Court Opinion

ID: 4481379
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:51.833406+00
Date Added: 2024-06-11T15:04:03.749874
License: Public Domain

Tannenwald, J., concurring: I think it important that there be no misunderstanding as to the import of our decision herein and its relation to O’Neill v. United States, 410 F. 2d 888 (C.A. 6, 1969), affirming 281 F. Supp. 359 (N.D. Ohio 1968), Kurzner v. United States, 413 F. 2d 97 (C.A. 5, 1969), affirming 286 F. Supp. 839 (S.D. Fla. 1968), and United States v. Empey, 406 F. 2d 157 (C.A. 10, 1969), affirming 272 F. Supp. 851 (D. Colo. 1967). None of the cited cases held that the formation of a professional service corporation under local law ipso facto entitled it to be recognized as a separate entity for Federal income tax purposes. In each instance, the corporation involved was found not only to have been formed but actually to have been operated as a separate entity and consequently to have acquired an independent viability for tax purposes under the long-established standards enunciated by such decisions as Moline Properties v. Commissioner, 319 U.S. 436 (1943), Morrissey v. Commissioner, 296 U.S. 344 (1935), and Gregory v. Helvering, 293 U.S. 465 (1935). The professional service corporation acts, enacted by the various States in recent years, removed previously existing restrictions on the capacity of certain persons to practice their professions under the corporate form. In so doing, such legislation simply placed such persons on a par with other taxpayers with respect to their freedom to adopt that form of doing business; it did not relieve the corporation of the obligation of performing some meaningful business function in order to gain recognition as a separate entity for tax purposes. National Investors Corporation v. Hoey, 144 F. 2d 466 (C.A. 2, 1944). The corporation must be given substance through the manner in which it actually operates. This was not done here. Unlike the taxpayers in O'Neill, Kurzner, and Empey petitioners herein simply did not put flesh on the bones of the corporate skeleton, irrespective of the question of its legal existence under local law. Within the context of the Federal income tax, the corporation never became operative in any meaningful sense. The individuals, not the corporation, continued to earn the income and separately to enjoy their own earnings. I also note that the majority herein concludes only that the separate identity of Pfeifer Associates as a corporation should not be recognized. Petitioners having contested only the issue of such recognition, we did not consider whether the tax liability of petitioners should be posited on the existence of a de facto partnership (as respondent determined) or on the basis of separate individual liability. Naum:, Forrester, Fat, Featherston, Irwin, Sterrett, and Quealt, JJ., agree with this concurring opinion.