Clair E. Roberts and Betty B. Roberts v. Commissioner of Internal Revenue

The Commissioner has taken this appeal from a decision of the Tax Court respecting the extent of Taxpayer’s taxable income. The question presented is whether gain realized from sales of stock to a trust established by Taxpayer could be reported on the installment method provided by § 453(a)(1) of the Internal Revenue Code of 1954, 26 U.S.C. § 453 (a)(1). For the years 1971 through 1973, the Commissioner disallowed installment treatment of Taxpayer’s stock sales and determined deficiencies in payment of income tax amounting to $344,-168.22.

Taxpayer began an association with Sambo’s Restaurants, Inc., in 1961, and over the years acquired a substantial block of stock in that company for which his initial and only cash contribution was $200. Ralph Roberts, Taxpayer’s brother and one of the co-founders of Sambo’s, had for some time acted as Taxpayer’s investment adviser. By 1971, on his brother’s advice, Taxpayer had determined to diversify his holdings. From 1971 through 1973 he sold over one million dollars worth of Sambo’s stock on the open market, paying full capital gains tax on the sale proceeds. These sales are not in issue.

On June 2, 1971, on the advice of his brother,…