Reynolds v. Comm'r of Internal Revenue, Docket Nos. 39399

Decision Date28 September 1956
Docket NumberDocket Nos. 39399,39421.
Citation26 T.C. 1225
PartiesGEORGE E. REYNOLDS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF MILDRED D. REYNOLDS, DECEASED, GEORGE E. REYNOLDS, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

26 T.C. 1225

GEORGE E. REYNOLDS, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF MILDRED D. REYNOLDS, DECEASED, GEORGE E. REYNOLDS, EXECUTOR, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 39399

39421.

Tax Court of the United States.

Filed September 28, 1956.


[26 T.C. 1225]

Stanley Suydam, Esq., and H. Stewart McDonald, Esq., for the petitioners.

George J. Rabil, Esq., for the respondent.

1. The services rendered by petitioner in the sale of 240 tanks for use of the Chinese Government were only part of his services under his employment contract, and the compensation therefor not being 80 percent of his total compensation for the services rendered, it is held that the provisions of section 107(a) of the Internal Revenue Code of 1939 are not applicable.

2. Held, that a bona fide and valid partnership was formed by petitioner and his wife for the conduct of business which had formerly been that of petitioner alone, and that the business was thereafter conducted by the partnership.

3. Held, that the loss suffered in the operation of two citrus groves owned by petitioner and his wife as tenants by the entirety was their loss jointly, and not the individual loss of petitioner.

The respondent determined deficiencies in income tax against the petitioners as follows:

+----------------------------------------------------+
                ¦Docket No. ¦Petitioner ¦Year ¦Deficiency ¦
                +------------+-------------------+------+------------¦
                ¦39399 ¦George E. Reynolds ¦( 1943¦$89,272.20 ¦
                +------------+-------------------+------+------------¦
                ¦ ¦ ¦( 1944¦9,865.04 ¦
                +------------+-------------------+------+------------¦
                ¦39421 ¦Mildred D. Reynolds¦( 1943¦1,007.86 ¦
                +------------+-------------------+------+------------¦
                ¦ ¦ ¦( 1944¦1,543.58 ¦
                +----------------------------------------------------+
                

The questions for decision are (1) whether the provisions of section 107(a) of the Internal Revenue Code of 1939 are applicable to $55,536 received by petitioner George E. Reynolds in 1942,1 from a company he had been serving as sales agent, (2) whether petitioner and his wife in 1942 were partners in the conduct of business which theretofore had been the business of petitioner, and (3) whether a loss from the operation of certain citrus lands in Florida, which were held by George and Mildred Reynolds as tenants by the entirety, was the loss of George Reynolds alone, or his and Mildred's jointly.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found as stipulated. The petitioners were husband and wife, and during the years in

[26 T.C. 1226]

question resided in Chevy Chase, Maryland. George E. Reynolds, sometimes referred to as petitioner, filed individual income tax returns for the calendar years 1942, 1943, and 1944 with the collector of internal revenue for the district of Maryland. Mildred D. Reynolds2 filed individual income tax returns for the claendar years 1942 and 1943 with the collector for the same district. In making their returns, petitioners used the cash receipts and disbursement method of accounting.

Petitioner and Mildred Reynolds were married in 1920, and had two children, a son, born in 1921, and a daughter, born in 1929 or 1930. During all of the years involved petitioner was a sales agent in Washington, D.C., and the surrounding area for several manufacturing firms engaged in the manufacture of automotive and related products. He was a member of the Society of Automotive Engineers, and was chairman of the Washington chapter of that society in 1939.

One of the firms for which petitioner was sales agent was Marmon-Herrington Company, Inc., sometimes referred to herein as Marmon. Marmon was engaged in the manufacturing of various kinds of automotive equipment, tanks, tractors, trailers, trucks, scout cars, and the like. Petitioner's employment as sales agent by Marmon began at least as early as 1931, and was continuous thereafter until August 31, 1942, when he became vice president of Marmon. His employment for most, if not all, of the period was pursuant to written contracts. The first of such contracts was dated June 20, 1932, and was followed by other contracts dated January 4, 1934, January 4, 1937, January 28, 1938, and January 1, 1940. The terms and conditions of each contract were substantially the same as the contract it superseded, except for minor changes, in some instances, in salary, commissions, territory, or the addition of new products. Beginning with the contract of January 4, 1937, each contract was to continue until such time as either party notified the other of its discontinuance. Under the contracts, the petitioner was to serve as salesman of Marmon products, including all products sold to the United States under sales originating in Washington, D.C. Up to August 31, 1942, all sales made by petitioner for Marmon were made pursuant to the contract currently in force.

Under the said contracts, petitioner was to receive for his services a fixed salary of $200 per month, plus specified commissions where sales resulted. On some items, commissions were to be in fixed amounts, while on others they were to be in percentages of net billings. On sales of tanks to the United States Government, his commissions

[26 T.C. 1227]

were to be 1 percent of the net billings. In addition to the commissions on sales which petitioner made, he was to receive commissions on all truck chassis sold by ‘Distributors or Dealers' in a specified territory, which, under the 1940 contract, extended from Virginia and West Virginia to and including New York City and Long Island, but covering only a designated portion of Pennsylvania. The contracts contained provisions whereby petitioner was to be reimbursed, at cost, for traveling expenses incurred in performance of his duties and was to receive $6 per day for living expenses actually incurred while away from Washington. Provision was also made in the last three contracts whereby Marmon was to pay actual costs of demonstrating its products. Under all of the contracts, the payment of any commission was to be limited to those transactions upon which Marmon had been paid in full.

During the years 1934 and 1936 petitioner had negotiated sales for Marmon with the Chinese Government. In the main, if not wholly, the sales were of tracklaying tractors. At about the same time, or shortly thereafter, he began making some sales to the United States Government for the Marine Corps. On some undisclosed date in the late 1930's, negotiations began for the sale of various items to the Netherlands for use in the Dutch East Indies. These negotiations resulted in substantial sales. The sales contracts, however, were made in New York, and petitioner was not allowed any commission on those sales. He made no claims therefor against Marmon. Petitioner also did much, if not most, of the effective work in procuring sales of armored cars and motor trucks to the Iranian Government. The sales amounted to approximately $2,500,000. Marmon took the position that these sales were outside petitioner's contract and allowed him no commissions thereon.

In 1939 petitioner learned that the Chinese Government was in need of tanks, and in August of that year, began working to secure an order for them. As a result of his effort, a ‘Letter of Contract’ for the production of 240 tanks and spare parts was received from the Ordnance Department of the War Department under date of October 20, 1941. A formal contract therefor between the United States and Marmon was executed under date of February 13, 1942, the price of the tanks exclusive of other costs being stated as $5,553,600. The contract was pursuant to the ‘lend-lease’ program which the United States had set up.

After procuring the formal contract for the production of the 240 tanks on February 13, 1942, Marmon ordered the materials therefor. It was then producing tanks for the Dutch Government, and by persuading the Chinese Government to agree to the use of the same tools that were being used for the Dutch tanks, the normal tooling period

[26 T.C. 1228]

was eliminated; but the waiting period for the material ordered ‘was just about as long as the normal tooling period.’

Petitioner's commissions for 20 of the 240 tanks, amounting to $4,628, were accrued on Marmon's books in the month of March 1942. In April 1942, commissions in respect of 70 tanks, in the aggregate amount of $16,429.40, were likewise accrued. In May, commissions in respect of 75 tanks, amounting in the aggregate to $17,355.30, were similarly entered on Marmon's books. In June, entries of commissions in respect of 66 tanks, in the aggregate amount of $15,313.60, were made, and in July, commissions, in the aggregate amount of $2,107.33, in respect of the 9 remaining tanks were entered on the books, bringing the total amount so entered to $55,833.63.3

In the course of Marmon's production of the 240 tanks, numerous changes relating to the design and equipment were sought by representatives of the Chinese Government. As a result, petitioner was required, and continued to devote a great deal of time to the contract after it had been secured. It was the understanding of petitioner and Marmon, under their contract, that Marmon was to be obligated to pay commissions only on tanks actually delivered and paid for, and if, for any reason, the tank contract or any part thereof should be canceled, no commissions were to be paid, or payable, on the canceled portion. The tanks were delivered in quantities and on dates not shown of record, but the last of the tanks were not delivered until sometime in 1944.

Under date of May 12, 1942, petitioner received a check from Marmon for $9,969.08. This check included the commissions which had been entered on Marmon's books in his favor in March 1942, in respect of the first 20 of the 240 tanks described above. Most of the remainder of the check represented commissions on tanks sold to the United States for the Marine Corps. No further...

To continue reading

Request your trial
2 cases
  • Shaffer v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • November 7, 1957
    ... ... ,v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Docket No. 53993.Tax Court of the United States.Filed November 7, ... See George E. Reynolds, 26 T.C. 1225 (1956); W. Harold Warren, 20 T.C. 378 1953); ... ...
  • Wattley v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • December 11, 1958
    ... ... COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 62297. Tax Court of the United States. Filed December ... 846, certiorari denied 327 U.S. 804; George E. Reynolds, 26 T.C. 1225, 1237, affirmed 249 F.2d 259 (C.A. 4); Harry ... ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT