Hudlow v. Commissioner
| Citation | 30 TCM (CCH) 894,1971 TC Memo 218 |
| Decision Date | 30 August 1971 |
| Docket Number | Docket No. 660-69,663-69,662-69,661-69,6042-69.,664-69 |
| Parties | W. C. Hudlow, Jr., and Jo Ann Hudlow, et al. v. Commissioner. |
| Court | United States Tax Court |
Ford P. Mitchell, 9th Floor Maclellan Bldg., 37042, Chattanooga, Tenn., and William L. Taylor, Jr., for the petitioners. Vallie C. Brooks, for the respondent.
Memorandum Findings of Fact and Opinion
In docket No. 660-69, the respondent determined the following deficiencies in the Federal income tax of the petitioners, W. C. Hudlow, Jr., and Jo Ann Hudlow:
Year Deficiency
1963 .................. $22,909.71
1964 .................. 72,034.22
1965 .................. 27,996.42
In addition, the respondent determined an overassessment in such petitioners' Federal income tax for 1966 in the amount of $2,851.47.
In docket No. 661-69, the respondent determined the following deficiencies in the Federal income tax of the petitioner, Chattanooga Warehouse and Cold Storage Company:
Year Deficiency
1964 .................. $11,413.61
1965 .................. 22,484.00
1966 .................. 2,941.40
In docket No. 662-69, the respondent determined the following deficiencies in the Federal income tax of the petitioner, Arrow Transfer and Storage Company:
Year Deficiency
1964 .................. $ 42.55
1965 .................. 5,121.42
1966 .................. 386.50
In docket No. 663-69, the respondent determined the following deficiencies in the Federal income tax of the petitioner, Southern Land and Development Company:
Year Deficiency
1964 .................. $2,407.29
1965 .................. 2,277.27
1966 .................. 2,461.77
In docket No. 664-69, the respondent determined the following deficiencies in the Federal income tax of the petitioner, Merchants and Manufacturers Transfer Co.:
Year Deficiency
1964 .................. $2,801.10
1965 .................. 5,940.82
1966 .................. 7,680.00
In docket No. 6042-69, the respondent determined a deficiency in the Federal income tax of the same petitioner in the amount of $332.74 for the year 1967.
In docket No. 660-69, the issues for decision are (1) whether advances made by the petitioner, W. C. Hudlow, Jr., to Jefferson Warehouse and Cold Storage Company in 1964 and 1965 are deductible as either business expenses or ordinary losses; (2) whether Mr. Hudlow realized income from Arrow Transfer and Storage Company in 1965; (3) whether hospitalization insurance premiums paid by Arrow for Mr. Hudlow's father and brother, and Arrow's write-off of amounts due from Mr. Hudlow's brother for moving expenses, constitute dividend income to Mr. Hudlow; (4) whether Mr. Hudlow realized dividend income from Chattanooga Warehouse and Cold Storage Company in 1963, 1964, and 1965 by virtue of certain disbursements of that corporation which were (a) charged to accounts receivable, (b) allegedly made for Mr. Hudlow but charged to the account of Jefferson Warehouse and Cold Storage Company, (c) made for Mr. Hudlow but not posted to his account until the year following the disbursement, and (d) allegedly made for Mr. Hudlow but charged to the account of Tennessee River Transportation Company; and (5) whether Mr. Hudlow is taxable on rental income received under a lease between him and Southern Land and Development Company in 1964 and 1965. The petitioners have conceded that an item of $1,030.07, representing moving services performed by Arrow for the Hudlows' personal benefit, should be treated as a constructive dividend to Mr. Hudlow.
In docket No. 661-69, the issues for decision are (1) whether the petitioner Chattanooga Warehouse and Cold Storage Company properly charged off as a bad debt in 1965 certain sums of money due from Jefferson Warehouse and Cold Storage Company; (2) whether bonuses declared by Chattanooga for the taxable years ended September 30, 1964, and September 30, 1965, represent unreasonable compensation to the extent of $22,600 in each such year; (3) whether Chattanooga is entitled to claim depreciation on equipment received from Tennessee River Transportation Company and credited to that corporation's account receivable with Chattanooga; (4) whether Chattanooga's expenditures with respect to pouring a concrete floor and overhauling certain forklift trucks are deductible repair expenses or capital expenditures; (5) whether amounts paid by Chattanooga to another corporation for an account owed by Jefferson constituted an ordinary and necessary business expense of Chattanooga; (6) whether Chattanooga was entitled to a deduction for certain legal and auditing fees in the taxable year ended September 30, 1966; and (7) whether Chattanooga was entitled to charge off an account of Mr. Hudlow's father as a business expense. The petitioners have conceded that Chattanooga was not entitled to charge off an account of Mr. Hudlow's brother.
In docket No. 662-69, the issues for decision are (1) whether the petitioner Arrow Transfer and Storage Company can deduct as ordinary and necessary business expenses certain insurance premiums which it paid for Mr. Hudlow's father and brother; (2) whether Arrow's deduction for compensation paid to Mr. Hudlow is unreasonable; (3) whether Arrow was entitled to charge off as a bad debt in 1965 amounts which it spent for Mr. Hudlow's brother's moving expenses and hospitalization insurance premiums; and (4) whether Arrow was entitled to deduct fees which it accrued for an audit of its books for 1966. On another issue, the petitioners have conceded that amounts spent by Arrow representing services rendered to Mr. Hudlow should be treated as constructive dividends to him, and not as ordinary and necessary business expenses of Arrow. (The concession with respect to Mr. Hudlow's income was mentioned earlier.)
In docket No. 663-69, the issues for decision are (1) whether the petitioner Southern Land and Development Company properly amortized the cost of a certain building; and (2) what is the correct useful life of another building owned by Southern. On another issue, the petitioners have conceded that Southern was not entitled to deduct certain mortgage loan costs.
In docket Nos. 664-69 and 6042-69, the issues for decision are whether the petitioner Merchants and Manufacturers Transfer Co., Inc., is entitled to deductions in 1964, 1965, 1966, and 1967, as ordinary and necessary business expenses, for commissions paid to Mr. Hudlow and one James Whitaker.
Some of the facts have been stipulated, and those facts are so found.
The petitioners W. C. Hudlow, Jr., and Jo Ann Hudlow, husband and wife, resided in Lookout Mountain, Tennessee, when their petition was filed in this case. They filed their joint Federal income tax returns for the years 1963 through 1966, using the cash method of accounting, with either the district director of internal revenue, Nashville, Tennessee, or the director of the Southeast Service Center, Chamblee, Georgia. Mr. Hudlow will sometimes be referred to as the petitioner.
The petitioner Chattanooga Warehouse and Cold Storage Company (Chattanooga) is a Tennessee corporation which had its principal place of business in Chattanooga, Tennessee, when its petition was filed in this case. It filed its Federal income tax returns for each of its taxable years ended September 30, 1961 through 1968, using the accrual method of accounting, with either the district director of internal revenue, Nashville, Tennessee, or the director of the Southeast Service Center, Chamblee, Georgia.
The petitioner Arrow Transfer and Storage Company (Arrow) is a Tennessee corporation which had its principal place of business in Chattanooga, Tennessee, when its petition was filed in this case. It filed its Federal income tax returns for the calendar years 1963 through 1968, using the accrual method of accounting, with either the district director of internal revenue, Nashville, Tennessee, or the director of the Southeast Service Center, Chamblee, Georgia.
The petitioner Southern Land and Development Company (Southern) is a Tennessee corporation which had its principal place of business in Chattanooga, Tennessee, when its petition was filed in this case. It filed its Federal income tax returns for the calendar years 1961 through 1968, using the accrual method of accounting, with either the district director of internal revenue, Nashville, Tennessee, or the director, of the Southeast Service Center, Chamblee, Georgia.
The petitioner Merchants and Manufacturers Transfer Co., Inc. (M & M) is a Tennessee corporation which had its principal place of business in Chattanooga, Tennessee, when its petitions were filed in these cases. It filed its Federal income tax returns for each of its taxable years ended on March 31, 1964 through 1968, using the accrual method of accounting, with either the district director of internal revenue, Nashville, Tennessee, or the director of the Southeast Service Center, Chamblee, Georgia.
Mr. Hudlow has owned all of the outstanding stock of Chattanooga since it was incorporated in 1953. Arrow was incorporated in 1949, and since 1959, Mr. Hudlow has owned 99.5 percent of that corporation's outstanding stock, with the remainder owned by his brother, James W. Hudlow (James). M & M has had 20 shares of stock outstanding since its incorporation in 1957. Nineteen shares of such stock were originally issued to James W. Whitaker (Mr. Whitaker), with the remaining share issued to his wife. Upon receipt of the 19 shares issued in his name, Mr. Whitaker endorsed and delivered certificates representing 15 of such shares to Mr. Hudlow, but such transfer was not recorded in the stock book of M & M, as Mr. Hudlow wished to keep his ownership interest in M & M concealed. During the years 1963 through ...
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