Charles Baloian Co. v. Comm'r of Internal Revenue
| Decision Date | 27 July 1977 |
| Docket Number | Docket No. 8258—75. |
| Citation | 68 T.C. 620 |
| Parties | CHARLES BALOIAN COMPANY, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
On Feb. 25, 1971, petitioner was advised by the Redevelopment Agency of the City of Fresno that the building in which it was leasing its place of business was scheduled for demolition and that it had at least 90 days to vacate such building. On May 20, 1971, the agency issued to petitioner a written authorization to incur moving expenses in a specified amount. Subsequently, petitioner actually moved, incurred moving expenses, and was partially reimbursed. Three persons owned all of the stock of petitioner and 78 percent of the stock of Pam-Pak, a fourth person (Torigian) owned the remaining 22 percent of Pam-Pak's stock during the years in issue. Held, petitioner's moving expenses, to the extent reimbursed, are nondeductible in its fiscal year ended June 30, 1971, since petitioner's right to reimbursement was fixed and matured without substantial contingency as of May 20, 1971, when the agency issued its written authorization to incur moving expenses in a specified amount. Held, further, petitioner and Pam-Pak were not a ‘brother-sister controlled group’ within the meaning of sec. 1563(a)(2), I.R.C. 1954, because Torigian's ownership in Pam-Pak cannot be taken into account for the purposes of such section because he did not own stock in both Pam-Pak and petitioner. Fairfax Auto Parts of No. Va., Inc. v. Commissioner, 65 T.C. 798 (1976), revd. 548 F.2d 501 (4th Cir. 1977). Charles F. Hamlin and Robert G. Carter, for the petitioner.
Benjamin C. Sanchez, for the respondent.
Respondent has determined the following deficiencies in petitioner's Federal income tax:
+------------------------------+
¦TYE June 30— ¦Deficiency ¦
+-----------------+------------¦
¦1971 ¦$16,934.61 ¦
+-----------------+------------¦
¦1972 ¦12,750.34 ¦
+------------------------------+
Concessions having been made, the following issues are presented for our decision:
(1) Whether petitioner is entitled to deduct moving expenses incurred and accrued in its fiscal year ended June 30, 1971, and, if such deduction is allowable, whether the amount of subsequent reimbursement for such expenses is includable in its gross income; and
(2) Whether petitioner and Pam-Park Distributors, Inc., constitute a ‘brother-sister controlled group’ within the meaning of section 1563(a)(2). 1
All of the facts have been stipulated and are so found. Those necessary to an understanding of the case are as follows.
Charles Baloian Co., Inc. (hereinafter petitioner), was incorporated on July 1, 1959, under the laws of the State of California. At the time its petition herein was filed, its principal office was located in Fresno, Calif. Petitioner, an accrual basis taxpayer, filed its Federal income tax returns for fiscal year ended June 30, 1971, with the Internal Revenue Service Center, Ogden, Utah, and its return for fiscal year ended June 30, 1972, was filed with the Internal Revenue Service Center, Fresno, Calif.
As of February 25, 1971, petitioner was leasing its place of business located at 1340 G Street, Fresno, Calif. By written notice of this same date, the Redevelopment Agency of the City of Fresno (hereinafter the agency) notified petitioner as follows:
The Fresno Redevelopment Agency has purchased the building in which your business is located. The building may be scheduled for demolition sometime in the future in order to carry out Fresno's Urban Renewal Program. However, you will be given adequate notice of any demolition schedules which may affect you and the relocation staff will help you to relocate your business if you need assistance.
Federal Regulations require the Agency to give all owners and tenants a 90 Day Occupancy Notice. This means that from this date you have at least 90 days before you must vacate. Depending on the Agency's schedule of activities, you may be able to remain in this dwelling for a considerably longer time.
If you decide to move to another location, please notify us at least 30 days in advance of the date you plan to move. At that time, your eligibility for payment of your moving expenses, any direct loss of property payment, and a Small Business Displacement Payment should be reviewed with the relocation staff.
Sometime between February 25, 1971, and May 20, 1971, petitioner submitted to the agency a claim for relocation payments of $16,967 as reimbursement for moving expenses it expected to incur as a result of the displacement. On May 20, 1971, the agency issued to petitioner a document, entitled ‘Authorization to Incur Moving Costs,‘ which stated that petitioner was authorized to incur moving costs up to $16,967. This authorization provided, in part, as follows:
You are hereby authorized to arrange to move your personal property in accordance with the above information. Immediately following your move submit Form H—6146, ‘Claim for Relocation Payment’, in duplicate to the Redevelopment Agency. (Forms available at the Agency office). Attach TWO COPIES of vouchers from the mover and/or other contractors which perform services for you in connection with your moving arrangements. * * *
Petitioner actually moved from its business location by June 30, 1971. On its return for its taxable year ending on that date, petitioner claimed a moving expense deduction of $18,008.80. Petitioner subsequently submitted to the agency a request for a moving expense reimbursement of $17,120 and, on January 17, 1972, the agency issued to petitioner a check for the requested amount. In his notice of deficiency, respondent, inter alia, denied petitioner's claimed deduction of $18,008.80 to the extent of the $17,120 reimbursement.
A brochure explaining the agency's procedures involved in the processing and payment of claims for moving expenses incurred in connection with forced relocation provides, in pertinent part, as follows:
A program is administered by the Redevelopment Agency of the City of Fresno whereby eligible businesses may claim a relocation payment for their reasonable and necessary moving expenses * * *
The Claimant shall prepare a typed or printed inventory of equipment and merchandise to be moved, including a list of equipment which must be disconnected, reconnected or reinstalled. The required forms for the inventory are available at the Agency Office. The inventory shall then be checked by a representative of the Relocation Staff for verification. At least three firm bids shall be solicited by the Agency from reputable moving firms and, to the extent required, other contractors. For all moves, the low bid will establish the maximum amount the Agency will pay.
After receiving from the Agency a written authorization to incur expenses, it is the claimant's responsibility to follow up with the mover and other contractors to arrange for the actual move.
The Relocation Staff must be notified of the exact moving date by telephone or personal visit to the Agency Office, at least one day prior to the move so that a representative of the Agency may be present at the time of the move if it is deemed necessary.
The following documentation must be submitted in order to claim moving costs:
1. A copy of the inventory of stock and fixtures that were moved.
2. Form FRA.-Reloc. 14, ‘Authorization to Incur Moving Costs'.
3. Two copies of all bills or invoices for services rendered during the move.
4. Two copies of Forms H—6146.1 and H—6146.2, ‘Claim for Relocation Payment’ (available at Agency Office).
An entire claim, or portion thereof, may be disallowed for any of the following reasons:
A. Failure to give the Agency 30 to 90 days written notice of intention to move.
B. The claimant moves from a building prior to the date of the original capital grant contract for the project in which he is an occupant.
C. The claimant has defaulted in his rent or other obligations to the Agency.
D. The claimant submits his claim after the 6 month allotted time period, following his move.
E. The claimant submits bills, receipts, appraisals, claims, or other written evidence which is false or insufficient to establish the validity of his claim for moving expense or direct loss of property.
Petitioner is engaged in the business of buying, packing, shipping, and selling produce on the wholesale level. Petitioner has capital stock issued in the amount of $150,000. At all material times, its stock has been held equally by Charles Baloian, Edward Baloian, and James Baloian.
Pam-Pak Distributors, Inc. (hereinafter Pam-Pak), is a California corporation that was incorporated on March 17, 1966. Pam-Pak is engaged in the business of growing, packing, shipping, buying, and selling fruits and vegetables primarily in interstate commerce.
Pam-Pak has capital stock issued in the amount of $25,000 that is held as follows:
+-------------------------------------------------+
¦ ¦Percentage of ¦
+-------------------------------+-----------------¦
¦Shareholder ¦stock ownership ¦
+-------------------------------+-----------------¦
¦ ¦ ¦
+-------------------------------+-----------------¦
¦Charles Baloian ---------------¦26 ¦
+-------------------------------+-----------------¦
¦Edward Baloian ----------------¦26 ¦
+-------------------------------+-----------------¦
¦James Baloian -----------------¦26 ¦
+-------------------------------+-----------------¦
¦Milton Torigian ---------------¦22 ¦
+-------------------------------------------------+
In his notice of deficiency respondent determined that petitioner and Pam-Pak were members of a ‘brother-sister controlled group’ as defined in section 1563(a)(2) and disallowed, in whole or in part, certain deductions, exemptions, and investment...
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