Court Opinion

ID: 4482355
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:26.807232+00
Date Added: 2024-06-11T14:54:01.678154
License: Public Domain

Keen, J., dissenting: Respondent asks us to disregard the separate and independent entities of the Thurlim Realty Corporation and of the three Adler family trusts on the theory that they were acting for petitioner’s benefit, as its nominees or controlled agents. Respondent then continues his argument by contending that petitioner has brought the second mortgage indebtedness under its own legal and economic control by the use of its funds and through the subservient trusts and the subservient Thurlim Realty Corporation. Therefore, respondent concludes, petitioner must be considered as having purchased its own indebtedness, which thereupon ceased to be an outstanding indebtedness during the taxable year upon which interest is accruable and deductible for tax purposes. As authority for his contention respondent relies on general language contained in Commissioner v. Court Holding Co., 324 U. S. 331; Anderson v. Abbott, 321 U. S. 349; Higgins v. Smith, 308 U. S. 473; and Griffiths v. Helvering, 308 U. S. 355. The majority opinion accepts and approves the argument of respondent, and cites as authority W. C. Hay, 2 T. C. 460; affd., 145 Fed. (2d) 1001, and a dictum in our opinion in 1432 Broadway Corporation, 4 T. C. 1158. I am unable to agree. The basic reason for my disagreement is the fact that in this case the petitioner corporation did not cause the incorporation of Thurlim or the formation of the Adler family trusts and did not control them. Therefore, the conclusion can not be reached in my opinion that the petitioner corporation, directly or indirectly, purchased the indebtedness secured by a mortgage on its property, either itself or through agencies which petitioner itself controlled. This indebtedness at all times remained an outstanding obligation secured by a mortgage on petitioner’s property pursuant to which interest was payable by petitioner. The truth is that Thurlim was controlled by Adler either 'directly, or indirectly through the Adler family trusts, in much the same way in which Adler controlled petitioner itself through ownership of its stock. However, it can not be said that petitioner corporation so controlled Thurlim or the Adler family trusts that the acquisition by Thurlim or the trusts of the petitioner’s mortgage indebtedness was equivalent to an acquisition thereof by petitioner. The fact that petitioner was caused by its controlling stockholder to advance money to him and to Thurlim does not establish petitioner’s control over Thurlim, but rather establishes Adler’s control over both petitioner and Thurlim; and the fact that petitioner and Thurlim were controlled by the same stockholder does not result in a relationship between the two corporations of reciprocal agency. Even though we consider the situation with the realistic approach approved by the cases cited by respondent and disregard legalistic technicalities, I am unable to consider ownership by corporation A as equivalent to ownership by corporation B because the two corporations are controlled by the ownership of their respective common stock by the same individual or group of individuals. A fortiori, ownership by trusts of which Adler’s wife, son, and daughter were beneficiaries is not equivalent to ownership by petitioner corporation, all of whose stock was owned by Adler. It should be pointed out that no question arises as to the bona fides or business purpose of the debt here involved before its acquisition by Thurlim. The crux of respondent’s argument is that that debt must be considered by us as having been acquired in effect by the petitioner. In support of this position he argues that no business purpose existed for its acquisition by Thurlim. We understand this argument to be that from petitioner’s standpoint there was no business purpose for Thurlim to acquire the indebtedness rather than petitioner. This argument would be pertinent only upon the assumption that petitioner created and controlled Thurlim and caused the latter as its agent to acquire the indebtedness. As we have already pointed out we are. unable to accept this assumption and therefore the argument based upon it is without validity. In this case the transaction actually accomplished by Adler and the members of his family resulted in a tax advantage to petitioner, as well as to Adler, which would not have been available to it if it had purchased and retired the indebtedness. This fact, however, does not justify us in treating possibilities as actualities for the piurpose of imposing upon petitioner an increased tax burden. See Seminole Flavor Co., 4 T. C. 1215. The cases cited by the majority would, in my opinion, be relevant only to a situation where corporations or trusts were created and controlled by the taxpayer itself for no business purpose other than to minimize the tax liability of the taxpayer who created and controlled them. They are not relevant to the situation presented in the instant case, where the taxpayer corporation did not create or control either Thurlim or the trusts. It should be pointed out that the tax liability of Adler, who controlled petitioner as well as Thurlim and the trusts, is not here in question, and that the respondent makes no contention that the corporate entity of petitioner should be disregarded. In my opinion, the majority has, in its reasoning, approached the problem as if the petitioner corporation were Adler or had done those things which Adler did. This approach is not warranted by the record, the pleadings, or the law, and the result reached compels my dissent.