt, that any part of this check constituted income to Mrs. Kamm in 1949 under the situation now before the court.
In Lavery v. Commissioner, 7 Cir., 1946, 158 F.2d 859, 860, the court held that a check in the amount of $ 2,666.67, received on the next-to-the-last business day of the year, was taxable in that year, but pointed out:
'There might perhaps he a distinction between the date of receipt of cash and the date of the receipt of a check which arrived the last day of the year and too late to be cashed by the payee on that day. In the instant case the taxpayer could have cashed the check on the day it was received by him, or at least on the next day.'
In Commissioner v. Fox, 3 Cir., 1954, 218 F.2d 347, the court held that dividends mailed on the last day of the year were not taxable in that year, even though the payees could have received and cashed their checks on that date by calling at the financial institution mailing the checks. At page 350 of 218 F.2d, the court used the following language, which is equally applicable to the facts of this case:
'In the instant case the savings and loan associations adopted the usual corporate practice. There was no attempt on the part of the taxpayer, as in the Kunze case ( Kunze v. Commissioner of Internal Revenue, 19 T.C. 29, affirmed per curiam, 2 Cir., 203 F.2d 957) to delay or fix the time of payment to him. The payments in the instant case were made or occurred in the ordinary course of business.'
In this case, the agent had the obligation to either cash or deposit the check so that he could pay the $ 39,630 in insurance and brokers' commissions and divide the balance between his principals. Neither principal could have demanded that he do this in any particular way without the approval of the other principal, since he was entitled to rely on his contract of August 17, 1949, as amplified by the December 1949 oral instructions. The lawyer operating as agent for two independent principals acted in accordance with recognized rules governing fiduciaries
and members of his profession
in depositing this check in his 'attorney' or 'trustee' account and drawing checks on this account to those entitled to the proceeds, including Mrs. Kamm. No device was used to delay receipt of this income by Mrs. Kamm.
The terms under which this agent received the proceeds allocable to his two principals, requiring him to pay certain expenses and divide the proceeds, are similar to the terms governing escrow agents, whose receipts constituting capital gains for such principals have not been held taxable to such principals until distributed. See Commissioner v. Tyler, 3 Cir., 1934, 72 F.2d 950,
2 Mertens, 'Law of Federal Income Taxation,' Rev.Ed., § 10.05.
For the foregoing reasons, the motion to dismiss the indictment will be granted
and there is no need to consider the other undisposed of pre-trial motions filed by the defendant.