Gotcher v. United States, Civ. A. No. 4539.

• Decision Date: 11 August 1966
• Docket Number: Civ. A. No. 4539.
• Citation: 259 F. Supp. 340
• Parties: John William GOTCHER and Wife, Lois Gotcher, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Texas

259 F. Supp. 340

John William GOTCHER and Wife, Lois Gotcher, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. 4539.

United States District Court E. D. Texas, Tyler Division.

August 11, 1966.

Allen E. Pye, J. Robert Dobbs, Jr., Tyler, Tex., for plaintiffs.

Wm. Wayne Justice, U. S. Atty., Tyler, Tex., O. Jan Tyler, Dept. of Justice, Fort Worth, Tex., for the defendant.

OPINION

SHEEHY, Chief Judge.

This is an action to recover federal income taxes and interest in the amount of $439.08, alleged to have been overpaid by the Plaintiffs for the year 1960. The case was tried before the Court without a jury. From admissions of the parties contained in the pleadings, the stipulations and the evidence offered, the Court finds the pertinent facts to be as hereinafter stated.

The Plaintiffs are, and at all times pertinent were, husband and wife and reside in Sherman, Texas. The Economy Motors, Inc. (Economy) is a Texas Corporation which, since March, 1959, has been engaged in the business of selling Volkswagen automobiles as an authorized, franchised dealer in Sherman, Texas. Plaintiffs own, as a part of their community property, fifty per cent of the stock of Economy. In addition to being a stockholder, Mr. Gotcher is an officer and the General Manager of Economy. During the year 1960, he received a salary of $14,202.76 from Economy, which was reported as income on the joint federal income tax return of the Plaintiffs. Mrs. Gotcher is not employed by Economy and her only direct association with said company is as the owner of an undivided one-half interest in fifty per cent of the capital stock of the company.¹

Volkswagenwerk, A. G. of Wolfsburg, Germany, referred to hereinafter as VW, is the manufacturer of all Volkswagen vehicles, parts and accessories, with all of its manufacturing plants and facilities being in Germany. Volkswagen of America, Inc., referred to hereinafter as VWOA, is a New Jersey Corporation with headquarters in Englewood Cliff, New Jersey. It is a wholly owned subsidiary of VW and is the sole authorized importer of Volkswagen vehicles, parts and accessories in the United States. The vehicles and other items imported by VWOA are placed on the market and sold throughout the United States through a network of distributorships and dealerships. Inter-Continental Motors Corporation, referred to hereinafter as Inter-Continental, is a Texas Corporation with headquarters in San Antonio, Texas, and is the area distributor of Volkswagen vehicles, parts and accessories for what is known as the San Antonio area, which includes Sherman, Texas. All Volkswagen vehicles that are sold in the United States are sold and serviced by local franchised dealers of which Economy is one.

In 1959, VWOA was in the process of expanding the local dealership facilities in the United States. In the case of each new dealership the dealer was required by VWOA to make a substantial investment of his time and capital in a product which was comparatively new in the United States and which, from an appearance standpoint, was not too attractive. The local dealers were required to either lease or otherwise acquire permanent type first class facilities that would convey the impression to the public that Volkswagen was here to stay which, in turn, would assure customers of continuing parts and service availability for the Volkswagen vehicles. All of this was taking place when the "Buy American" campaign was in full swing and the Volkswagen dealers, including the Plaintiffs themselves, needed to be convinced of or sold on the Volkswagen concept.

In 1959, VWOA instituted a program whereby Volkswagen dealers and their wives would be taken on expense paid trips to Germany in order that they might tour the Volkswagen factories in Wolfsburg and Hanover, Germany, and inspect the Volkswagen establishments in Berlin and other areas of Germany, including the facilities of local dealers in various areas of Germany.

From the standpoint of VW, VWOA and Inter-Continental, the purpose of such dealer tours to Germany was to strengthen the Volkswagen family business ties, to supply first-hand information about Volkswagen and the organization behind it, to educate the dealers as to the merits of the product they sell, to acquaint the dealers with the manufacturing processes responsible for Volkswagen's excellent performance reputation, and to acquaint the dealers with the conditions existing in West Germany in order that the dealers would themselves become convinced of the stability of the Volkswagen organization and the stability of the economy of West Germany to the end that the dealers could go back to their respective communities and convince their customers and potential buyers of Volkswagen vehicles that the organization behind the Volkswagen was a substantial one and that the Volkswagen was here to stay.

The inclusion of the dealers wives on the tours to Germany was based on the belief of and realization by VWOA that today the American wife exercises a substantial influence in family investments. Due to the fact that a Volkswagen dealer, on the average, makes an investment in the neighborhood of $250,000.00 in his dealership sales and service facilities, it would be desirable and advisable for the wife to acquire first hand as much information as possible about her husband's stock-in-trade, what kind of company produces the product he sells, and what may be the character of the organization behind the product so that she, when discussing with her husband on the advisability of making an investment which could have such a substantial effect on their future, would be better equipped to exercise her judgment and form an intelligent opinion—and, from VWOA's standpoint, hopefully would be more likely to encourage her husband to take the risk of investment.

The side trips, sightseeing and other pleasurable activities which had nothing to do with the inspection of Volkswagen facilities were not the primary purpose of the tours, but were added for the purpose of increasing the dealers' interest and participation to the end that the dealers and their wives would more readily accept invitations to make the tour. However, even the sightseeing trips indirectly served to further the stated business purpose of attempting to demonstrate the favorable business climate and the sound state of the economy in West Germany. The principal and dominant purpose of the tour was business and not pleasure.

It was the desire and intention of VWOA that all Volkswagen dealers in the United States and their wives make the German Tour. The tours were all alike and were conducted on a well planned schedule. Each of the independent distributors such as Inter-Continental, was given a quota of dealers for each tour that was to be made and it was up to the independent distributor to select the dealers in its territory to whom a tour invitation would be extended, under a policy that only dealers who had been dealers for at least six months would be extended a tour invitation.

The Plaintiffs were extended an invitation by VWOA through Inter-Continental to make the September, 1960, tour. The Plaintiffs, believing it would be in the interest of good business relations between them on the one hand and VWOA and Inter-Continental on...