Court Opinion

ID: 9443193
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:13:46.044092+00
Date Added: 2024-06-11T17:29:24.319336
License: Public Domain

SWAN, Circuit Judge
(dissenting).
The petitioner was assignee of a lease of a moving picture theatre. Its president and controlling stockholder caused the corporation to make a five year sublease of the theatre property to his wife. The corporation’s .license to operate the theatre was surrendered by it and a license was issued by the municipality to the wife. Operation of the theatre was conducted in the wife’s name; rent under the sublease and all other expenses were paid by her and she deposited in her own bank account all receipts. She reported net income of $40,000 from the business and paid the federal income tax thereon. The petitioner operated another moving picture theatre and filed an income tax return. The Tax Court held that the $40,000 reported by the wife should be added to- the corporation’s net income and should also be taxed to the wife as a dividend received by her.
If the taxing officials had held that the wife was merely her husband’s agent and had taxed to him, or to him and his children (the other stockholders of the corporation) the income the wife received from operating the theatre, I could understand the decision and should not disagree with it. But to ascribe the income to the corporation, whose only relation to the business in 1943 was that of sublessor of the building *727in which the sublessee operated the theatre, seems to me to carry too far the rapacity of tax-gatherers. The sublease created valid legal relations which the parties thereto intended should he carried out, and they were. Whether the sublease was “an improvident transaction, is not of the business of the tax collector.” Goold v. Commissioner, 9 Cir., 182 F.2d 573, 575. That the rental was less than might have been obtained in a transaction between parties dealing at arm’s length is not enough in my opinion, to make the sublease a “sham” transaction. Nor is the fact that it was motivated by a desire on the part of the controlling stockholder to avoid corporate income taxes. The present decision, at least by implication, seems to mean that once a man starts doing business in corporate form, he may not discontinue it and resume operations in his own name, or that of his nominee, so far as federal taxes are concerned. I think this goes further than previous decisions of the Tax Court. I would reverse it.