Lisle v. Commissioner, Docket No. 1760-73
| Court | United States Tax Court |
| Writing for the Court | GOFFE |
| Citation | 35 TCM (CCH) 627,1976 TC Memo 140 |
| Parties | Claude J. Lisle and Vi Lisle, et al. v. Commissioner. |
| Docket Number | Docket No. 1760-73,1852-73.,1849-73,1851-73 |
| Decision Date | 04 May 1976 |
35 TCM (CCH) 627
1976 TC Memo 140
T.C. Memo. 1976-140.
Claude J. Lisle and Vi Lisle, et al.1
v.
Commissioner.
Docket Nos. 1760-73, 1849-73, 1851-73, 1852-73.
United States Tax Court.
Filed May 4, 1976.
Truman F. Campbell, Campbell and McFeeters, 730 L. St., counsel for petitioners in docket No. 1760-73. Kendall L. Manock and Robert Fishman, Security Bank Bldg., counsel for petitioners in docket No. 1849-73. Baxter K. Richardson, Richardson and Gaskill, 914 Helm Bldg., 1111 Fulton Mall, counsel for petitioners in docket Nos. 1851-73 and 1852-73. Edward B. Simpson, for the respondent.
Memorandum Findings of Fact and Opinion
GOFFE, Judge:
The Commissioner determined deficiencies in petitioners' Federal income tax as follows:
Docket
Petitioners No. Year Deficiency
Claude J. and VI
Lisle ........... 1760-73 1968 $ 1,778.47
1969 1,822.55
1970 9,158.00
Joel R. and Helen
Lisle ........... 1849-73 1968 $ 653.57
1969 786.33
1970 840.00
Lisle Funeral Home 1851-73 1969* $ 8,415.00
1970* 11,341.00
1971* 16,367.00
Roy A. and Esther
Franz ........... 1852-73 1968 $ 702.42
1969 920.38
1970 1,365.00
These cases have been consolidated for trial, briefs and opinion. Some of the issues have been settled. The issues remaining for decision are:
(1) Whether Petitioners Joel R. Lisle and Claude J. Lisle transferred a sufficient interest in their stock in Lisle Funeral Home to Lisle Funeral Home to qualify payments received therefor as payments in redemption of their stock within the meaning of section 302(a), Internal Revenue Code of 1954;2
(2) Whether payments made by Petitioner Lisle Funeral Home were interest payments pursuant to redemption of its stock in installments or dividend payments; and
(3) Whether Petitioners Joel R. Lisle and Roy A. Franz received constructive dividend income from the interest-free use of corporate funds.
Findings of Fact
Some of the facts have been stipulated. The stipulation of facts and exhibits are incorporated by reference.
Petitioners Joel R. and Helen Lisle, husband and wife, resided in Corona Del Mar, California, when they filed their petition. They filed joint Federal income tax returns for the taxable years 1968, 1969 and 1970, prepared on the cash receipts and disbursements method, with the District Director of Internal Revenue, San Francisco, California. John R. Lisle lived continuously in Fresno, California, from 1946 until September 1966, when he moved to Corona Del Mar, which is about 270 miles from Fresno.
Petitioners Claude J. and Vi Lisle, husband and wife, resided in Fresno, California, when they filed their petition. They filed joint Federal income tax returns for the taxable years 1968, 1969 and 1970, prepared on the cash receipts and disbursements method, with the District Director of Internal Revenue, San Francisco, California.
Petitioners Roy A. and Esther Franz, husband and wife, resided in Fresno, California, when they filed their petition. They filed joint Federal income tax returns for the taxable years 1968, 1969 and 1970, prepared on the cash receipts and disbursements method, with the District Director of Internal Revenue, San Francisco, California.
Petitioner Lisle Funeral Home, a California corporation, had its principal office and place of business in Fresno, California, at all times material herein. It filed its corporate Federal income tax returns for the taxable years ending March 31, 1969, 1970 and 1971 with the Internal Revenue Service Center, Ogden, Utah.
Joel and Claude Lisle are brothers and their father was John N. Lisle. John Lisle operated a mortuary business in Fresno as a sole proprietorship until March 19, 1951, when it was incorporated as Lisle Funeral Home, a petitioner herein. The funeral home issued only voting common stock and the maximum shares outstanding at any given time were 750 shares. John Lisle owned all of the issued and outstanding stock and dominated the corporate affairs until he divested himself of all his shares by gifts to his sons, Joel and Claude Lisle. On April 1, 1966, the stockholdings in Lisle Funeral Home were as follows:
Name No. of Shares
Joel R. Lisle ............. 210
Claude J. Lisle ........... 210
Robert D. Lisle ........... 50
Lucian L. Minor ........... 40
Howard Kauffman ........... 5
Roy A. Franz .............. 8
Lew Seavy ................. 7
Winston Stafford .......... 4
Joyce Duncan .............. 7
Louie Poletti ............. 7
Lillian Stafford .......... 4
Maxine Hendry ............. 1
Roy Gay ................... 3
Lisle Funeral Home (shares
previously acquired) ...... 194
___
Total .................. 750
===
The above-named persons owning stock were also employees of Petitioner Lisle Funeral Home and all such persons, other than Joel and Claude, acquired their stock from time to time in lieu of cash bonuses.
On or about October 26, 1966, Petitioner Roy A. Franz purchased from Lucian L. Minor his 40 shares of stock for $32,000.
The members of the board of directors of Petitioner Lisle Funeral Home at all times from and after the organization of petitioner, up to and including March 31, 1974, were as follows:
Date of Date of
Name Election Termination
John N. Lisle ......... 4/ 2/51 1962
Claude J. Lisle ....... 4/ 2/51 3/26/74
Joel R. Lisle ......... 4/ 2/51 3/26/74
Fred W. Lisle ......... 4/ 2/51 5/31/55
Bonnie Garberson ...... 4/ 2/51 4/15/55
John Guerard .......... 5/31/55 9/13/61
L.M. Horg ............. 5/31/55
Robert D. Lisle ....... 11/ 2/61
Lucian L. Minor ....... 11/ 2/61 10/10/66
Roy A. Franz .......... 12/27/65
Since March 26, 1974, the board of directors of Lisle Funeral Home consisted of three members.
The officers of Petitioner Lisle Funeral Home at all times from and after the organization of petitioner, up to and including March 31, 1974, were as follows:
___________________________________________________________________________
Name Offices Held Dates
___________________________________________________________________________
John N. Lisle ........ President 4/ 2/51 to 8/13/62
Fred W. Lisle ........ Treasurer 4/ 2/51 to 5/31/55
Joel R. Lisle ........ Secretary 4/ 2/51 to 8/13/62
Treasurer 5/31/55 to 8/18/62
Vice Pres. 8/13/62 to 3/27/74
Claude J. Lisle ...... Vice Pres. 4/ 2/51 to 8/13/62
President 8/13/62 to 6/26/70
Chairman of the Board 6/26/70 to 3/27/74
L.L. Minor ........... Gen. Mgr. 10/29/54 to 10/10/66
Vice Pres. 5/31/55 to unknown
Treasurer 8/13/62 to 10/10/66
Robert D. Lisle ...... Asst. Sec.-Treasurer 5/31/55 to 8/13/62
Secretary 8/13/62 to 10/10/66
Vice Pres. & Gen. Mgr. 10/10/66 to 6/26/70
President 6/27/70 to date
Roy A. Franz ......... Treasurer 10/10/66 to date
Secretary & Gen. Mgr. 6/26/70 to date
______________________________________________________________________________
The corporate bylaws set forth the duties and responsibilities of the chairman of the board of directors, president and vice president as follows:
Section 6. Chairman of the Board. The chairman of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board of directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the by-laws.
Section 7. President. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business, and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall be ex officio a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the by-laws.
Section 8. Vice President. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board of directors, or if not ranked, the vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the by-laws. Article IV of Bylaws.
* * *
During 1965, Joel Lisle, nearing 60 years of age, decided to retire from active employment at the funeral home because funeral service arrangements for friends increasingly disturbed him. In December of 1965, Lucian L. Minor, a shareholder and employee of the funeral home, approached Joel Lisle and Claude Lisle regarding the possibility of their selling their respective interests in the funeral home. From January 1966 through the end of August 1966, Mr. Minor negotiated with Joel and Claude Lisle and L.M. Horg, a board of directors member and accountant for the funeral home, with a view toward the acquisition of control of the funeral home. Near the end of negotiations, on or about August 23, 1966, Mr. Minor caused to be prepared and submitted to Joel and Claude Lisle an offer to acquire all their shares in the funeral home. In general, the offer provided for a total consideration to them of $306,000 each, consisting of $168,000 for the purchase of their respective 210 shares and the balance of $138,000 applied to a covenant not to compete. The total consideration to each was payable $25,000 down with the balance payable over 20 years at 6¼ percent interest....
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