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ISAAK v. UNITED STATES

March 29, 1967

Harold C. and Olive B. Isaak, husband and wife, Plaintiffs
v.
United States of America, Defendant


Powell, District Judge.


The opinion of the court was delivered by: POWELL

The plaintiffs, as taxpayers, sue to recover a claimed overpayment of Federal income taxes for the year 1957. A deficiency was assessed, the deficiency paid under protest and this action was brought to recover that claimed excess.

 The plaintiffs have a wheat farm. It has been operated by them since about 1929. They have filed their income tax returns on a cash basis and used the calendar year as their fiscal year.

 In 1957 the plaintiffs secured two loans from Commodity Credit Corporation on their wheat. These two loans were repaid during the calendar year 1957. The plaintiffs did not include the amounts of the two loans as income in that year. A portion of the wheat was sold in 1957 and the proceeds received in 1957. The balance of the wheat that was used as collateral for the Commodity Credit Corporation loans was sold during the year 1958.

 This case involves the application of two sections of the Internal Revenue Code. They are as follows:

 
"Internal Revenue Code of 1954:
 
SEC. 77. COMMODITY CREDIT LOANS.
 
(a) Election to include Loans in income. - Amounts received as loans from the Commodity Credit Corporation shall, at the election of the taxpayer, be considered as income and shall be included in gross income for the taxable year in which received.
 
(b) Effect of election on adjustment for subsequent Years. - If a taxpayer exercises the election provided for in subsection (a) for any taxable year, then the method of computing income so adopted shall be adhered to with respect to all subsequent taxable years unless with the approval of the Secretary or his delegate a change to a different method is authorized. (26 U.S.C., 1964 ed., Sec. 77.)
 
"SEC. 1016. ADJUSTMENTS TO BASIS.
 
(a) General Rule. - Proper adjustment in respect of the property shall in all cases be made -
 
* * *
 
(8) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such ...

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