
    NORTH TEXAS LUMBER CO. v. COMMISSIONER OF INTERNAL REVENUE.
    Circuit Court of Appeals, Fifth Circuit.
    February 15, 1929.
    No. 5318.
    Joseph J. Eckford, of Dallas, Tex. (Paul T. McMahon, of Dallas, Tex., on the brief), for petitioner.
    Mabel Walker Willebrandt, Asst. Atty. Gen., Sewall Key and Randolph C. Shaw, Sp. Asst. Attys. Gen., and C. M. Charest, General Counsel, Bureau of Internal Revenue, and Thos. P. Dudley, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C. (Shelby S. Faulkner, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., on the brief), for respondent.
    Before WALKER, BRYAN, and FOSTER, Circuit Judges.
   FOSTER, Circuit Judge.

In this case tbe material facts as found by tbe Board of Tax Appeals are these:

Petitioner, a Texas corporation, negotiated with tbe Southern Pine Company for the sale of certain timberlands, in 1916. On December 27, 1916, tbe price was agreed upon and tbe purchaser was satisfied as to the title. The purchaser was solvent, but required a few days to borrow some $200,000 to complete tbe purchase. An option was granted for ten days, tbe loan was arranged, and tbe purchaser telegraphed petitioner on December 30, 1916, that it would exercise tbe option and was prepared to complete the purchase. Petitioner agreed at once, but the deed was not delivered until January 5,1917.

Petitioner’s books are kept on the accrual basis. Petitioner allocated tbe profit from tbe sale to tbe year 1916 and made a supplementary return to that, effect. Tbe Commissioner of Internal Revenue, however, found tbe profit to be $79,057.95, allocated it to tbe year 1917, in which year it was collected, and determined a deficiency of taxés for that year of $19,733.90. On appeal the Board approved the aetion of the Commissioner. This, we think, was error.

Profits accrue when they are fixed and an enforceable liability is created. Allen v. Armstrong, 58 App. Div. 427, 68 N. Y. S. 1079; Holmes, Federal Taxes (6th Ed.) p. 1248. Of course, delivery of the deed was necessary to vest legal title in the purchaser, but between the parties the transaction was complete and their rights vested on December 30, 1916. Petitioner could on that day have tendered tbe deed and demanded payment and, if refused, could have maintained a suit for tbe purchase price. Tbe subsequent delivery of tbe deed and collection of tbe purdíase price did not change conditions as they existed on December 30, 1916, as to the amount of profit derived from tho sale or its accrual.

Regardless of when the purchase money was paid, as petitioner kop1' books and made returns on the accrual basis, he was obliged to allocate tho profit from the transaction to tho year 1916. During that year all tho events necessary to fix the amount of tho profit had occurred. This conclusion finds support in the reasoning of the court in U. S. v. Anderson, 269 U. S. 423-441, 46 S. Ct. 131, 70 L. Ed. 347, in which it was held that taxes on munitions manufactured in 1916 for which a reserve had been set up should bo deducted as an expense of that year, although paid in 1917. The same reasoning applies to profits earned in one year though not actually received until the following year, when tho books are kept on the accrual basis. See Am. Nat. Co., Receiver, v. U. S., 274 U. S. 99, 47 S. Ct. 520, 71 L. Ed. 946.

The petition is granted, and the judgment is reversed.  