Dooley v. Commissioner
| Decision Date | 15 October 1984 |
| Docket Number | Docket No. 23510-81. |
| Citation | 48 TCM (CCH) 1372,1984 TC Memo 548 |
| Parties | Gene Dooley and Sandra K. Dooley v. Commissioner. |
| Court | U.S. Tax Court |
Roger K. Fisher, for the petitioner. James T. Million for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in, and additions to, petitioners' Federal income taxes:
Year Deficiency Section 6653(a)
1976 .......... $7,443.00 $372.15
1977 .......... $8,745.80 $437.28
1978 .......... $8,805.20 $440.26
After concessions, the sole issue for decision is whether the corporation of which petitioner Gene Dooley is the sole shareholder is to be treated as a separate taxable entity.
The facts have been fully stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated by this reference.
At the time of the filing of the petition herein, petitioners, Gene Dooley (Gene) and Sandra K. Dooley (Sandra), husband and wife, resided in Joplin, Missouri. For the taxable years in issue, Gene and Sandra filed joint income tax returns.
Dooley Enterprises, Inc. (Enterprises) was organized under the laws of the State of Missouri on April 1, 1968. At all times thereafter, including the taxable years at issue, it existed as a valid corporation. Its Articles of Incorporation provided, inter alia, that 51 shares of common stock were to be issued prior to the commencement of business for a consideration of $10 per share, or a total of $510,1 all to Gene. It further provided for a broad authorization of corporate purposes and functions, including the constructing, owning, maintaining, and managing of real estate.
At the corporation's organizational and first meeting of shareholders and directors,2 Gene was elected President and Chairman of the Board, Sandra was elected Secretary-Treasurer, as well as a director, and Gene's father, Roy Dooley, was elected Vice President and director. The officers were directed to pay expenses of the organization from corporate funds, to open a checking account at Security National Bank, and to borrow funds to carry on the construction business of the corporation. The minutes of the meeting stated:
On March 6, 1969, Enterprises took title to a parcel of land in Joplin, Missouri, for $26,500 from the Land Clearance for Redevelopment Authority of Joplin, Missouri. Enterprises obtained the property to build a 40-unit low rent subsidized apartment complex (the project).3 It was intended that the project would qualify for a mortgage insured by the Federal Housing Administration (FHA) under Section 221(d)(3) of the National Housing Act.
Enterprises executed a Deed of Trust and a Deed of Trust Note in its own name on March 10, 1969, for permanent financing in the amount of $407,300 from the Metropolitan Life Insurance Company, arranged through the mortgage banking firm of Charles F. Curry Company. The note provided for a 6¾% interest rate. The maximum rate of interest chargeable to individuals in Missouri on loans secured by a deed of trust at this time was 8%.
On the same date, Enterprises, as the "Housing Owner", entered into a Rent Supplement Contract and an agreement designated as the "Regulatory Agreement for Limited Distribution Mortgagor Projects under Section 221(d)(3) of the National Housing Act, As Amended", with the FHA. This Rent Supplement Contract provided that the "Housing Owner certifies that it has the legal authority to enter this contract and to own . . . the Project . . .," and that "the Secretary agrees to make rent supplement payments to the housing owner. . . ."4
Also dated March 10, 1969, was a construction contract between Gene Dooley as contractor and Enterprises as owner, signed by Gene Dooley as president. The contractor and the owner exchanged performance and payment bonds, each in the amount of $35,753.00.
A title insurance policy dated March 11, 1969, showed title to the property as being vested in Enterprises in fee simple.
At a special meeting of the Board of Directors of Enterprises on January 27, 1970, it was decided that after construction of the project, the property should be transferred to Gene individually, and Enterprises should be dissolved as the "Corporation had served its purpose." Construction was completed shortly before April of that year, but the transfer to Gene was never made and Enterprises was never dissolved.
Enterprises, however, notified the State Division of Employment Security, in a form dated April 27, 1970, that its business had been discontinued as of January 15, 1970. It also applied for an exemption from filing employment security contributions and wage reports.
A Standard Fire Insurance Policy was renewed for the period January 7, 1972 to January 7, 1973, showing the insured to be "Gene Dooley and/or Dooley Enterprises, Inc."
On or about June 7, 1972, Gene opened an account at the First National Bank & Trust Company of Joplin, in the name of "Gene Dooley 221D3 Rent Supplement." In connection therewith, he executed an "Authority of Proprietorship" which stated that "the Gene Dooley Rent Supplement which is engaged in the Apartment Rentals sic at Joplin, Mo., is not incorporated, nor is it a partnership but is a proprietorship owned exclusively and entirely by the undersigned . . . /s/ Gene Dooley." Either Gene or Sandra individually were empowered to endorse checks to this account. All project rentals were deposited in this account including the monthly rent supplements from the FHA, and all project expenses were paid out of this account. The project made, at all times relevant, a monthly request to the FHA for the rent supplement in the name of Enterprises.
Enterprises maintained a savings account at the First State Bank of Joplin, Missouri, from October 25, 1973, to May 19, 1976. Gene and Sandra were the authorized signatories. The money in this account consisted of security deposits of tenants of the project. The funds in this account were transferred to a savings account at the First National Bank of Joplin in the name of Dooley Rent Supplement.
On November 22, 1976 Enterprises, as "Housing Owner", entered into an amended rent supplement contract with the FHA.
Invoices and statements for various dates in 1976 and 1977 were made out to "Dooley Enterprises" for work performed (e.g., appliance and plumbing repair), services rendered (water service), and county taxes. There were also statements during these years from the "Dooley Investment Company, Inc." on Gene's individual stationery reflecting charges to Enterprises for photocopies. All invoices and bills were paid by check from the Gene Dooley 221(D)3 Rent Supplement account.
An agreement dated January 1, 1977, between "Gene/Sandra Dooley, Dooley Investment Company, FWD Enterprises, Dooley Enterprises, Inc. Party(s) sic of the First Part, and James T. Dooley Party of the Second Part" purports to establish an independent contractor relationship "absolutely excluding any employee-employer style relationship" (original emphasis). This contract required James, the son of Gene and Sandra, to do "office, maintenance, yard and repair work for apartments and insurance offices, as required and requested" in return for compensation "as determined by services performed and agreed on in advance and as negotiated from time to time."
In a letter dated September 20, 1978, in response to a request by Gene for a rent supplement increase, the Chief of the Loan Management Branch of the relevant office at the FHA referred to Dooley Enterprises. As a condition of obtaining approval for the rent increase, a Rental Schedule had to be completed and returned to the FHA. In transmitting the requisite form, Gene used his individual stationery. The form, which was completed by Gene on September 25, 1978, showed the project owner (mortgagor) as "Dooley Enterprises, Inc.", the project name as "Gene Dooley Rent Supplement", and the name and title of the correspondent as "Gene Dooley, President, Dooley Enterprises, Inc." In the space provided for the list of "principals comprising the mortgagor entity" the instructions for completion direct that if the principal is a corporation, all officers, directors, and major stockholders be listed. It also directs that the name of the corporate resident agent, if any, be listed. The listing supplied by Gene only shows "Gene Dooley, President" and "Sandra K. Dooley, Secretary-Treasurer." This form was signed "Gene Dooley, Pres." No corporate resident agent was listed.
A Statement of Loan Account from Charles F. Curry Company covering the period January 16, 1978, to September 22, 1978, was addressed to "Dooley Enterprises."
A sign labeled "Dooley Enterprises, Inc." was posted on...
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