Nature of the Case
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Facts
P was employed by a corporation engaged in the business of converting, printing, and styling of cotton goods. P was executive vice president of the corporation in charge of sales, production, and styling. P's written contract provided for the rendition of services at an agreed compensation of $25,000 per year. P was also to receive 10 percent of the net profits of the corporation, as that term was defined in the contract, and to share in the losses to the extent of 10 percent, but such liability for losses was not to exceed $50,000. In determining the profit or loss the years 1939 and 1940 were to be considered as a single accounting period. These amounts were to be determined by May 1, 1941, and payable as the case may be, one-half (1/2) by July 1, 1941, and one-half (1/2) by October 1, 1941. P was required to remain in the corporation's employ for the entire two-year period covered by the contract, except in case of his death or illness or his discharge without reasonable cause by the corporation. On May 16, 1940, P and the corporation entered into a written agreement wherein the corporation agreed to pay P a bonus of $15,000 for meritorious service. As for the 10% bonus, P was entitled to $81,999.93. P received payment of $ 10,000 on March 7, 1940, on account of the additional compensation, leaving a balance on account of the additional compensation and bonus of $86,999.93 as of May 16, 1940. Upon the payment of $1,999.93 on May 16, 1940, it was agreed that for 1939 a balance of $85,000 was due and payable. P notified the corporation that he intended to retire from active business at the end of 1940. On November 1, 1940, the corporation and P entered into a further contract for the employment of petitioner during the year 1941 by the corporation at a salary of $15,000 per year, plus a percentage of certain west coast sales. At the request of the corporation, it was provided that as additional consideration for the execution of the contract the balance of the amount tentatively determined to be petitioner's profit participation for 1939 should be paid to him in installments in 1940 and 1941. Any amount to which petitioner might be entitled in the event there were net profits for the year 1940 should be paid in quarterly installments during 1942 rather than in 1941, as originally provided in the contract of January 2, 1939. P was to be paid interest on such latter amount at the rate of 1 1/2 percent per annum from October 1, 1941. The additional compensation to which P was entitled under the contract of January 2, 1939, for the period January 2, 1940, through and inclusive of December 31, 1940, was 87,076.40 dollars, which was agreed to be paid in 1942 in 4 installments. And yet another agreement made the sums payable from 1942-1946 as deferred payments. During 1941 P received $95,000. No part of the amount of $87,076.40 as petitioner's profit participation for 1940 was included in the above amount of $95,000 in P’s taxes. The $87,076.40 was not credited to P's account with the corporation in 1941, nor was it in that year set apart for him in a way that he could have drawn upon it at any time he chose. P had no right in 1941 to demand and receive such $87,076.40 or any part thereof. Commissioner (D) held that P had constructively received the 1940 bonus in 1941 and that the new agreement was ineffective to delay the bonus payment for tax purposes. P petitioned the tax court.
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