Earl A. Phillips and Dorothy M. Phillips v. William E. Frank, District Director of Internal Revenue

This is an action to recover federal income taxes allegedly overpaid by appellants for the calendar years 1955, 1956 and 1957, recovery of which was denied by the district court. See Phillips et al. v. Frank, etc., D.C., 185 F.Supp. 349 .

Appellants are husband and wife who filed joint returns on the cash basis for the taxable years above stated. The husband, Earl A. Phillips, will hereinafter be called the taxpayer.

During the years in question the taxpayer’s accounting records were kept on the cash receipts and disbursements method, and during these years, the taxpayer received payments on real estate contracts owned by him. All of said contracts were purchased by taxpayer in the years in question or prior thereto. Taxpayer did not perform any services in the making of the contracts, but only purchased contracts negotiated by others, the unpaid principal balances of which were payable in periodic installments. In each instance, the price paid was an agreed percentage less than the principal amount due on the contract, which percentage was not the same on all contracts. In other words, they were purchased at a discount. Contracts of the type involved were bought and sold by…