Benningfield v. Comm'r of Internal Revenue

CourtUnited States Tax Court
Citation81 T.C. No. 27,81 T.C. 408
Docket NumberDocket No. 5057–82.
Decision Date19 September 1983


On December 25, 1979, P purported to assign or sell indefinitely “accounts receivable” representing his wages, to PTS, purportedly a trust. PTS purported to “resell” P's “accounts” to IDI, “requesting” that IDI contribute 90 percent or more of these accounts to “non-profit organizations.” In 1979 P endorsed two paychecks from his employer to PTS. The same day, C, purportedly a Canadian charitable trust, issued to P checks denominated as “gifts” and equaling 92 percent of the paychecks P had just endorsed to PTS. On his 1979 tax return P excluded from income the full amount of the two paychecks as “factor discount on receivables sold.”

On December 29, 1979, P entered into a “Financial Management Contract” with IDI, calling for IDI to perform for P in 1980 “Financial Counselling, Estate Planning, and Tax Consequences Advice and Taxes Owed.” No services were performed by IDI. In 1979 P issued to IDI a check for $3,550 and the same day received back a check for $3,195 from C, denominated as a “gift.” P deducted the $3,550 on his 1979 tax return as expenses of “financial counseling.”

Held, P is taxable on the paychecks he endorsed to PTS. His arrangement with PTS, IDI, and C is simply an anticipatory assignment of income. Lucas v. Earl, 281 U.S. 111 (1930); United States v. Landsberger, 692 F.2d 501 (8th Cir. 1982); and Wesenberg v. Commissioner, 69 T.C. 1005 (1978), followed.

Held further, P is not entitled to a deduction for “financial counseling” under sec. 212(3), I.R.C. 1954, or any other Code provision.

Held further, P is liable for the negligence addition under sec. 6653(a), I.R.C. 1954. Max Eugene Benningfield, Jr., pro se.

Milton J. Carter, Jr., for the respondent.

PARKER, Judge:

Respondent has determined the following Federal income tax deficiencies and additions to tax:

                ¦Taxpayer                                 ¦Year  ¦Deficiency  ¦Sec. 6653(a)1  ¦
                ¦                                         ¦      ¦            ¦               ¦
                ¦Max Eugene Benningfield, Jr.             ¦1975  ¦$1,042      ¦0              ¦
                ¦Max Eugene Benningfield, Jr.             ¦1976  ¦164         ¦0              ¦
                ¦Max Eugene Benningfield, Jr., and Shelley¦1977  ¦1,041       ¦0              ¦
                ¦Jean Benningfield                        ¦      ¦            ¦               ¦
                ¦Max Eugene Benningfield, Jr., and Shelley¦1978  ¦4,992       ¦0              ¦
                ¦Jean Benningfield                        ¦      ¦            ¦               ¦
                ¦Max Eugene Benningfield, Jr., and Shelley¦1979  ¦6,784       ¦$339           ¦
                ¦Jean Benningfield                        ¦      ¦            ¦               ¦

After numerous concessions,2 the issues remaining for determination are (1) whether a deduction or exclusion from gross income claimed in 1979 as a “factor discount on receivables sold,” which represents petitioner's endorsement of two of his paychecks to “Professional and Technical Services” is allowable; (2) whether a deduction of $3,550 for “financial counseling” is allowable; and (3) whether petitioner is liable for the negligence addition under section 6653(a).


Some of the facts have been stipulated and are so found. The stipulation of facts, first supplemental stipulation of facts, and exhibits attached thereto are incorporated herein by this reference.

Max Eugene Benningfield, Jr., and Shelley Jean Benningfield (petitioners), husband and wife, resided in Selah, Washington, when they filed their petition in this case. During the taxable years 1975 and 1976, petitioner Max Eugene Benningfield, Jr., (petitioner) was unmarried. He filed individual Federal income tax returns for these years. Petitioner is, by trade, a pipefitter or steamfitter.

For the taxable years 1977, 1978, and 1979, petitioners were married and filed joint Federal income tax returns. Petitioners' 1977 and 1978 returns were prepared by an accountant.

Prior to December 25, 1979, petitioner had been hired by and was employed by the J.A. Jones Construction Company as a steamfitter. On or about December 25, 1979, petitioner signed a document entitled “Intrusted Personal Services Contract” (“Services Contract”). The Services Contract listed petitioner as the “Supplier” and listed as the “Purchaser” one Frank Forrester (“Forrester”), purporting to act as trustee of “Professional and Technical Services” (“PTS”). Petitioner signed the Services Contract in the offices of Trust Trends, whose representative was James C. Russell (“Russell”). Either Russell or one of his office helpers was present when the Services Contract was signed. The Services Contract provided, in pertinent part, as follows:


1. Legal Status: This Contract is formed under English Common Law and is protected by Article 1, Sec. 10, Para. 1 of the Constitution of the United States and the Republic de Panama. It is not subject to the trust or contract laws of any state. Any question or interpretation or any claim shall be settled per Rules of the American Arbitration Association. Equity supersedes all laws and court cases.

2. Economic Justifications: This Contract is a combination of personal estate planning and business planning for improved economic and legal reasons. Considerations included are (a) a line of dollar credit on par with equity; (b) advance payments of future monies due; (c) interest-free loans; (d) employment opportunities; (e) job security; (f) tax-free contributions to retirement and pension type plans of $100,000 or more; (g) purchase of cars/boats/planes/equipment/etc. at wholesale prices and without state sales tax; (h) paralegal protection for personal and business assets; (i) financial management consulting aid; (j) analysis of tax consequences of transactions; (k) investment advisory services and statistical research; (1) custodial services; (m) bookkeeping and accounting help; (n) high earning saving plans; (o) preparation of forms and procedures for business transactions; (p) advice on selling real estate, homes, and other assets; (q) helping to perfect title to property presently owned; (r) improving the value of property presently owned; (s) recommendations on using trusts; (t) analysis and consolidation of insurance policies; (u) analysis of tax shelters; (v) provisions of successor trustee management; (w) preparing tax returns; (x) offering use of domestic and foreign banking facilities; (y) serving as collection agency; (z) making escrow facilities available on and off-shore; (aa) promoting more business with national and international contacts.

3. Legal Status of Tax Liability: This contract is legally binding taxwise under the IRS-quoted court case of Earl vs. Lucas, U.S. Supreme Court (1930). As stated by the IRS, this is the governing case law which attaches tax liability to the legal owner of the ‘tree’ for the ‘fruit’ of the tree, or as the U.S. Supreme Court held, “. . . that no distinction can be taken . . . by which the fruits are attributed to a different tree from that on which they grew.” Thus, the “Purchaser” is the legal owner of all the “Supplier's” future accounts receivable capital asset payments generated from the “Supplier's” personal services rendered to third party users/employers/promoters/etc.

4. Best Efforts Basis: “Purchaser” agrees to find suitable and acceptable use of the services and talents of the “Supplier” on a continuous basis or as agreed to by the parties. This is not meant to reduce the power or inhibit the use of collective bargaining agreements and does reserve and impart unto the “Supplier” the right to further such association in the common interest to enrich the fruit.

The “Purchaser” does hereby, acting through its trustee, Frank Forrester, grant and extend to the “Supplier” signed hereon, powers to act as “Purchaser's” true and lawful attorney-in-fact to use “Purchaser's” name, without further notice, in union affiliations, regarding either the above said fruit or conditions of use of said services and talents. Purchaser does, by above assignment of power of attorney, agree to comply without separate bargaining agreement, as services personage, one with the Supplier, and is not to be regarded in any way as a separate labor contractor having to do with dues, fringes and the like. This Contract does not explicitly require the approval of any outside bargaining group or agent.

5. Rights of “Purchaser”: Receive payment for all accounts receivable capital assets purchased.

6. Obligations of “Purchaser”: Purchase all accounts receivable capital assets offered by “Supplier”. Pay taxable income payments to “Supplier” as agreed, which may be the common payment of $1 per year for patriotic services rendered. Issue requests to all fourth parties repurchasing accounts receivable capital asset payment to contribute 90% or more of payments to one or more private charities, foundations, or other non-profit organizations. Pay all monies due and guaranteed under the Management Warranty Policy included in this Contract.

7. Management Warranty Policy: This Contract incorporates a Management Warranty Policy which provides the following guarantees to...

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