Ballentine Motor Co. v. CIR

• Decision Date: 19 August 1963
• Docket Number: No. 8975.,8975.
• Citation: 321 F.2d 796
• Parties: BALLENTINE MOTOR CO., Inc., Ballentine's, and Ballentine Motors, Inc., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

321 F.2d 796 (1963)

BALLENTINE MOTOR CO., Inc., Ballentine's, and Ballentine Motors, Inc., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 8975.

United States Court of Appeals Fourth Circuit.

Argued June 6, 1963.

Decided August 19, 1963.

William L. Watkins, Anderson, S. C. (Watkins, Vandiver, Freeman & Kirven, Anderson, S. C., on brief), for petitioners.

Giora Ben-Horin, Atty., Dept. of Justice (Louis F. Oberdorfer, Asst. Atty. Gen., and Lee A. Jackson and Melva M. Graney, Attys., Dept. of Justice, on brief), for respondent.

Before HAYNSWORTH and BOREMAN, Circuit Judges, and BARKSDALE, District Judge.

BOREMAN, Circuit Judge.

This is an appeal from a decision of the Tax Court¹ upholding the assessment of income tax deficiencies by the Commissioner of Internal Revenue. Separate petitions, filed by taxpayers, were consolidated for hearing, briefing and disposition before the Tax Court. That Court's findings of fact, which appear to be fully supported by the evidence, are not disputed. Challenged here by taxpayers are the inferences and conclusions drawn by the Tax Court from the facts.

During the period pertinent to these proceedings, C. M. Ballentine was the president and controlling stockholder of the three family-owned corporations, namely, Ballentine Motor Co., Inc., Ballentine's, and Ballentine Motors, Inc., which are the taxpayers and appellants. He was president and controlling stockholder of another such corporation known as Ballentine Motors of Georgia, Inc., and several other such corporations the identity of which is not here material. All of these corporations were engaged in the operation of certain used car lots. Ballentine Motor Co., Inc., owned and operated two such lots at Columbia, South Carolina; Ballentine's owned and operated one such lot at Anderson, South Carolina; Ballentine Motors, Inc., owned and operated one such lot at Augusta, Georgia; and Ballentine Motors of Georgia, Inc., owned and operated one such lot at Atlanta, Georgia.

In 1949 Motor Investment Company, a corporation (hereinafter called Investment), was organized under South Carolina laws to finance the installment sales of automobiles by the various used car lots. It kept the records of the other corporations and was compensated therefor by a percentage of sales from the lots. On June 15, 1951, the stock of Investment was owned by C. M. Ballentine, members of his family and his controlled corporations. On June 15, 1951, Investment sold its automobile finance paper (notes, contracts, etc.) to Commercial Credit Corporation (hereinafter referred to as C.C.C.) and agreed not to engage in the business of purchasing notes for one year. Commencing in 1951, under a contract referred to as a "Reserve Agreement," each Ballentine-owned corporation began selling the finance paper that it received in connection with the credit sales of automobiles from its respective used car lot to C.C.C. Under the Reserve Agreements, C.C.C. agreed to pay to each corporation, in addition to the unpaid portion of the purchase price of the cars involved, a portion of the finance charges on each note computed in accordance with a certain formula but subject to certain maximum amounts on each note. The agreed formula and the maximums, or "caps," were well-established in the automobile financing business generally during the years involved; and C.C.C., understandably, was unwilling to pay the Ballentine corporations in excess of the generally established maximums because of the probable effect on C.C.C.'s bargaining position with other dealers. However, in order to insure the continued business of the three Ballentine corporations which are parties to this proceeding, and of Ballentine's other dealer corporations, C.C.C., on May 19, 1952, entered into a written agreement with C. M. Ballentine individually whereby C.C.C. agreed to pay directly to him that part of the formula-computed portion of the finance charges which was in excess of the standard "caps" to which the payments to the corporations under the Reserve Agreements were subject. The various corporate dealers controlled by Ballentine were the largest single customers of C.C.C., and the only consideration to be furnished under the agreement by Ballentine himself was to insure that his dealer corporations would continue to deal with C.C.C. exclusively and to stimulate the salesmen employed by each such dealer corporation to promote time sales, thereby increasing the volume of business between the Ballentine corporations and C.C.C. Under the provisions of this collateral agreement during the years involved herein, C. M. Ballentine received a total of $41,472 from C.C.C. as a result of the combined business transactions between C.C.C. and the three taxpayer corporations, all of which was reported as ordinary income on the joint income tax returns of C. M. Ballentine and his wife. The Commissioner determined that this sum represented income earned by the taxpayer corporations and such part thereof should be taxed to the particular corporation which made the sales from which the payments were derived. Upon review, the Tax Court sustained the Commissioner's determination on the ground that the income in question was actually earned by the corporations and, therefore, was taxable as such to them despite the fact that it was paid to Ballentine personally.

The parties agree that the determination as to whether the income was earned by Ballentine or by the respective corporations is, at least primarily, the determination of a question of fact and, in order for this court to reverse the finding of the Tax Court, it must be shown that the finding is clearly erroneous. See Commissioner v. Duberstein, 363 U.S. 278, 291, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960); Fed.R.Civ.P. 52 (a). However, it is our view that the Tax Court's finding in this regard is not clearly erroneous but is clearly right. The decisions cited in the opinion of the Tax Court squarely support its finding. Union Stock Farms v. Commissioner, 265 F.2d 712 (9th Cir., 1959); United Dressed Beef Co., 23 T.C. 879 (1955). See also United States v. Joliet & Chicago R. Co., 315 U.S. 44, 62 S.Ct. 442, 86 L.Ed. 658 (1942); Kansas City, St. L. & C. R. Co. v. Commissioner, 131 F.2d 940 (4th Cir., 1942); Eastern Carbon Black Co. v. Brast, 104 F.2d 460 (4th Cir., 1939). The finance paper sold with respect to which the payments to Ballentine were made was owned by the corporations and the amounts paid to Ballentine varied in direct proportion to the quantity of finance paper sold by the corporations. The payments were made to C. M. Ballentine personally rather than directly to the corporations for the sole purpose of concealing from other dealers the fact that C.C.C. was paying more than the generally established maximum for the finance paper of the Ballentine dealer corporations. Obtaining the additional payments above usual "caps" was possible in the instant case because of the comparatively great value to C.C.C. of the business of the Ballentine corporations. As found by the Tax Court, "The extra payments were made because of the volume of business provided by the corporations, and their sales earned these extra rebates." Under the facts here, the cases cited by the taxpayers to support their position² are not applicable as in each of those cases the individual to whom the money was paid performed some service or assumed some obligation separate and distinct from the operations of the corporation to which the Commissioner sought to allocate and assess the income.

The only other issue on this appeal involves...