Carlstedt Associates, Inc. v. Commissioner
| Decision Date | 12 January 1989 |
| Docket Number | Docket No. 42063-85. |
| Citation | 1989 TC Memo 27,56 TCM (CCH) 1090 |
| Parties | Carlstedt Associates, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Steven Sonberg, Ursula Mancusi-Ungaro, and James H. Barrett, One Southeast Third Ave., Miami, Fla., for the petitioner. Claudine D. Ryce, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency in petitioner's Federal income tax for its fiscal year which ended on August 31, 1981 in the amount of $213,662.41.
The issues for decision are: (1) whether petitioner, an accrual basis taxpayer, must include in its income for its 1981 fiscal year the amounts received by it as commissions because all events occurred in 1981 that fixed petitioner's right to receive the income or because it received such commission income under a claim of right; (2) if petitioner is required to include the commissions it received in its fiscal year 1981 income, whether it is entitled to deduct in its fiscal year 1981 amounts due to other brokers for sales made by them on its behalf; (3) whether petitioner is entitled to defer inclusion of any portion of the commission income it received in its fiscal year 1981 to its 1982 fiscal year, pursuant to Rev. Proc. 71-21, 1971-2 C.B. 549, because such income is attributable to services that were to be performed within its 1982 fiscal year; and (4) whether petitioner should be allowed to carry back its fiscal year 1982 operating loss created by a downward adjustment of its 1982 fiscal year income to its fiscal year 1981, or whether it elected to relinquish such carryback in favor of a carryover.
Some of the facts have been stipulated and are found accordingly.
During the years involved in this case, Carlstedt Associates, Inc. (petitioner), maintained its offices in Tampa, Florida. It filed its corporate income tax returns with the Internal Revenue Service Center in Atlanta, Georgia. Petitioner kept its records and filed its returns on an accrual basis for a fiscal year ending on August 31. Petitioner's president and sole shareholder for its fiscal years 1979, 1980, 1981, 1982, and 1983 was James J. Carlstedt. Petitioner is now, and was at the time of the filing of its petition in this case, an inactive corporation.
During the years at issue, petitioner was a member firm of the National Association of Securities Dealers (NASD) and specialized in private securities offerings. Petitioner was also registered with the Securities and Exchange Commission (SEC). In April of 1981, petitioner entered into a broker-dealer arrangement with Ramco Well Service, Inc. (Ramco), a Texas corporation. Ramco was an oil field service company with offices located in Oklahoma City, Oklahoma. In 1981 and 1982, Erwin H. Sullivan was the vice president and chief financial officer of Ramco.
Under the broker-dealer arrangement, petitioner became the exclusive agent for the sale of limited partnership units offered by Ramco Equipment, Ltd.-1981-1 (the partnership), an Oklahoma limited partnership in which Ramco was the sole general partner. The limited partnership interests were not to be offered to the general public so that the offering would qualify as a private placement and be exempt from registration under sec. 4(2) of the Securities Act of 1933, ch. 38, tit. I, sec. 4, 48 Stat. 77, 15 U.S.C. sec. 77(d). As exclusive sales agent for the offering, petitioner was required to locate qualified investors, raise enough capital to activate the partnership, and provide Ramco with certain documentation from prospective investors. If petitioner met certain sales quotas, it was to receive cash commissions equal to 8 percent of the amount received for unit subscriptions sold, a right of first refusal to sell all private programs sponsored by Ramco in 1981 and 1982, and stock warrants entitling petitioner to purchase stock in Ramco, the general partner.
The terms of the broker-dealer arrangement were memorialized in a letter agreement (the letter agreement), dated April 24, 1981. The agreement provided, in part, that:
The letter agreement was signed by Mr. Sullivan, as vice president of Ramco, and provided a space in which Mr. Carlstedt, as president of petitioner, was to indicate petitioner's acceptance of the agreement. Mr. Carlstedt did not execute the agreement because, as drafted, it contained no reference to the stock warrants which had been part of the broker-dealer arrangement. However, Mr. Carlstedt considered petitioner to be bound by the April 24, 1981 letter agreement and caused it to conduct itself and its selling efforts, with respect to the partnership offering, in accordance with the letter agreement.
According to the private placement offering memorandum (the offering memorandum) which was distributed by petitioner to prospective investors, the limited partnership was organized on December 31, 1980 under the laws of the State of Oklahoma for the purpose of acquiring, owning, and operating oil and gas well servicing and drilling equipment. Approximately 65 percent of the cost of acquiring and maintaining the servicing and drilling equipment was to be financed by obtaining a nonrecourse loan (the partnership bank loan), which was to be secured by substantially all of the partnership's assets. The offering memorandum states that, if the partnership fails to obtain the partnership bank loan, the amended certificate of limited partnership will not be filed and, therefore, the partnership will not be activated.
The offering memorandum also describes the terms of the offering, including the circumstances under which the subscription agreements of investors would be accepted and the circumstances under which the partnership would be activated. The offering memorandum states that any single investor must subscribe to a minimum of three partnership units at a price of $50,000 per unit, unless the general partner waives this requirement. It further states that the units are to be sold only to those persons who are acceptable to the general partner.
Since a substantial portion of the anticipated benefits of the investment took the form of tax deferrals and credits, a prospective investor's acceptability was, in large part, dependent on his financial ability to utilize such tax benefits as well as his ability to absorb the potential risks associated with the investment. Each potential investor was required to submit to the general partner a completed offeree questionnaire disclosing his net worth, his yearly income, his prior investment experience, and other financial information.
Each potential investor was also required to submit an executed subscription agreement agreeing to irrevocably subscribe to a limited partner's interest equal to a certain dollar amount and to irrevocably appoint Ramco as his attorney-in-fact for purposes of filing an amended limited partnership agreement. Ramco was given sole discretion to accept or reject a subscription agreement. The subscription agreement was deemed accepted only when the agreement was signed on behalf of Ramco and an amended certificate of limited partnership, naming the investor as a limited partner, was filed with the Secretary of State of Oklahoma.
Each potential limited partner was required to submit cash or a check, payable to the partnership, in an amount equal to $50,000 for each partnership unit he wished to purchase or, in lieu of submitting immediate payment of the full $50,000 per unit, to finance up to half the purchase price of each unit (i.e., $25,000 per unit) by causing the partnership to borrow that amount on his behalf....
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