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Article 22 (c)-1 of Regulations 94 and 101 provides, in part, that "A purchaser * should not include [in inventory] goods ordered for future delivery, transfer of title to which has not yet been effected."

The raisins involved were not included in petitioner's inventory, nor were they entered in 1937 in the books of account as purchases of fresh fruits to be dried and sold in their natural condition in sweat or picking boxes in the ordinary course of its business. Furthermore, prior to receipt of shipping instructions, the fruit could not be and was not segregated by the packer to any particular contract. The packer was required to segregate the raisins, weigh them, pack them into specified pound or kilo boxes, and deliver them f. o. b. dock. Under the contracts, delivery was to be made by the packers in the latter part of 1937. In order to extend the time of delivery, petitioner made payment of a part of the purchase price and also paid taxes, which accrued early in March, 1938, and insurance premium, covering the quantity of raisins involved but not yet segregated from other raisins held by the packer. Time of delivery, and hence time of giving shipping instructions, was extended beyond February, 1938, not solely by the act of the petitioner, but by the agreement of the parties.

It is elementary that title passes when the parties intend that it shall pass and such intention is to be gathered from the contract and conduct of the parties, usages of trade, and the circumstances of the

Under a contract to sell unascertained or future goods by description, title thereof does not pass to the purchaser until goods of that description in a deliverable state are unconditionally appropriated to the contract either by the seller or the purchaser with the consent of the other. If the contract requires the seller to deliver the goods to the buyer, or at a particular place, title does not pass until the goods have reached the place agreed upon. Part payment of purchase price is not conclusive that a sale was intended, but is evidence to be considered with other evidence adduced. Civil Code of California, secs. 1738, 1739, and 1796 (4); Goldberg v. Southwestern Metals Corporation, 208 Pac. (2d) 75; Standard Oil Co. v. Johnson, 147 Pac. (2d) 577; 24 Cal. (2d) 40; American Factors, Ltd. v. Goss, 238 Pac. 121; 72 Cal. App. 742; Turner, Kuhn & Fraser, Inc. v. Jones, 215 Pac. 1033; 61 Cal. App. 732; Walti v. Gaba, 116 Pac. 963; 160 Cal. 324; Blackwood v. Cutting Packing Co., 18 Pac. 248; 76 Cal. 212; Haas Bros. v. McLaughlin (CCA-9), 39 Fed. (2d) 381. In the latter case, the court stated:

Its [the taxpayer's] conduct is in harmony with the last provision of Regulation 45 [same as above quoted], and corroborates the record, that the merchandise was not identified, nor were the goods set apart to, or used by, appellant [taxpayer] at any time during 1919 and 1920, respectively. The fact that appellant paid storage and insurance for December, 1920, in view of the record, is of no importance.

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Moreover, the contracts involved herein expressly provide that the "Goods are at the risk of Buyer * from and after delivery to initial carrier or such carrier's agent." Unless otherwise agreed, and it was not in this case, risk generally follows title. Sec. 1742, Civil Code of California, McKinney v. Sargent, 13 Pac. (2d) 373; 216 Cal. 18; Puritas Coffee & Tea Co. v. DeMartini, 206 Pac. 96; 56 Cal. App. 628.

Title to the packed dried raisins not having passed to petitioner, he may not include them in his inventory. Brown Lumber Co., 9 B. T. A. 719; affd., 35 Fed. (2d) 880; Barde Steel Products Corporation, 14 B. T. A. 209; affd., 40 Fed. (2d) 412; certiorari denied, 282 U. S. 853; Jagerson Fuel Co., 24 B. T. A. 871; White Oak Transportation Co., 24 B. T. A. 307. See also A. R. M. 100, C. B. No. 3, p. 66, and A. R. M. 135, C. B. No. 5, p. 67, in the former of which publications it is stated that (p. 71) "transactions in 'futures,' unclosed at the end of the taxable year, form no integral part of the cost of the commodity included in the taxpayer's physical inventory," and in the latter of which it is stated that (p. 79) "the commodity covered by such open 'future' contracts shall not be added to nor deducted from the intory of the taxpayer."

The respondent argues that there is no support for petitioner's contention that the loss in question arose from the purchase and sale of contracts, since the contract specifically provides that "This contract is not assignable without the written consent of the seller."

A stipulation against nonassignment of a contract may be waived by the conduct of the parties. Maguire v. Lees, 169 Pac. (2d) 411, 415; 74 Cal. (2d) 697. It appears that the shipments were made under the contracts by the packers to the assignees of petitioner or Gomperts. Hence the packers waived the clause of the contract prohibiting assignment without written consent. Furthermore, the name of the consignee was not inserted in the original contracts running from the packers to Gomperts or in the contracts from Gomperts to petitioner. This custom permitted the insertion of the name of a consignee other than that of the purchaser designated in the contracts, i. e., the name of the assignee of petitioner or Gomperts.

In our opinion the contracts to purchase packed raisins to be delivered at some future time, or futures contracts, acquired in 1937 and held by petitioner until disposed of in 1938, do not fall within any of the exceptions set forth in section 117 (a) (1) and hence are capital assets as defined in that section.

The contracts involved or rights thereunder were entered into or acquired on May 7 and 10, 1937, and were disposed of on June 13 and 18, 1938. They were, therefore, held for more than six months.

Since the 1938 loss in the stipulated amount of $3,689.92 resulted from the sale of capital assets held for more than six months, such

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Se entered under Rule 50.

EVENT ZWES PENER, P. COMMISSIONER OF
INTERNAL FEVENTE, RESPONDENT.

New Za šta e fameuse uzes simpured in income, held deductler i As

a year when liability arose, respon ng tax were reduced

OPINION.

ÕPPER, už j A Fedelergy in excess profits tax for petitioner's de mar ended May 31, 15 determined in the amount of SOM.s cererers. Petitioner also claims an overpayment. One of the issues has been settled by agreement of the parties, and the puestion for decision is whether petitioner is entitled to deduct New York State franchise taxes accrued by it in fiscal 1945, where, due to revegetation of its war contracts, a part of the income on which the franchise tax was based was ultimately reduced. All of the facts have been stipulated

The stipulated facts are hereby found. Petitioner, a New York corporation, with its principal office in Rochester, New York, filed its mcome and excess profits tax returns for the year in issue with the collector of internal revenue for the twenty-eighth district of New York, at Buffalo. It has consistently kept its books and filed its Federal income and excess profits tax returns on an accrual basis of accounting, with a fiscal year ending July 31.

Due to revisions of the New York State franchise tax law, for purposes not here material, petitioner's New York State franchise tax for the "privilege period" November 1, 1944, to July 31, 1945, was computed in three parts, based upon the net income allocable to New York State for petitioner's three fiscal years ended, respectively, July 31, 1913, 1914, and 1945. New York State franchise tax returns

reporting petitioner's net income for those years were duly filed, showing income and computing a tax as follows:

Petitioner's war contracts for the fiscal years ended July 31, 1943, 1944, and 1945, were subject to renegotiation by the United States, and renegotiation proceedings for the years 1944 and 1945 were instituted and concluded with relation to the Federal and state tax dates as follows:

Petitioner deducted on its excess profits tax return the amount of $287,733.10 on account of New York State franchise taxes for fiscal 1945. Respondent in his notice of deficiency reduced that figure to $282,230.25. Petitioner now claims that it is entitled to a deduction of $435,511.15, being the adjusted total of the amounts due on its New York State franchise tax returns. The parties are in agreement as to the amount of the deduction based upon petitioner's income for fiscal 1943.

Were E. B. Elliott Co., 45 B. T. A. 82, still authority in this field, respondent's contention would have to prevail. But the theory that accrual basis accounting permits of adjustments for developments subsequent to the close of the tax year, even though relating to the income of that year, has now been repudiated with a certainty that seems to forbid reexamination. Security Flour Mills v. Commissioner, 321 U. S. 281; Stanard-Tilton Milling Co., 3 T. C. 1026, 1030; Baltimore Transfer Co., 8 T. C. 1, 9. In fact, as applied to circumstances in many respects comparable to these, the rule has been stated otherwise. Western Cartridge Co., 11 T. C. 246. There, Connecticut income taxes paid when due but subject to reduction because of subsequent renegotiation were held deductible in the year of payment. We think it clear that if at the end of petitioner's taxable year it owed New York State franchise taxes in the amount specified and was required to pay them, as the record appears to demonstrate, and if at that time its right to claim a refund of those taxes was not sufficiently assured or ascertainable in amount so as to justify accrual of a corre

sponding refund, all deductions were proper and should have been allowed. See Commissioner v. Thatcher & Son (C. C. A., 2d Cir.), 76 Fed. (2d) 900.

As to the year 1945, there seems little question that the results of renegotiation were still an unknown quantity. At the close of the year on July 31 renegotiation proceedings for that year had not even been instituted. They were not begun until almost a year later and were not concluded until May of 1947. The only amount accruable on July 31, 1945, was hence petitioner's full franchise tax liability.

A slightly more arguable case is presented by respondent as to 1944. By the close of fiscal 1945 renegotiation proceedings were in progress. But it was not until a conference on August 24, 1945, that any figure was agreed upon, and that was subject to the furnishing of additional information on August 30. Although a proposed agreement was forwarded on September 13 and executed by petitioner on September 28, it was not finally executed until October 31, which was not only subsequent to the close of petitioner's fiscal year, but even later than the time provided by law for the filing of its income and excess profits tax return on October 15.

In the meantime, the full amount of the New York State franchise tax liability based on 1944 income had been reported and apparently had been paid. Only after completion of the renegotiation process could petitioner's claim for refund of the franchise tax be submitted and acted upon. Western Cartridge Co., supra. The refund was not actually made until March 26, 1946.

Under these circumstances, and following the authorities cited, we think it must follow that, by the end of petitioner's fiscal year, neither its liability for New York State franchise taxes nor their amount were so adjusted as to require it to deduct from its excess profits net income any smaller amount than that based upon its then known New York State income for both 1944 and 1945. We conclude that respondent erred in the determination of the deficiency.

Decision will be entered under Rule 50.

ESTATE OF SELINA J. GRAY, DECEASED, WILLIAM J. GRAY AND CARLTON R. GRAY, AS EXECUTORS OF THE LAST WILL AND TESTAMENT OF SELINA J. Gray, Deceased, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 16326. Promulgated March 10, 1950.

The decedent and her husband were members of a California marital community. The community property of the decedent and her husband was all pre-1923 California community property, having been acquired before that date, or was the income on reinvestment