Gersten v. Comm'r of Internal Revenue, Docket Nos. 51226-51242.
| Citation | 28 T.C. 756 |
| Decision Date | 28 June 1957 |
| Docket Number | Docket Nos. 51226-51242. |
| Parties | ALBERT GERSTEN, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Jacob Shearer, Esq., for the petitioners.
George E. Constable, Esq., for the respondent.
1. Four corporations in which certain of the petitioners were stockholders were engaged in the business of subdividing tracts of land into lots and constructing and selling houses thereon. To procure the waterlines necessary to supply water for the houses so built and sold, the corporations, under contracts with the water company, paid the cost of the extension of the water company's lines into the various properties. For a period of 10 years from the date of completion of the waterlines, the water company agreed to make payments to the corporations based on a percentage of the gross revenue it would derive from the sale of water to the occupants of the houses sold, but in an amount not to exceed cost to the corporations for the running of the waterlines. All of the houses were completed and sold, and the 4 corporations distributed in dissolution the water company contracts to their stockholders. In reporting their gain upon the sales of the houses, the 4 corporations treated the cost to them of the waterlines as part of the cost of the houses sold, which treatment was disallowed by the respondent in the determinations herein. The stockholders, in reporting their gain upon dissolution of the corporations, attributed no value to the water company contracts distributed to them. The respondent determined that each of the contracts had a fair market value at the time of distribution and the amount thereof, and took such fair market value into account in determining the gain to the stockholders from the dissolution of the corporations. Held, that payments made by the corporations to the water company for the construction of the waterlines were properly included by corporations in computing the cost of the houses sold. Colony, Inc., 26 T.C. 30. Held, further, that at the time of distribution each of the water company contracts had a fair market value equal, at least, to the amount determined by the respondent, and the respondent properly took such fair market value into account in determining the gain realized by the stockholders upon receipt of the contracts.
2. Petitioner Albert Gersten and one Robbins had been the owners, in equal part, of the stock of a corporation, the assets of which they had received in equal shares upon its dissolution, and by reason thereof, Gersten and Robbins became liable as transferees of the said corporation for $44,721.60 in Federal taxes and interest thereon. In December 1947, Gersten paid $40,000 of the said sum and on April 5, 1949, paid the remaining $4,721.60, of which $1,261.13 represented interest. At the time of the final payment in April 1949, Robbins was insolvent, and Gersten in his 1949 return deducted the entire $4,721.60. The respondent in his determination of deficiency determined that the $4,721.60 paid by Gersten was paid one-half on his own account and one-half on Robbins's account; that the $2,360.80 paid on Robbins's account was a nonbusiness bad debt, deductible as a short-term capital loss under section 23(k), I.R.C. 1939; that of the $2,360.80 paid on his own account, $630.57 was interest and deductible as such, and the remaining $1,730.23 was a long-term capital loss. Under authority of Putnam v. Commissioner, 352 U.S. 82, and Arrowsmith v. Commissioner, 344 U.S. 47, the respondent's determination is sustained.
3. On April 3, 1950, petitioner Lucille Gersten obtained a California interlocutory decree of divorce from petitioner Albert Gersten, which, under California law, did not become a final decree until April 3, 1951. On November 2, 1950, Albert Gersten obtained a final decree of divorce in Mexico and on that date married Bernice Anne Gersten in Mexico. He and Bernice filed a joint return for 1950; respondent determined they were not entitled to do so. Albert and Bernice Anne Gersten were at all times residents of California. Held, petitioner Albert Gersten and Bernice Anne Gersten were not entitled to file a joint return of income for 1950.
4. J. Richard Company, a California corporation incorporated on July 10, 1947, was engaged in the business of purchasing tracts of land which it subdivided into lots on which it constructed and sold houses. It dissolved on June 22, 1950. Lawrence Land Company was a California corporation incorporated on March 25, 1949. It dissolved on December 31, 1950. It also was engaged in the business of acquiring tracts of land which it subdivided into lots on which it constructed and sold houses. Petitioners Albert Gersten and Myron P. Beck owned all of the stock of J. Richard Company. They and Milton Gersten owned all of the stock of Lawrence Land Company. Held, the business of J. Richard Company was substantially similar to the trade or business engaged in by Lawrence Land Company during 1950, within the meaning of section 430(e)(2)(B) (ii), I.R.C. 1939, and Lawrence Land Company was therefore in its fourth taxable year for purposes of such section in computing its excess profits tax liability for the fiscal period March 1, 1950, to December 31, 1950.
The respondent determined income tax and transferee liability deficiencies against the petitioners herein as follows:
+-----------------------------------------------------------------------------+
¦Docket¦Petitioner ¦Taxable year ¦Deficiency¦
¦ ¦ ¦or ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦No. ¦ ¦period ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦ ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51226 ¦Albert Gersten ¦1950 ¦$10,429.15¦
+------+--------------------------------------------+--------------+----------¦
¦51227 ¦Albert Gersten and Lucille Gersten ¦1949 ¦1,687.02 ¦
+------+--------------------------------------------+--------------+----------¦
¦51228 ¦Myron P. Beck and Ann H. Beck ¦1949 ¦1,340.00 ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦1950 ¦7,835.92 ¦
+------+--------------------------------------------+--------------+----------¦
¦51229 ¦Milton Gersten and Mary Gersten ¦1950 ¦1,984.73 ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦(Year ended 1/¦6,568.55 ¦
¦ ¦ ¦31/50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51230 ¦Rex Land Co., a dissolved corporation ¦(2/1/50-10/25/¦1,104.16 ¦
¦ ¦ ¦50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦(Year ended 1/¦6,568.55 ¦
¦ ¦ ¦31/50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51231 ¦Albert Gersten, transferee of Rex Land Co ¦(2/1/50- 10/25¦1,104.16 ¦
¦ ¦ ¦/50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51232 ¦Myron P. Beck and Ann H. Beck, transferees ¦(Year ended 1/¦6,568.55 ¦
¦ ¦of Rex Land Co ¦31/50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦(2/1/50-10/25/¦1,104.16 ¦
¦ ¦ ¦50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51233 ¦Lawrence Land Co., a dissolved corporation ¦3/1/50-12/31/ ¦2 ¦
¦ ¦ ¦50 ¦10,908.88 ¦
+------+--------------------------------------------+--------------+----------¦
¦51234 ¦Albert Gersten, transferee of Lawrence Land ¦3/1/50-12/31/ ¦10,908.88 ¦
¦ ¦Co ¦50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51235 ¦Myron P. Beck and Ann H. Beck, transferees ¦3/1/50-12/31/ ¦10,908.88 ¦
¦ ¦of Lawrence ¦50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦Land Co. ¦ ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51236 ¦Milton Gersten and Mary Gersten, transferees¦3/1/50-12/31/ ¦10,908.88 ¦
¦ ¦of Lawrence ¦50 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦Land Co. ¦ ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦ ¦ ¦(Year ended 6/¦10,886.75 ¦
¦ ¦ ¦30/49 ¦ ¦
+------+--------------------------------------------+--------------+----------¦
¦51237 ¦Albert Gersten, transferee of J. Richard Co ¦(Year ended 6/¦5,306.59 ¦
¦ ¦ ¦30/50 ¦ ¦...To continue reading
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