Court Opinion

ID: 4593875
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:11:43.699424+00
Date Added: 2024-06-11T07:51:08.737586
License: Public Domain

CLAUDE NOLAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Nolan v. CommissionerDocket No. 27682.United States Board of Tax Appeals16 B.T.A. 1233; 1929 BTA LEXIS 2431; June 28, 1929, Promulgated 1929 BTA LEXIS 2431">*2431  Although, as between a brother and sister there was no partnership relation, yet, by reason of the fact that she contributed one-half the original investment, and notwithstanding the fact that no specific contract existed between them other than during the later years of operation and she was not publicly known as an interested party in such business, one-fourth of the income belonged to her, and petitioner was not chargeable with that one-fourth.  J. M. Jordan, C.P.A., for the petitioner.  A. H. Fast, Esq., for the respondent.  LOVE 16 B.T.A. 1233">*1234  This proceeding is for the redetermination of deficiencies in income taxes, as follows: 1922$5,740.4719232,093.4419244,028.1311,862.04Petitioner assigns three errors, all of which involve one and only one controverted issue, and that is whether or not all the income derived by and through the operation of a business carried on and known as Claude Nolan automobile business was his income, or part his income, and part the income of his sister, Mrs. C. A. Peterson.  FINDINGS OF FACT.  Petitioner is an individual who resides in Jacksonville, Fla.  His business is conducting a1929 BTA LEXIS 2431">*2432  sales agency for Cadillac automobiles and accessories.  Mrs. C. A. Peterson was his sister and his only full-blood sister.  He had half-brothers and sisters, older than himself and Mrs. Peterson.  His father died in 1906, at which time petitioner was a law student and his sister a young unmarried girl.  By arrangements made prior to his death, the father left a small amount of cash derived principally from a life insurance policy in favor of petitioner and his sister, and a remainder interest encumbered with a life estate in favor of petitioner's step-mother, in some real estate of an estimated value of about $50,000.  That remainder interest, as well as the cash, belonged, equally, share and share alike, to petitioner and his sister.  By reason of the fact that after the father's death petitioner felt and assumed responsibility for the care and maintenance of his sister, he found it necessary to abandon his law course and go into business.  His sister turned over to him the management and control of her interest in the cash and he invested it in stock of a corporation.  The corporation failed, and that investment was lost.  About the year 1912, the stepmother died, which left1929 BTA LEXIS 2431">*2433  the real estate unencumbered.  Petitioner and his sister then, by mortgaging the real estate, in 1912, secured a loan which went into the automobile business.  The Cadillac agency could not have been obtained by a partnership entity, especially with a woman as a partner; hence, the business was instituted and remained as an individual business with petitioner so far as the public knew or was concerned, as sole owner.  However, by mutual consent between themselves, the brother and sister were equal owners.  They never regarded themselves as partners; just equal owners.  16 B.T.A. 1233">*1235  In the early years of the business, although the inevitable consequences of a loss in the business would have been a sharing of such loss by both of them, there was no formal agreement to that effect.  Neither was there a formal agreement as to the manner in which the profits would be divided.  Each drew out of the business only enough for maintenance purposes, and in the early years, the sister drew more than the brother simply because she needed more.  All the profits over and above the needs of both remained in the business.  In later years, after the business had grown and after the sister married1929 BTA LEXIS 2431">*2434  and had a child grown to school age, she desired more of the income than she had been taking in former years and drew more, and the petitioner drew more, roughly estimated on a fifty-fifty basis.  About the year 1928 petitioner decided to incorporate his business and at that time the business, with all its assets, excluding the sister's share and including some real estate owned separately by petitioner, was valued and incorporated at a valuation of $200,000.  At that time the sister's interest was valued, by agreement between themselves, at $50,000.  That $50,000 was then segregated and turned over to the sister and never went into the corporation.  Soon thereafter the sister died, and petitioner was appointed and is now acting as administrator of her estate, and as such administrator he has possession of that $50,000 together with some other funds.  In 1921 or 1922, when the sister desired additional revenues to educate her child and for other purposes, at her suggestion it was mutually agreed between them that petitioner should receive 75 per cent of future profits, and the sister 25 per cent.  Since that time up to the date of incorporation, the profits were so divided.  All1929 BTA LEXIS 2431">*2435  that was not drawn out by either was credited to them respectively on the books.  OPINION.  LOVE: This case, as disclosed by the facts, is peculiar unto itself.  Here we have a brother and sister left, by the death of their parents in early youth, with a small available estate.  The brother, with commendable courage, felt and assumed the responsibility of caring for his sister.  She, with implicit confidence in her brother, turned over to him the management and control of that estate.  They did not claim to be, and were not partners.  The sister's part of the estate was not loaned to the brother.  There was no legal obligation cast upon the brother.  There was only an equitable liability on him and the evidence discloses the fact that, at least in the early and critical years of the business, he more than met his equity obligations to his sister.  See . 16 B.T.A. 1233">*1236  In the later years, and involving the taxable years in this proceeding, each recognized the equity of the situation, and by agreement he was to be entitled to 75 per cent of the profits and she to 25 per cent; and the evidence is to the effect that it was so divided.  1929 BTA LEXIS 2431">*2436  There is an allegation in the petition alleging that Mrs. Peterson made her income-tax returns for the years involved and included her part of the income from the automobile business in such return.  There is no evidence in the record to substantiate that allegation.  However, we deem it immaterial in this proceeding whether or not she so returned her part.  According to the uncontroverted evidence, She got it, and it was delivered to her, not as interest, not as compensation for services, but as her part of the profits of the business, the part that belonged to her from its inception.  That part of the income being hers, was never his, and hence he is not chargeable with more than three-fourths of the income derived from that automobile business.  There appear to have been some minor features involved in the deficiencies asserted which were not contested or discussed at the hearing.  Judgment will be entered under Rule 50.