Sackstein v. Comm'r of Internal Revenue
| Decision Date | 07 April 1950 |
| Docket Number | 21087.,Docket Nos. 21086 |
| Parties | HARRY SACKSTEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.LOUIS ZLOBIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
CAPITAL CONTRIBUTIONS OR COST OF GOODS SOLD.— Amounts paid by a stockholder-customer to a corporation were capital contributions bythe stockholder, not a part of the cost of goods purchased by him from the corporation, and not ordinary and necessary expenses. Monroe J. Winsten, Esq., for the petitioners.
Michael Waris, Jr., Esq., for the respondent.
The Commissioner determined deficiencies in income tax for 1945 of $849.34 against Harry Sackstein and $849.34 against Louis Zlobin. The only issue for decision is whether $7,100 which the Commissioner added to the reported income of a partnership of which the petitioners were members was added erroneously either because it was deductible as an ordinary expense or was to be subtracted as cost of goods sold.
The individual income tax returns of the petitioners for 1945 were filed with the collector of internal revenue for the first district of New York.
The petitioners were equal partners in the retail kosher meat business in New York City. They had difficulty getting enough meat at O.P.A. ceiling prices to carry on their business. They could get only about one-third of their needs from their regular suppliers and that was insufficient to permit profitable operation of the business. They tried during 1945 to get as much meat as they could from all sources at O.P.A. ceiling prices.
Isidore Present came to Sackstein in February, 1945, to tell him that his firm could get additional meat at O.P.A. ceiling prices if it would purchase stock in a corporation then being organized, ‘United Meat Company, Inc.‘ (hereinafter called United). Present further explained that the corporation was being organized for the convenience of the stockholders rather than for profits and the stockholders would be called upon to make further contributions in proportion to meat purchased to meet operating losses which United would probably sustain. The petitioners bought stock in United. The payments for the stock were made as follows during 1945:
+---------------------------------+
¦Feb. 20¦ ¦$2,000¦
+-------+------------------+------¦
¦Feb. 20¦(“initiation fee”)¦200 ¦
+-------+------------------+------¦
¦Apr. 12¦ ¦500 ¦
+-------+------------------+------¦
¦Apr. 24¦ ¦500 ¦
+-------+------------------+------¦
¦May 4 ¦ ¦1,000 ¦
+---------------------------------+
The petitioners began to buy meat from United immediately after February 20, 1945, when they made their first payment on the stock. United delivered meat to the petitioners' shop several times a week thereafter, and during 1945 delivered 87,514 pounds out of a total of 168,538 pounds received by the shop from all sources during that year.
Representatives of United notified the petitioners from time to time during 1945 of their share of the losses of United, based upon meat purchased from United, and received payments as follows during 1945:
+------------------+
¦June 4 ¦$1,000.00 ¦
+-------+----------¦
¦July 2 ¦2,000.00 ¦
+-------+----------¦
¦July 17¦500.00 ¦
+-------+----------¦
¦July 26¦1,000.00 ¦
+-------+----------¦
¦Oct. 19¦1,200.00 ¦
+-------+----------¦
¦Nov. 8 ¦300.00 ¦
+-------+----------¦
¦Nov. 28¦900.00 ¦
+-------+----------¦
¦Dec. 4 ¦319.09 ¦
+-------+----------¦
¦Total ¦7,219.09 ¦...To continue reading
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