Opinion ID: 782888
Heading Depth: 2
Heading Rank: 6

Heading: Equitable Leasing's Payments to THC & Zion

Text: 95 Equitable Leasing Co., Inc. (Equitable) was the wholly owned company of Joel Mallin, a friend and former law partner of Kanter. Mallin used Equitable (among other companies) to promote and structure equipment leasing transactions to make money for investors. The investors' capital would be highly leveraged to purchase the equipment to be leased, and the residual value of the equipment at the end of the lease would provide the ostensible paper profit on the investors' capital. A principal motivation behind the investment in the leasing transactions, however, was the opportunity for tax benefits associated with the venture. Kanter acted as a middleman, introducing Mallin to investors for his leasing transactions. In return, Mallin paid commissions to Kanter entities. The Commissioner issued a notice of deficiency for 1983 that included a deficiency of $635,250 with respect to four payments by Equitable to Kanter entities, Zion, and THC. 26 96 ------------------------------------------ FORM OF DATE PAYMENT PAYEE AMOUNT ------------------------------------------ Jan. 4, Bank Zion $317,250 1983 27 Transfer ------------------------------------------ Jan. 24, Check THC $ 9500 1983 ------------------------------------------ June 1, Check Zion $ 6500 1983 ------------------------------------------ June 30, Bank THC $302,000 1983 Transfer ========================================== Total $635,250 ------------------------------------------ 97 The Commissioner alleged that these payments were commissions paid for Kanter's procurement of investors in Mallin's enterprises. Kanter argued that Zion and THC were loaned money by Equitable that was then turned around and invested in Equitable as an accommodation to Equitable to enable it to close certain transactions. 98 The Tax Court found that there was sufficient evidence to indicate that Equitable had paid commissions to Zion and THC for Kanter's services in providing investors to Mallin. Two of the four payments, for $9500 and for $6500, were labeled (on the check in payment and in THC's adjusting journal entries, respectively) as commissions. The Tax Court determined that this evidence was sufficient to support the presumption that all of these payments to Zion and THC were income to Kanter. In response to this presumption, the Tax Court found that Kanter had provided no evidence other than his uncorroborated, self-serving testimony concerning the accommodation arrangement with Equitable. IRA, 78 T.C.M. (CCH) at 1103. The court found, as previously noted, that Kanter was not credible and that the four payments were income attributable to Kanter.
99 Whether or not monies are taxable income to a taxpayer is a finding of fact that we review for clear error. Reynolds, 296 F.3d at 612. The Commissioner's assessment of a deficiency is presumed correct, but can be overcome by rebuttal evidence presented by the taxpayer. Pittman, 100 F.3d at 1313. 100 Kanter argues first that the Commissioner's assessment of a deficiency should not be given the benefit of the presumption of correctness because the Commissioner failed to provide any evidence connecting Kanter to this income. (Pet. Br. at 59.) This argument fares no better here than it did when we considered it with respect to the Bank Deposit issue. There was evidence that Mallin and Kanter were partners in various investments, and that Kanter's law firm had procured investors for Mallin's Equitable Leasing transactions. (Tr. at 5213-15.) There was also evidence that Mallin had paid commissions for these services to Kanter entities. ( Id. ) Additionally, at least two of the payments in question were documented as commissions. This was sufficient evidence to provide a rational foundation for the Commissioner's assessment. The Commissioner's assessment appropriately received its presumption of correctness. See Pittman, 100 F.3d at 1313. 101 Kanter also argues that he has rebutted the Commissioner's deficiency with evidence that only the $16,000 that was labeled as commissions (comprised of the $9500 and $6500 checks) should be considered commission payments, and the remainder consisted of loans made as an accommodation to Equitable. Even accepting Kanter's concession that the $9500 and $6500 checks from Equitable Leasing to THC and Zion, respectively, were taxable commission income, we do not believe he has provided sufficient evidence to show that the two bank transfers of $317,350 and $302,000 were loans. 102 Regarding the $317,250 transfer, there is clearly evidence supporting the Tax Court's finding that the transfer was a commission paid to Zion, and Kanter has provided no evidence to rebut this finding despite his control of the entities involved and his access to the records of those entities. First, as noted, there was circumstantial evidence that Equitable Leasing was making payments to THC and Zion as commissions. Additionally, THC's adjusting journal for 1983 has an entry 32 indicating an amount of $317,250 that was labeled, Due from Zion — Commission Income to adj. for commiss. from Eq. Leasing, loaned to Zion on 1/4/83. (Ex. 146, THC adjusting journal at 6.) Finally, Kanter appears to concede in the facts section of his brief that this amount was received as commission. In his brief on appeal, Kanter breaks down the $635,250 as including $317,250 as commission income from Equitable (see Ex. 146, THC adjusting journal, p. 6, adjusting journal entry 32, reflecting commission income of $317,250 which was paid to THC's subsidiary Zion as a loan from THC ...). (Pet. Br. at 16.) The Tax Court's finding that this payment was commission income was not clearly erroneous. 103 What about the June 30, 1983 transfer from Equitable to THC for $302,000? Against the general circumstantial evidence of commission payments to THC by Equitable and the presumption of correctness of the Commissioner's assessment of deficiency, there is an entry in THC's general ledger for June 30, 1983, for $302,000 labeled Loan from Equitable Leasg. (Ex. 148, THC general ledger at 12.) Together with this entry there is an entry indicating an $8000 transfer three days earlier also labeled Loan from Equitable Leasg. ( Id. ) This $8000 transfer is corroborated by a check from Equitable to THC on June 24, 1983, for $8000 that has a memo line reading, loan. (Ex. 9203PK, check # 2391.) The corroboration of the general ledger entry for the $8000 transfer is indirectly probative of the likelihood that the roughly contemporaneous and similarly labeled ledger entry for the $302,000 transfer may also be correct. These circumstances make it more likely that the ledger is accurate in its indication that the $302,000 transfer was a loan and not a commission payment. 104 But there is one additional piece of evidence in the record that the Commissioner and Kanter have not mentioned. In the THC adjusting journal, entry 59 is a barely legible entry for $310,000 that appears to read, N/P — Equitable Leasing, Commission Income, to reclassify funds from Eq. Leasing. (Ex. 146, entry 59.) This entry is significant because we believe it may also represent the $302,000 and $8000 transfers and show that those transfers were commissions. These two transfers were roughly contemporaneous, and Kanter himself aggregates them and describes them as a cumulative amount in his brief. ( See Pet. Br. at 16 ($310,000 as loans from Equitable ... reflecting a $302,000 loan and an $8,000 loan....).) The $310,000 in entry 59 would appear to be the same as the $310,000 in the general ledger and as the $310,000 described by Kanter, comprising the total of the $8000 and $302,000 transfers. Entry 59 in the THC adjusting journal weighs against the general ledger's notations for both the $302,000 and the $8000 transfer and weighs further in favor of the Tax Court's finding that the $302,000 was a commission payment. In any event, this evidence does, at the very least, make the characterization of the $302,000 transfer unclear, and because Kanter bears the burden of rebutting the Commissioner's assessment of deficiency and controlled the entities whose records could have cleared this matter up definitively, we cannot say that the Tax Court clearly erred in finding that the $302,000 was a commission payment to THC for Kanter's services. 105 In conclusion, it was not clear error for the Tax Court to find that the transfers from Equitable Leasing were commissions and were taxable income. 106