United States v. James H. Marshall and Thelma Marshall

In 1959 Plaintiffs-Appellees sold their sole proprietorship business to a corporation, 60% of whose stock was owned by them. The $110,513.22 sale price was to be paid by the corporation assuming a $9,944.36 account owing to appellees, by its assuming $25,568.86 in current liabilities of the proprietorship, and by its executing a promissory note to the ap-pellees for $75,000. During 1959 plaintiffs received payment of the $9,944.36 account plus $4,000 in payment on the $75,000 note, and, in the ordinary course of business, the corporation paid obligations totaling $25,568.86 for which ap-pellees had been personally liable.

Appellees reported the resulting $20,-287.39 long-term capital gain on an installment basis, pursuant to 26 U.S.C. § 453 . The Commissioner of Internal Revenue disallowed the installment basis for returning the gain, contending that ap-pellees received more that 30% of the selling price in 1959 by virtue of the corporation paying the $25,568.86 in current business obligations for which ap-pellees had been personally liable.

Title 26 U.S.C. § 453 provides in material part, “ * * * [i]ncome from * * * a casual sale or other casual disposition of personal property…