                       T.C. Memo. 2004-143



                     UNITED STATES TAX COURT



            KEITH AND JANET SCHERBART, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3345-99.              Filed June 17, 2004.


     Kathryn J. Sedo and Ryan Kelly, for petitioners.

     Blaine C. Holiday, for respondent.


                       MEMORANDUM OPINION


     PAJAK, Special Trial Judge:   Respondent determined

deficiencies of $3,791 and $2,582 in petitioners’ 1994 and 1995

Federal income taxes, respectively.   Unless otherwise indicated,

section references are to the Internal Revenue Code in effect for

the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.
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     After resolution of other issues as a result of Bot v.

Commissioner, 353 F.3d 595 (8th Cir. 2003), affg. 118 T.C. 138

(2002), the sole issue remaining for decision is whether

petitioners are entitled to defer income.

     Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in Balaton, Minnesota, at the time

they filed their petition.

     Section 7491 does not affect the outcome because

petitioners’ liability for the deficiencies is decided on the

preponderance of the evidence.

     During taxable years 1994 and 1995, petitioner Keith

Scherbart (petitioner) was a member of Minnesota Corn Processors

(MCP).   MCP is an agricultural cooperative organized under the

laws of the State of Minnesota and owned by corn producers for

the purpose of marketing and processing their corn.

     Under the Uniform Marketing Agreement, petitioner designated

MCP as petitioner’s agent.   Petitioner was obligated to deliver

bushels of corn equal to the number of “Units of Equity

Participation” he held in MCP.    MCP required 3 deliveries of raw

corn per year.   Members were permitted to fulfill their delivery

obligations through a variety of means, including the use of

MCP’s “pool” corn.   “Pool” corn is corn purchased and maintained

by MCP, and at the request of a member is used to fulfill a

specified portion of the member’s delivery obligation.    During
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the taxable years in issue, petitioner fulfilled his delivery

obligations to MCP with “pool” corn.     MCP charged a flat per-

bushel service charge to members who fulfilled their delivery

obligations with “pool” corn.

      MCP’s processing added value to the corn delivered by its

members.   As a result, in addition to the payments and fees for

delivered corn, MCP made “value added” payments to its members

subsequent to each of the 3 required delivery periods.     In

addition, MCP made discretionary yearend value-added payments

determined after the close of MCP’s fiscal year ending September

30.   Such yearend value-added payments were not mandatory and

were based upon MCP’s “net proceeds”.     Only yearend value-added

payments are before us.

      Petitioner received a letter from MCP, dated August 30,

1995, which stated in pertinent part that the yearend value-added

payment for 1995 would “be determined after MCP’s annual audit

and paid out by mid-November.”    The letter indicated that

petitioner could check a statement that he “would like” to have

his 1995 yearend value-added payment deferred until January 1996.

In the space above the deferral paragraph, the letter noted that

“Value added must still be reported as income on your tax forms.

Consult your tax advisor with any questions.”

      On September 25, 1995, petitioner deferred his yearend

value-added payment for 1995 until January 1996.     Petitioner
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stated that he deferred his yearend value added payment for 1994

to 1995.   For tax purposes, petitioner has deferred the yearend

value added payments for each year since becoming a member of MCP

in the early 1980s.

     Section 451(a) provides that the “amount of any item of

gross income shall be included in the gross income for the

taxable year in which received by the taxpayer, unless, under the

method of accounting used in computing taxable income, such

amount is to be properly accounted for as of a different period.”

     Section 1.451-1(a), Income Tax Regs., provides, in relevant

part, that

     Gains, profits, and income are to be included in gross
     income for the taxable year in which they are actually or
     constructively received by the taxpayer unless includible
     for a different year in accordance with the taxpayer’s
     method of accounting. * * * Under the cash receipts and
     disbursements method of accounting, such an amount is
     includible in gross income when actually or constructively
     received.

Section 1.451-2(a), Income Tax Regs., provides that

     income although not actually reduced to a taxpayer’s
     possession is constructively received by him in the taxable
     year during which it is credited to his account, set apart
     for him, or otherwise made available so that he may draw
     upon it at any time, or so that he could have drawn upon it
     during the taxable year if notice of intention to withdraw
     had been given. However, income is not constructively
     received if the taxpayer’s control of its receipt is subject
     to substantial limitations or restrictions.

     We find a direct parallel to Warren v. United States, 613

F.2d 591 (5th Cir. 1980).   The court held that the gins were the
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sellers’ agents for the sale of cotton.    The sellers could

instruct the gins to defer the proceeds of the sale to the

following year.     It was the sellers’ decision to defer payments.

The agreement of deferral was between the sellers and their

agents.   The sellers’ decision “to have the gins hold the sales

proceeds until the following year was a self-imposed limitation *

* *   Such a self-imposed limitation does not serve to change the

general rule that receipt by an agent is receipt by the

principal.”    Id. at 593.   The court found that “The income was

received by the * * * [sellers’] agents in the year of the sale.

The fact that the * * * [sellers] restricted their access to the

sales proceeds does not change the tax status of the money

received.”    Id.

      Here, in accordance with Bot v. Commissioner, supra, and

with the terms of the Uniform Marketing Agreement, we find MCP

was the agent of petitioner.    As indicated in the August 30,

1995, letter from MCP, the 1995 yearend payment representing his

share of sales proceeds received by MCP during its fiscal year

ending September 30, 1995, was made available to him as of mid-

November of that year.    Petitioner conceded that the same

practice was followed in 1994, which means that the yearend

payment for that year constituting his share of sales proceeds

received by MCP during its fiscal year ending September 30, 1994,

was made available to petitioner as of mid-November 1994.
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Because MCP served as his agent for making the sales and

receiving the sales income, the only limitations placed on

petitioner’s receipt of that income were self-imposed and

therefore ineffective to achieve a deferral for tax purposes.

     On this record, we conclude that petitioner constructively

received the yearend value-added payments during the respective

taxable years in issue.

     Lastly, because we have held petitioners taxable in 1994 and

1995, we find that petitioners are entitled to offsetting

adjustments in each of the respective years to take into account

the yearend value-added payments previously reported as income

for those years.   Sec. 481.

     Contentions we have not addressed are irrelevant, moot, or

meritless.

                                            Decision will be entered

                                       under Rule 155.
