DocketNumber: Docket No. 39726-86.
Citation Numbers: 56 T.C.M. 1347, 1989 Tax Ct. Memo LEXIS 85, 1989 T.C. Memo. 81
Filed Date: 2/27/1989
Status: Non-Precedential
Modified Date: 11/20/2020
MEMORANDUM OPINION
TANNENWALD,
Additions to Tax | ||||
Year | Deficiency | Sec. 6651(a)(1) 1 | Sec. 6653(a) | Sec. 6653(a)(1) |
1978 | $ 31,937.00 | $ 7,984.25 | $ 1,596.85 | -- |
1980 | 76,883.46 | 19,220.87 | 3,844.17 | -- |
1981 | 21,573.56 | 2,157.36 | -- | $ 1,078.68 |
Additions to Tax | |
Year | Sec. 6653(a)(2) |
1978 | -- |
1980 | -- |
1981 | * |
After concessions by the parties, the issues for decision are whether the expenses and/or alleged losses of a corporation, wholly owned by petitioner Don O'Neal, are deductible by petitioners individually and whether petitioners are liable for any additions to tax.
All of the facts have been stipulated. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioners were residents of Fort Worth, Texas, at the time of the filing of their petition. They filed untimely joint Federal income tax returns for the years at issue.
Petitioner Don O'Neal operated an automobile dealership, Don O'Neal Motor Co., as a proprietorship for several years prior to incorporating the business as Don O'Neal Motor Co., Inc. (the corporation), of which he was the sole shareholder. The incorporation took place at the insistence of the business's lender, Haltom City State Bank. *87 Under the Texas usury laws in effect at the time of the incorporation, higher interests could be charged to corporate debtors.
Both petitioners were personally liable and responsible for all notes and obligations of the corporation, including all financing obtained through Haltom City State Bank for the purchase of car inventory. The corporation filed corporate income tax returns only after respondent threatened to institute actions for willful failure to file unless returns were filed.
On September 14, 1981, Haltom City State Bank instituted an involuntary bankruptcy proceeding against the corporation. On June 1, 1982, petitioners, as individuals, filed a voluntary bankruptcy proceeding.
Respondent by notice of deficiency, dated July 11, 1986, determined that petitioners received constructive dividend distributions in 1980 and 1981 in the amounts of $ 158,511 and $ 74,185, respectively. He based his determination on the fact that the corporation had disbursed funds to pay for petitioners' living expenses.
At the outset, we note that there appear to be some gaps in the stipulations*88 of the parties. To the extent that factual questions are involved in such gaps, petitioners have the burden of proof.
We turn to the central question on which the parties have locked horns, namely, whether the corporation was an agent in carrying on its activities. We hold that it was not. Petitioners assert that the corporation was an agent and that all expenses and losses sustained by the corporation should be attributed to them. The mere fact that the corporation was formed at the instance of a lender to avoid the application of usury laws is not sufficient to sustain petitioners' position.
It seems to us that the genuineness of the agency relationship is adequately assured, and tax-avoiding manipulation adequately avoided, when the fact that the corporation is acting as agent for its shareholders with respect to a particular asset is set forth in a written agreement at the time the asset is acquired, the corporation functions as agent and not principal with respect to the asset for all purposes, and the corporation is held out as the agent and not principal in all dealings with third parties relating to the asset. * * *
Petitioners have failed to satisfy the three-part test set forth in
Petitioners attempt to avoid the impact of the foregoing by arguing that respondent is imputing the income of the corporation to them and that they should therefore be entitled to have the benefit of any deductions to which the corporation would have been entitled. Petitioners' argument misses the mark. Respondent is not imputing the income of the corporation to petitioners. Respondent's treatment of the corporation*91 is totally consistent with the Supreme Court's articulation in
In view of the foregoing, respondent's determination that the losses in question are not deductible by petitioners is sustained. Our holding makes it unnecessary for us to deal with other arguments of the parties in respect of the deductibility of the corporation's losses by petitioners.
Respondent determined additions to tax for failure to file timely returns under
In order to reflect various adjustments agreed to by the parties,
1. Unless otherwise stated, all section references are to the Internal Revenue Code as amended and in effect during the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
*. 50 percent of interest due on underpayment of $ 21,573.56. ↩
2. We note petitioners' brief does not discuss the appropriateness of the additions to tax so that it would appear that the additions have been conceded.↩
John R. Collins, II v. United States , 514 F.2d 1282 ( 1975 )
james-m-george-and-margaret-c-george-hollis-o-graham-and-ida-g-graham , 844 F.2d 225 ( 1988 )
Moline Properties, Inc. v. Commissioner , 63 S. Ct. 1132 ( 1943 )
service-bolt-nut-co-profit-sharing-trust-service-bolt-nut-of-akron , 724 F.2d 519 ( 1983 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Collins v. United States , 386 F. Supp. 17 ( 1974 )
National Carbide Corp. v. Commissioner , 69 S. Ct. 726 ( 1949 )