DocketNumber: Docket No. 7299.
Citation Numbers: 5 T.C.M. 199, 1946 Tax Ct. Memo LEXIS 239
Filed Date: 3/19/1946
Status: Non-Precedential
Modified Date: 11/21/2020
Memorandum Opinion
DISNEY, Judge: The Commissioner determined a deficiency of $2,921.31 in income taxes for 1941 upon the joint return of H. A. Rock and Helene L. Rock, his wife. The questions involved are (1) whether Helene L. Rock is liable for the deficiency determined upon the joint return filed by herself and deceased husband, and (2) whether the Commissioner erred in disallowing a deduction of $4,500 claimed to be the amount of compensation paid by decedent for services rendered.
[The Facts]
Edward E. Edmiston is the administrator de bonis non of the estate of H. A. Rock, deceased. Helene L. Rock is the widow of such decedent and resides at Cleveland*240 Heights, Ohio.
1. Helene L. Rock is unemployed. She never was associated in business with her husband and had no understanding of his business affairs. She signed the 1941 joint income tax return filed with the collector at the request of her husband without any knowledge of its contents.
In his notice of deficiency addressed to the Administrator of the Estate of H. A. Rock and Helene L. Rock, surviving wife, the Commissioner stated as follows:
The return filed for 1941 was a joint return made by H. A. Rock and Helene L. Rock, husband and wife. H. A. Rock died August 7, 1942. You contend that you are not liable for the deficiency in income tax of $2,921.31 for the year 1941. It is held that inasmuch as H. A. Rock and Helene L. Rock elected to file a joint income tax return for the taxable year ended December 31, 1941, they are jointly and severally liable to the deficiency in income tax of $2,921.31 under the provisions of
It is contended by petitioners that the "face of the return must govern in this case" and that Helene L. Rock is not liable for the deficiency. In support of their position it is argued on*241 brief, among other things, that of the net taxable income of $56,117.51 reported on the joint return only $921.22 was the income of the wife and that the aggregate tax on the face of the return was $24,493.68, of which the wife, although her income was slightly less than 2 per cent of the aggregate net income reported, has paid more than 50 per cent of the tax because of the death of her joint maker and the insolvency of his estate. The 1941 joint return is not in evidence and there is no evidence as to the amount of income or deductions of the wife reported therein. The evidence does show that a joint return was filed by decedent and his wife and she admits that she signed such return.
[Opinion]
(b) Husband and Wife. - In the case of a husband and wife living together the income of each (even though one has no gross income) may be included in a single return made by them jointly, in which case the tax shall be computed on the aggregate income, and the liability with respect to the tax shall be joint and several. * * *
The statute requires that where the husband and wife*242 file a joint return the "tax shall be computed on the aggregate income, and the liability with respect to the tax shall be joint and several." It does not limit the liability of either husband or wife to the tax as shown on the face of the return but requires the "tax to be computed on the aggregate income." The aggregate income as determined is not necessarily the income shown by the return.
[The Facts]
2. One B. J. Droz, who had known the decedent for about twelve years, worked as an engineer with decedent on a "lot of cases", but not as an employee. He had no arrangement with decedent as to the payment of any definite salary. On some cases decedent spent a "lot of money" without making any profit and on other cases profits were realized. Whatever was realized on projects on which decedent and Droz worked together was divided equally.
Prior to 1941 and over a period of years, during a part of which time Droz was without employment, the decedent advanced moneys to Droz, of which advances Droz kept no record. As an acknowledgment of such advances Droz, about 1941, gave decedent his promissory note.
Droz worked with decedent on a project for Diebold Safe and Lock Company which was settled in 1941. Droz testified that, prior to the time decedent received payment*244 from such company in 1941, the decedent, in reference to the above note, said to him:
* * * Well, I didn't get my money but as far as it is concerned, just forget it. When I receive the money I will pay whatever you are entitled to. * * * I didn't have any money from Diebold, but as soon as I get the money, I might as well forget it. * * * You have some money coming from Diebold Lock and Safe Company and as soon as I get it you might as well forget the note.
In determining the deficiency the Commissioner disallowed a deduction of $4,500 and in explanation of the adjustment stated as follows:
In Item 16 of your 1941 income tax return you claimed a deduction of $4,500.00 as a bad debt. It is held that the amount is not an allowable deduction under the provisions of
In the assignment of error in the petition it is alleged that the $4,500 "should have been allowed not as a bad debt but as a deductible charge on decedent H. A. Rock's income" in view of the fact that the $4,500 "represented earnings of B. J. Droz from decedent H. A. Rock, out of decedent H. A. Rock's income for the year 1941 from the Diebold Safe*245 and Lock Company, Canton, Ohio." On brief petitioners argue that Droz was either a partner or an employee of decedent and that the $4,500 paid by decedent in 1941 was reasonable compensation for the services rendered by Droz in the Diebold Safe and Lock Company deal.
[Opinion]
Whether petitioners are entitled to a deduction of an amount paid for compensation for personal services actually rendered as an ordinary and necessary expense in carrying on any trade or business is a question of fact and they have the burden of presenting facts showing that petitioners are entitled to a deduction of $4,500 as a reasonable allowance for compensation paid for personal services rendered under
Decision will be entered for the respondent.