Brittingham v. Comm'r of Internal Revenue , Docket Nos. 6626-71

CourtU.S. Tax Court
Writing for the CourtSIMPSON
Citation66 T.C. 373
PartiesROBERT M. BRITTINGHAM, ET AL.1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Decision Date03 June 1976
Docket Number6631-71.,6627-71,7774-71,7810-71,Docket Nos. 6626-71

66 T.C. 373

ROBERT M. BRITTINGHAM, ET AL.1 PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 6626-71

6627-71

7774-71

7810-71

6631-71.

United States Tax Court

Filed June 3, 1976.


Two brothers, Robert and Juan (Together with their immediate families), each owned a 37-percent interest in D, a Texas corporation. D purchased tile from C, a Mexican corporation, for resale in the United States. Juan and his family owned and controlled C. The price D paid for such tile was substantially higher than the customs value as determined by the U.S. Bureau of Customs. Held: (1) D and C were not owned or controlled by the same interests within the meaning of sec. 482, I.R.C. 1954; (2) D paid an arm's-length price for the tile purchased from C; (3) no part of the payments by D for such tile was dividend income to Juan or Robert; (4) no fraud penalty applicable; (5) Juan received a constructive dividend as a result of a bargain sale by D to his son-in-law; (6) Juan failed to file true and accurate returns within the meaning of sec. 874(a), I.R.C. 1954, resulting in the disallowance of his claimed deductions and certain credits; (7) residence of Roberta determined; and (8) failure to file penalty approved with respect to Roberta.

[66 T.C. 374]

Ethan B. Stroud, Robert W. Ryan, Jr., L. Vance Stanton, Cameron Dee Sewell, and Michael D. Cropper, for the petitioners.

John B. Turner and John W. Dierker, for the respondent.

SIMPSON, Judge:

In his notices of deficiency, the Commissioner determined the following deficiencies in, and additions to, the petitioners' income tax:

+---------------------------------------------------------------------+
                ¦ ¦ ¦ ¦Sec. ¦Sec. ¦
                +-------------------------+------+------------+------------+----------¦
                ¦ ¦ ¦ ¦6653(b) 2 ¦6651(a) ¦
                +-------------------------+------+------------+------------+----------¦
                ¦Petitioner ¦Year ¦Deficiency ¦addition ¦addition ¦
                +-------------------------+------+------------+------------+----------¦
                ¦ ¦ ¦ ¦ ¦ ¦
                +-------------------------+------+------------+------------+----------¦
                ¦Robert M. Brittingham and¦ ¦ ¦ ¦ ¦
                +-------------------------+------+------------+------------+----------¦
                ¦Jeanne G. Brittingham3 ¦1963 ¦$854,814.71 ¦$427,407.36 ¦--- ¦
                +---------------------------------------------------------------------+
                
 1964 760,754.31 380,377.16 ---
                 1965 739,626.48 369,813.24 ---
                 1966 685,911.03 342,955.52 ---
                Dallas Ceramic Co. 1963 392,080.75 196,040.38 ---
                
 1964 346,842.59 173,421.30 ---
                 1965 369,259.17 184,629.59 ---
                Juan R. Brittingham 1963 2,180,403.87 1,090,279.52 ---
                
 1964 1,433,215.49 716,607.75 ---
                 1965 1,138,884.01 569,442.01 ---
                 1966 864,952.67 432,476.34 ---
                Roberta M. Brittingham 1960 4,174.00 --- $1,043.50
                
 1961 19,589.34 --- 4,897.34
                 1962 70,603.53 --- 17,650.88
                 1963 337,691.74 --- 84,422.94
                 1964 100,279.92 --- 25,069.98
                 1965 90,505.20 --- 22,626.30
                 1966 102,065.13 --- 25,516.28
                

In an amendment to his answer in the case of Roberta M. Brittingham, the Commissioner redetermined the deficiencies in, and additions to, tax as follows:

+------------------------------------------+
                ¦ ¦Amended ¦Amended sec. 6651(a) ¦
                +------+------------+----------------------¦
                ¦Year ¦deficiency ¦addition ¦
                +------+------------+----------------------¦
                ¦ ¦ ¦ ¦
                +------+------------+----------------------¦
                ¦1960 ¦$82,096.39 ¦$20,524.10 ¦
                +------+------------+----------------------¦
                ¦1961 ¦96,972.60 ¦24,243.15 ¦
                +------+------------+----------------------¦
                ¦1962 ¦213,737.27 ¦53,434.32 ¦
                +------+------------+----------------------¦
                ¦1963 ¦563,734.34 ¦140,933.59 ¦
                +------+------------+----------------------¦
                ¦1964 ¦259,189.10 ¦64,797.28 ¦
                +------+------------+----------------------¦
                ¦1965 ¦187,168.32 ¦46,792.08 ¦
                +------+------------+----------------------¦
                ¦1966 ¦217,372.60 ¦54,343.15 ¦
                +------------------------------------------+
                

[66 T.C. 375]

Some of the issues have been settled and the issues remaining for decision are: (1) Whether the petitioner, Dallas Ceramic Co., and Ceramica Regiomontana, S.A., were ‘owned or controlled directly or indirectly by the same interests' within the meaning of section 482 and whether Dallas Ceramic Co. paid an arm's-length price for the ceramic tile it purchased from Ceramica Regiomontana, S.A.; (2) whether the fraud penalty is applicable with respect to Dallas Ceramic Co. during the years in issue; (3) whether Robert M. and Jeanne G. Brittingham received unreported taxable income as a result of certain checks issued by Dallas Ceramic Co. to Ceramica Regiomontana, S.A., and whether the fraud penalty is applicable to them for the years in issue; (4) whether Juan Rl Brittingham received unreported taxable income as a result of certain checks issued by Dallas Ceramic Co. to Ceramica Regiomontana, S.A.; (5) whether Juan R. Brittingham filed true and accurate returns for the years in issue within the meaning of section 874(a); (6) whether Juan R. Brittingham received a constructive dividend as a result of the sale of property by Dallas Ceramic Co. to his son-in-law in 1963; (7) whether the fraud penalty is applicable to Juan R. Brittingham for the years in issue; and (8) whether Roberta M. Brittingham was a resident alien during the years 1960 through 1966, and whether her failure to file returns for such years was due to reasonable cause.

FINDINGS OF FACT

Some of the facts have been stipulated, and those facts are so found.

The petitioners Robert M. Brittingham and Jeanne G. Brittingham lived in Dallas, Tex., at the time of filing their petitions in this case. During the years 1963 through 1966, they were husband and wife and timely filed their joint Federal income tax returns with the District Director of Internal Revenue, Dallas, Tex. Robert M. Brittingham will sometimes be referred to as Robert.

The petitioner Juan R. Brittingham was a citizen and resident of the Republic of Mexico, whose address at the time of filing his petition herein was Monterrey, Mexico. He timely filed his Federal nonresident alien income tax returns for the years 1963 through 1966 with the Director of International Operations,

[66 T.C. 376]

Washington, D.C. Juan R. Brittingham is the brother of Robert and will sometimes be referred to as Juan.

The petitioner Roberta M. Brittingham is a citizen of the Republic of Mexico, whose address at the time of filing her petition herein was Monterrey, Mexico. She filed no U.S. Federal income tax returns for the years 1960 through 1966. Roberta M. Brittingham is the mother of Robert and Juan and will sometimes be referred to as Roberta.

The petitioner Dallas Ceramic Co. (Dallas Ceramic) was incorporated in 1947 under the laws of Texas and had its principal place of business in Dallas, Tex., at the time of filing its petition herein. It filed its Federal corporate income tax returns for the years 1963 through 1965 with the District Director of Internal Revenue, Dallas, Tex.

Description of Dallas Ceramic and the Tile Industry

Upon its incorporation, the Principal organizers of Dallas Ceramic were Robert, Juan, Richard Evans, and Jack E. Jenkins. Robert, together with his immediate family, and Juan, together with his immediate family, have each owned an equal amount of Dallas Ceramic's stock since its incorporation.

When it was first organized, Dallas Ceramic was engaged only in manufacturing ceramic wall and floor tile, which was sold through its own stores and through its distributors. However, it soon began buying tile and related products from other suppliers and selling the purchased products in addition to its own products. During the years 1963 through 1966, it had about 300 employees and had average annual sales of approximately $8 million. In volume of sales, it ranked approximately fifth among all companies manufacturing and selling ceramic tile in the United States during this period. Its products were sold nationwide except in the far eastern part of the United States and the Central Atlantic States.

The ceramic tile manufactured by Dallas Ceramic is used in residential and apartment bathrooms and kitchens, commercial buildings, hospitals, airports, schools, and hotels. The tile's brand name is Dal-Tile, and it is manufactured in many shapes and sizes and with various finishes. Such tile is produced in 31 bright colors, 29 crystalline colors, and 10 satin matte colors. The most widely used size of tile is a flat piece, 4 1/4 inches square (4 1/4-inch tile), and there are eight of such pieces in a square foot of tile.

[66 T.C. 377]

Ceramic tile is made by mixing a ‘body,‘ consisting of talc and ball clays, and pressing it into different shapes. In a separate procedure, a glaze is made by mixing seven or eight raw materials, melting the mixture, and adding water and a stain. This glaze is sprayed on the pressed tile, which is then put into a kiln and fired at a peak temperature of about 2,000 degrees Fahrenheit. Finally, the completed tile product is allowed to cool and is ready to be sorted and packed.

Dallas Ceramic has employees known as sorters, who grade the finished tile, select the standard-grade tile, and generally pack 100 pieces of tile into each box. In 1961, the U.S. Department of Commerce issued voluntary recommended standards for grading tile (American standards). Standard-grade tile has no visible imperfections such as bumps, slivered edges, unglazed edges, cracks, or other imperfections. Under the American standards, each box of tile labeled ‘standard grade’ may contain no more than 5-percent second-grade tile and no third grade.

In addition to grading the tile based upon visible imperfections, the sorters are also required to make certain that the color of all tile in a box is uniform and that each box is marked with the correct shade number. If the color grading of the tile is not performed properly, its installation will be more expensive since the purchaser will be required to use additional labor to sort the tile.

Uniform sizing is also a factor in making and grading tile. The chemical...

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38 practice notes
  • Lynch v. Commissioner, Docket No. 4556-78
    • United States
    • United States Tax Court
    • 31 Marzo 1983
    ...the burden of proving that the Commissioner's determination of value was erroneous. Rule 142(a); Brittingham v. Commissioner Dec. 33,856, 66 T.C. 373, 410 (1976), affd. per curiam 79-2 USTC ¶ 9499 598 F. 2d 1375 (5th Cir. 1979). The parties have presented various forms of evidence and testi......
  • Collins Elec. Co. v. Comm'r of Internal Revenue, Docket No. 7957—74.
    • United States
    • United States Tax Court
    • 9 Marzo 1977
    ...equalizes the treatment of controlled and uncontrolled taxpayers and prevents the artificial shifting of income. Robert M. Brittingham, 66 T.C. 373, 396 (1976), on appeal (5th Cir., Dec. 27, 1976); Huber Homes, Inc., 55 T.C. 598, 605 (1971). Collins and Del Monte, both electrical contractor......
  • Donor, Lisa Lekumberry, Ex'r & Tr. v. Comm'r (In re Estate of Giovacchini), T.C. Memo. 2013-27
    • United States
    • United States Tax Court
    • 24 Enero 2013
    ...determination where it is based on erroneous assumptions or mistaken facts or an unreasonable formula. Brittingham v. Commissioner, 66 T.C. 373, 403 (1976), aff'd, 598 F.2d 1375 (5th Cir. 1979). That said, the January 2003 sale to ALC is the only truly comparable sale worthy of consideratio......
  • Lanier v. Commissioner, Docket No. 9146-93.
    • United States
    • United States Tax Court
    • 7 Enero 1998
    ...Green v. United States [71-1 USTC ¶ 9429], 460 F.2d 75 T.C.M. 1541 412, 419 (5th Cir. 1972); Brittingham v. Commissioner [Dec. 33,856], 66 T.C. 373, 409-410 (1976), affd. per curiam [79-2 USTC ¶ 9499] 598 F.2d 1375 (5th Cir. The term "dividend" is defined in section 316(a) as a di......
  • Request a trial to view additional results
38 cases
  • Lynch v. Commissioner, Docket No. 4556-78
    • United States
    • United States Tax Court
    • 31 Marzo 1983
    ...the burden of proving that the Commissioner's determination of value was erroneous. Rule 142(a); Brittingham v. Commissioner Dec. 33,856, 66 T.C. 373, 410 (1976), affd. per curiam 79-2 USTC ¶ 9499 598 F. 2d 1375 (5th Cir. 1979). The parties have presented various forms of evidence and testi......
  • Collins Elec. Co. v. Comm'r of Internal Revenue, Docket No. 7957—74.
    • United States
    • United States Tax Court
    • 9 Marzo 1977
    ...equalizes the treatment of controlled and uncontrolled taxpayers and prevents the artificial shifting of income. Robert M. Brittingham, 66 T.C. 373, 396 (1976), on appeal (5th Cir., Dec. 27, 1976); Huber Homes, Inc., 55 T.C. 598, 605 (1971). Collins and Del Monte, both electrical contractor......
  • Donor, Lisa Lekumberry, Ex'r & Tr. v. Comm'r (In re Estate of Giovacchini), T.C. Memo. 2013-27
    • United States
    • United States Tax Court
    • 24 Enero 2013
    ...determination where it is based on erroneous assumptions or mistaken facts or an unreasonable formula. Brittingham v. Commissioner, 66 T.C. 373, 403 (1976), aff'd, 598 F.2d 1375 (5th Cir. 1979). That said, the January 2003 sale to ALC is the only truly comparable sale worthy of consideratio......
  • Lanier v. Commissioner, Docket No. 9146-93.
    • United States
    • United States Tax Court
    • 7 Enero 1998
    ...Green v. United States [71-1 USTC ¶ 9429], 460 F.2d 75 T.C.M. 1541 412, 419 (5th Cir. 1972); Brittingham v. Commissioner [Dec. 33,856], 66 T.C. 373, 409-410 (1976), affd. per curiam [79-2 USTC ¶ 9499] 598 F.2d 1375 (5th Cir. The term "dividend" is defined in section 316(a) as a di......
  • Request a trial to view additional results

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