The opinion
Sterrett, J., dissenting: “Installment sales are not narrowly, or even primarily, the province of wealthy individuals, large corporations, and their sophisticated tax advisers. Sales for future payment are made by persons at virtually all economic levels — by individuals who are not wealthy, by small corporations, by persons lacking access to the most sophisticated tax advice. * * * [Due to its complexity, section 453 often] imposes an undue and never-intended burden on taxpayers who, through inability, inadvertence, or inadequate advice, fail to take steps that are now necessary to qualify their deferred payment sales for deferral of tax liability.” Hearings on S. 1063 Before the Subcomm. on Taxation and Debt Management Generally of the Comm, on Finance, 96th Cong., 1st Sess. 43-44 (1979) (testimony of Martin Ginsburg). The instant case and the majority position thereunder exemplify the harrowing aspects of the foregoing testimony.
In 1971, this Court stated in Oden v. Commissioner, 56 T.C. 569 (1971), that funds placed in escrow as security for payment on a deferred payment contract are not constructively received in the year of sale. Oden v. Commissioner, supra at 575 . Specifically, we stated that the facts and circumstances of each case were the determinative factors. Oden v. Commissioner, supra at 578 . In Oden, the petitioner looked to and actually received payment from the escrow account, and accordingly, we found that the escrow was not intended as security for the buyer’s obligation. In the recent case of Porterfield v. Commissioner, 73 T.C 91 (1979), we applied the rule set out in Oden and “look[ed] back of the terms of the written agreements to find out what the parties actually intended” in determining whether an escrow was security or payment in the year of sales for the purpose of section 453. Porterfield v. Commissioner, supra at 95 . Even though the escrow agreement in Porterfield provided that the escrow funds were to be paid to petitioner, we found that the parties’ actions and intentions were to the contrary, and that the escrow served as security for the buyer’s obligation. Therefore, we held that the petitioner was entitled to report the sale on the installment method.
The actions and intentions of petitioner in the instant case are clear. Petitioner received a nontransferable letter of credit. The agreement provided that the letter of credit was to serve as security and could only be collected in the event of default by the buyer. Further, as in Porterfield, there never was a default; petitioner looked to and received all payment from the buyer. Compare, Oden v. Commissioner, supra at 576 . Further, unlike in Porterfield, the agreement in the instant case provided that the buyer was the primary obligor. Thus, the commonly understood meaning of the language used in the agreement and the action of the parties clearly establish that the letter of credit was intended and in fact served only as security.
In the instant case, the majority looked not at the language of the agreement or the actions of the parties as provided in Oden and Porterfield but instead to law review articles to find that petitioner was in constructive receipt of the proceeds under the letter of credit. I do not challenge the majority’s analysis of the U.C.P. but only the necessity thereof. It implicitly asks too much of the taxpayer and his counsel. The issue is whether the letter of credit was security, and therefore, the majority’s reliance on Watson v. Commissioner, 69 T.C. 544, 549 (1978), on appeal (5th Cir., Apr. 3, 1978), is misplaced. Petitioner has satisfied the test as set out in Oden and applied in Porterfield. Accordingly, he should be entitled to rely on our decisions therein and report the sale under the installment method.
When this Court, demands certain taxpayers obtain a legal opinion letter on the transferability of proceeds under a nontransferable letter of credit, while excusing other taxpayers for their failure to read or understand documents executed by them (as we did in Porterfield), we are creating the type of confusion and complexity about which Professor Ginsburg testified. Effectively, section 453 is no longer a relief provision allowing the taxpayer to defer taxation until receipt of the proceeds, but .instead, a tax trap for the ill-advised. The line between Oden, Porterfield, and the instant case has become so convoluted as to create a web. Unfortunately, and unintentionally, only the wealthy individual or corporation with the “most sophisticated tax advice” will be able to avoid entanglement.
Drennen and Wilbur, JJ., agree with this dissenting opinion.