Newcomb v. Comm'r of Internal Revenue, Docket No. 44938.

Citation23 T.C. 954
Decision Date10 March 1955
Docket NumberDocket No. 44938.
PartiesGEORGE M. NEWCOMB, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtUnited States Tax Court

23 T.C. 954

GEORGE M. NEWCOMB, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 44938.

Tax Court of the United States.

Filed March 10, 1955.


[23 T.C. 954]

Edward L. Weber, Esq., for the petitioner.

Peter K. Nevitt, Esq., for the respondent.

Respondent determined liability against petitioner as transferee for income taxes and penalties determined against Lila G. Husted for the years 1944 to 1946, inclusive. On November 30, 1947, Lila G. Husted died in Canada, where she had resided since 1944. During the year 1947 decedent transferred to petitioner all of her interest in a retail shoe store which she operated in Detroit, Michigan, during the taxable years involved, as a sole proprietorship. Petitioner concedes the liabilities of the transferor but challenges his liability as transferee, alleging that the transfers did not render the transferor insolvent and that full consideration was paid for the assets transferred. At the time of decedent's death her assets in the United States were insufficient to discharge her Federal tax liabilities. Held:

1. Petitioner has failed to show the amount of consideration paid for the assets transferred to him by decedent.

2. The assets transferred by decedent to petitioner rendered her insolvent.

3. Respondent was not required to pursue the decedent's assets in a foreign jurisdiction before imposing liability against petitioner as transferee.

4. The value of the assets transferred to petitioner determined.

The respondent has determined liability for income tax and additions to tax against petitioner, as transferee, for the years and in the amounts as follows:

+----------------------------------------------+
                ¦ ¦ ¦Penalty ¦
                +---------------------+----------+-------------¦
                ¦Year ¦Deficiency¦(25 per cent)¦
                +---------------------+----------+-------------¦
                ¦1944 ¦$4,312.19 ¦$1,078.05 ¦
                +---------------------+----------+-------------¦
                ¦1945 ¦1,446.14 ¦701.83 ¦
                +---------------------+----------+-------------¦
                ¦1946 ¦7,505.89 ¦1,876.47 ¦
                +---------------------+----------+-------------¦
                ¦1947 (Jan. 1-Nov. 30)¦1,794.26 ¦ ¦
                +----------------------------------------------+
                

[23 T.C. 955]

The single issue presented is whether petitioner is liable as transferee of Lila G. Husted, who died November 30, 1947, or as transferee of the estate of Lila G. Husted, deceased, and, if so, to what extent.

FINDINGS OF FACT.

The stipulated facts are found accordingly.

Petitioner is an individual and resident of Detroit, Michigan.

Lila G. Husted, a citizen of the United States, died testate November 30, 1947, at the age of 84 years, at Morpeth, Ontario Province, Canada, where she had resided since 1944. She filed no Federal income tax returns for the taxable years 1944, 1945, and 1946, nor for the period January 1, 1947, until her death in that year. Prior to 1944 she resided in Detroit, Michigan.

Upon the death of her husband in April 1942, Lila G. Husted, sometimes hereinafter referred to as the decedent, acquired sole ownership of a retail shoestore in downtown Detroit, Michigan, known as the Health Spot Shoe Shop. At that time the decedent was 79 years of age and had taken a relatively inactive interest in the business. In August 1942 the decedent appointed petitioner, a man of some 40 years' experience in the shoe business, as manager of the shoestore. This relationship between the decedent as proprietor and petitioner as manager continued through June 10, 1947.

The Health Spot Shoe Shop sold only corrective shoes manufactured by the Health Spot Shoe Company under an exclusive franchise granted by the latter. The franchise for the exclusive right to sell the shoes in downtown Detroit was terminable upon 30 days' notice by either party. The Health Spot Shoe Company did all of the accounting, bookkeeping, and banking for Health Spot Shoe Shop.

In the early part of 1947 petitioner became dissatisfied with his position as manager of the business and was considering seeking other employment because he felt that his job offered no future security. The decedent, who had moved to Canada in 1944 and had visited the business infrequently thereafter, had been well satisfied with petitioner's management and was concerned over the possibility of petitioner's leaving the business. The decedent had been advised by George E. Musebeck, president of Health Spot Shoe Company, which had some 1,500 other franchises, that because of the excellent location of the business in downtown Detroit it would be advantageous to

[23 T.C. 956]

continue operation of the business. In view of the decedent's advanced years Musebeck encouraged the decedent to keep petitioner as manager and to make him a part owner of the business.

On June 11, 1947, the decedent and petitioner entered into a written agreement. Recited therein as the motivating factors causing its execution were that Lila G. Husted, owner of Health Spot Shoe Shop, being of advanced age and no longer able to engage actively in the business, desired to enter into an arrangement which would provide an income for her remaining years and that the petitioner was desirous of insuring his future by obtaining an interest in the business. The parties agreed to form a co-partnership to be known as ‘Health Spot Shoe Shop’ which was to continue until the death of the decedent. Each party was to contribute $1,000 cash as capital for carrying on the business. The...

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