New Capital Hotel, Inc. v. Commissioner

Brief Fact Summary. Petitioner leased property for 10 years at $30,000 per year. The lessee agreed to pay $30,000 in advance for the last year of the lease. Petitioner did not include this amount in his gross income.

Synopsis of Rule of Law. Income is includable in gross income in the year received.

Facts. Petitioner leased hotel property for a period of 10 years from 1950 to 1959. The lessee was to pay rent of $30,000 during each year of the lease, and a $30,000 advance payment for the last year of the lease. The advance was paid and was to be applied during the last year of the lease. The amount was returnable if the building was substantially destroyed prior to the last year of the lease. Petitioner had no restrictions on use of the money. Petitioner claims this advance should count as income in 1959, and the Commissioner claimed it should be counted as income the year in which it was received.

Issue. Whether the $30,000 advance payment received in 1949 is gross income in 1949, or in 1959 when the payment is to be applied as rent?

Held. Judge Black issued the opinion for the Tax Court of the United States in affirming the Commissioner and holding that the amount is income for the year in which it was received.

Discussion. The Tax Court noted that the amount received by Petitioner was not a security deposit, which may have led to a different decision. Rather in this case, the payment was a pre-payment of rent, and Petitioner had full use and control of the money during the tax year in which it was received.