Haldeman v. Comm'r of Internal Revenue

• Decision Date: 06 March 1946
• Docket Number: 111067.,Docket Nos. 111066
• Citation: 6 T.C. 345
• Parties: HENRY F. HALDEMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.CLARA B. HALDEMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

6 T.C. 345

HENRY F. HALDEMAN, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.CLARA B. HALDEMAN, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 111066

111067.

Tax Court of the United States.

Promulgated March 6, 1946.

Petitioners, husband and wife, separately created five family trusts, in each of which one or the other was the trustee and their minor daughter or the wife the primary or the secondary beneficiary. They conferred upon themselves, as trustees, powers of management and control in excess of normal fiduciary authority. As trustees, they invested the corpus of each trust in partnerships in which one or both were partners, as individuals. The amount of trust income depended largely upon petitioners' experience, skill, and ability in conducting the partnership businesses. Petitioners anticipated a tax savings by this family trust-partnership arrangement. Held, each is taxable upon the income of the trusts controlled by him or her under section 22(a), Revenue Acts of 1936 and 1938.

[6 T.C. 345]

Thomas R. Dempsey, Esq., and Arthur H. Deibert, Esq., for the petitioners.

Ralph E. Smith, Esq., and E. A. Tonjes, Esq., for the respondent.

These consolidated cases involve deficiencies in income tax for the years 1937 and 1938 as follows:

+--------------------------------------------+
                ¦Petitioner ¦Docket No.¦Year¦Deficiency¦
                +-----------------+----------+----+----------¦
                ¦Henry F. Haldeman¦111066 ¦1937¦$4,030.31 ¦
                +-----------------+----------+----+----------¦
                ¦Henry F. Haldeman¦111066 ¦1938¦11,814.43 ¦
                +-----------------+----------+----+----------¦
                ¦Clara B. Haldeman¦111067 ¦1938¦1,246.83 ¦
                +--------------------------------------------+
                

The only issue for our determination is (1) whether the income of certain trusts established by petitioners is taxable to them under section 22(a), Revenue Acts of 1936 and 1938. An issue as to the deductibility of California sales taxes has been settled by stipulation of the parties. The petitioners abandoned all other issues. The cases were submitted upon oral testimony, stipulated facts, and documentary evidence.

FINDINGS OF FACT.

Petitioners are husband and wife, residing in Los Angeles, California. They paid Federal income taxes to the collector of internal revenue for the sixth district of California for 1937 and 1938 as follows:

+--------------------------------------+
                ¦ ¦1937 ¦1938 ¦
                +-----------------+----------+---------¦
                ¦Henry F. Haldeman¦$17,900.12¦$4,417.54¦
                +-----------------+----------+---------¦
                ¦Clara B. Haldeman¦10,712.64 ¦4,545.04 ¦
                +--------------------------------------+
                

[6 T.C. 346]

Henry F. Haldeman entered the automobile business in 1912 with the service department of the Chalmers Motor Co. In 1916 he entered the sales end of the business. In 1921 he went into business for himself. From 1916 until 1927 Clara B. Haldeman worked almost continuously in the automobile business with Henry F. Haldeman or for others. Since 1927 Clara B. Haldeman has been almost as interested in the business and business affairs as her husband, neither of whom acts without consulting and securing the approval of the other. Prior to the taxable years Henry F. Haldeman had had a number of automobile agencies, including agencies for Willys-knight, Chandler, Cleveland, Hudson, and Essex automobiles.

On June 1, 1937, Henry F. Haldeman created a trust, naming himself trustee and his daughter, Dayl Haldeman, beneficiary, to which he concurrently transferred $50,000. Said trust will hereinafter be referred to as ‘Dayl Haldeman Trust No. 1.‘

On July 1, 1937, he created a trust naming his wife, Clara B. Haldeman, trustee and Dayl Haldeman beneficiary, and concurrently transferred thereto the sum of $10,000. This trust will be referred to as ‘Dayl Haldeman Trust No. 2.‘

On October 11, 1937, he created another trust, with himself as trustee and Dayl Haldeman as beneficiary, to which he concurrently transferred $1,000. Later, on July 21, 1938, he transferred to this trust an additional $4,000. This trust will be known as ‘Dayl Haldeman Trust No. 3.‘

Also on October 11, 1937, he created a trust, with himself as trustee his wife, Clara B. Haldeman, beneficiary, transferring $1,000 to it concurrently and, on July 21, 1938, an additional $4,000. This trust will be referred to as the ‘Clara B. Haldeman Trust.‘

Petitioner Clara B. Haldeman on July 1, 1937, also created a trust, naming Henry F. Haldeman trustee and Dayl Haldeman, beneficiary. She concurrently transferred to this trust the sum of $10,000. This trust will be referred to as the ‘Dayl Haldeman Trust, Clara B. Haldeman, trustor.‘

The money transferred to these trusts was from the separately owned property of the respective grantors.

Dayl Haldeman was born on October 17, 1918, and was under twenty-one years of age at all times material hereto.

Pursuant to powers contained in these various trust indentures, the trustees, as such, invested the corpora, severally, in the three partnerships hereinafter named, becoming either general or limited partners therein. The constituent interests in these partnerships for the years in question are indicated by the following table:

+-----------------------------------------------+
                ¦1. Henry F. Haldeman (dissolved June 11, 1937).¦
                +-----------------------------------------------¦
                ¦ ¦ ¦
                +-----------------------------------------------+
                

Members Profit distribution
                Henry F. Haldeman Adjusted capital basis
                Clara B. Haldeman Adjusted capital basis
                

2. Henry F. Haldeman, agreement dated June 1, 1937
                

Members Profit distribution
                Henry F. Haldeman Adjusted capital basis
                Clara B. Haldeman Adjusted capital basis
                Henry F. Haldeman, trustee for Dayl Haldeman
                (Trust No. 1) Adjusted capital basis
                3. Greene-Haldeman Co. Ltd., partnership certificate dated October 11, 1937
                

Members Profit
                 distribution
                Henry F. Haldeman (general) * 3/14
                Burch E. Greene (general) * 6/14
                Henry F. Haldeman, trustee for Clara B. Haldeman (Ltd.) 3/14
                Henry F. Haldeman, trustee for Dayl Haldeman Trust No. 3 2/14
                (Ltd)
                

4. Savage-Haldeman Co. (a) Prior to dissolution on July 1, 1937
                Members Profit Distribution
                Clair R. Savage 25%
                Henry F. Haldeman 25%
                Margaret D. Savage 25%
                Clara B. Haldeman 25%
                Total 100%
                (b)Agreement dated Oct. 14, 1937, as of July 1, 1937
                

Members Profit distribution
                Clair R. Savage 19%
                Henry F. Haldeman 19%
                Margaret D. Savage 19%
                Clara B. Haldeman 19%
                Clair R. Savage, trustee for Wm. Clair Savage 3%
                Clair R. Savage, trustee for Marilyn Savage 3%
                Margaret D. Savage, trustee for Wm. Clair Savage 3%
                Margaret D. Savage, trustee for Marilyn Savage 3%
                Henry F. Haldeman, trustee for Dayl Haldeman 6%
                Clara B. Haldeman, trustee for Dayl Haldeman Trust No. 2 6%
                Total 100%
                

--------

Notes:

FN *On Oct. 25, 1938, by amendment, Henry F. Haldeman's interest was decreased to 2/14 and Burch E. Greene's interest increased to 7/14.

[6 T.C. 347]

The first Henry F. Haldeman Co. partnership aforementioned was created on April 23, 1936. It had the agency for Plymouth and Desoto automobiles in Hollywood, California. The partnership which succeeded it had the same name, was located at the same place, and continued handling...