Harbour Properties, Inc. v. Commissioner
| Decision Date | 25 June 1973 |
| Docket Number | Docket No. 4437-68 — 4455-68. |
| Citation | 32 TCM (CCH) 580,1973 TC Memo 134 |
| Parties | Harbour Properties, Inc., et al. v. Commissioner. |
| Court | U.S. Tax Court |
Leonard L. Silverstein and Robert E. Falb, 1776 K St., Washington, D.C., for the petitioners. Andrew H. Weinstein, for the respondent.
Memorandum Findings of Fact and Opinion
These consolidated cases involve deficiencies in the Federal income tax of Emil and Estelle Gould and a series of corporations in which the Goulds, one or both, have varying degrees of stock interest. Respondent determined the following deficiencies:2
Several issues raised in the pleadings have been settled by the parties and can be given effect in the Rule 50 computations. There are however numerous issues remaining to be decided.
(1) Whether the transfers of property, including both land and stock, by Gould to various petitioner corporations and the subsequent transfer of such property by those corporations to other petitioner corporations are valid sales or nontaxable exchanges within the purview of section 351 (a), I.R.C. 1954.7
Relevant to this issue we must also determine the fair market value at the time of transfer of a substantial portion of the conveyed property.
Alternatively, if such transfers are determined to be valid sales then we must decide whether the gain realized on the sales by Gould to the corporations is taxable as ordinary income or capital gain.8 Such a determination necessitates a decision relevant to whether Gould held such property for sale to customers in the ordinary course of a trade or business as noted in section 1221(1).
(2) Whether the Clin Clara property sold by Gould to Philip Shore, an unrelated party, on July 1, 1959, was property held for sale to customers in the ordinary course of Gould's trade or business. Such a determination will lead us to a conclusion relevant to the character of the gain recognized as a result of the transaction.
(3) Whether the Taladen Co. should be recognized as a separate corporation for Federal income tax purposes, or whether the income reported by such corporation should be included in the gross income of petitioners Emil and Estelle Gould. This decision will guide us in our determination regarding Darlington Manor, Inc.'s, Coral Glade Co.'s, and Coral Way Land Co.'s ability to deduct accrued commissions payable to Taladen in 1960, 1962, 1963, 1965 and 1966.
If we determine that Taladen is a viable corporate entity, we must then decide whether a portion of the deducted commissions is subject to disallowance under the provisions of section 267(a)(2). Alternatively, if we ignore Taladen's existence but find the commissions to be additional earned income (as opposed to dividend income) of Gould we must also determine the applicability of section 267.9
(4) Whether advances by the Goulds to Peat Corp. are bona fide debts or contributions to capital.
If we determine the existence of a valid indebtedness, we must then decide whether the payments by Peat Corp. to the Goulds from 1963 through 1965 were payments of interest or principal.
(5) Whether each corporate petitioner is entitled to a separate surtax exemption as provided in section 11 or, on the other hand, whether such exemptions must be disallowed due to the language provided in sections 269, 1551 or 1561.
(6) Whether Peat Corp. was a personal holding company as defined in section 542 during taxable years ended December 31, 1961 or 1962.10
(7) Whether Darlington Manor, Inc. qualified as a subchapter S corporation for the taxable year ended December 31, 1960. Such a decision rests upon our initially determining whether two classes of stock were in fact created. This conclusion is in turn contingent upon our earlier decision regarding the supposed sale versus a section 351 transfer.
(8) Whether Emil and Estelle Gould and Coral Glade Co. are liable as transferees for the deficiency, if any, of Coral Way Land Co.
(9) Whether Peat Corp. is liable as transferee for the deficiency, if any, of Camden Corp.
(10) Whether petitioners are entitled to net operating losses for certain of the years here involved.
(11) Whether any of the transferor corporations is liable for the addition to tax provided in section 6651(a).11
Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Petitioners Emil J. Gould (sometimes hereinafter referred to as Gould) and Estelle Gould (sometimes...
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