Lozoff v. United States, 64-C-14.

• Decision Date: 27 April 1967
• Docket Number: No. 64-C-14.,64-C-14.
• Parties: Irvin S. LOZOFF and Cecile Lozoff, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

266 F. Supp. 966

Irvin S. LOZOFF and Cecile Lozoff, Plaintiffs, v. UNITED STATES of America, Defendant.

No. 64-C-14.

United States District Court E. D. Wisconsin.

April 27, 1967.

Harvey W. Peters, Milwaukee, Wis., for plaintiffs.

Donald Anderson, Tax Department, Department of Justice, Washington, D.C., James B. Brennan, U.S. Atty., Milwaukee, Wis., for defendant.

OPINION

TEHAN, Chief Judge.

This is a tax refund suit in which the taxpayers seek to recover federal income taxes for the year 1957 in the amount of $21,516.08 with statutory interest thereon.

The case has been submitted to the court for decision on a stipulation of facts with accompanying exhibits and the arguments of counsel, both in written briefs and oral argument. No testimony of witnesses either by deposition or at trial was adduced by the parties.

THE FACTS

Plaintiffs, Irvin S. Lozoff and Cecile Lozoff are husband and wife and residents of the Eastern District of Wisconsin.

Plaintiffs timely filed their joint federal income tax return for the year 1957 with the District Director of Internal Revenue and paid the tax shown as due thereon.

On December 22, 1960, the Commissioner of Internal Revenue duly notified taxpayers that it was determined that there was a $21,516.08 deficiency in their joint individual income tax for the year 1957 and an overpayment of $6595.71 of their joint individual income tax for the year 1958. Thereafter, on April 21, 1961, additional taxes in the amount of $21,516.08 and interest of $3096.12, a total of $24,612.20 were assessed for the year 1957. A credit for previous overpayment of the 1958 tax of $6595.71 tax was allowed, thus stating a net balance due and owing of $18,016.49 which amount was paid by plaintiffs to Internal Revenue Service, Milwaukee, Wisconsin, on April 26, 1961.

On October 16, 1961, the taxpayers filed with the District Director of Internal Revenue, Milwaukee, Wisconsin, a claim for refund in the amount of $21,516.08, together with interest thereon for the year 1957.

From at least March 27, 1946 through October, 1952, plaintiff, Irvin S. Lozoff (hereinafter called Lozoff) and Curtiss Candy Company (hereinafter called Curtiss) were parties to agreements evidenced by a series of letters and negotiated on behalf of Curtiss by the then president of Curtiss, Otto Schnering. Pursuant to these agreements, Lozoff purchased certain merchandise for Curtiss from such companies as Chase Candy Company, Webster Candies, and Zion Candies for resale by Curtiss to its customers. Under the arrangement, Lozoff received a graduated commission from Curtiss based on the dollar-volume purchases made by him. The letters which evidence the contractual arrangements disclose also that Otto Schnering's son, Robert worked with Lozoff in obtaining the products to be purchased and sold by Curtiss.

In January, 1953, during the time the heretofore described business arrangement was in effect, Otto Schnering, president of Curtiss died, and Robert B. Schnering became president of Curtiss. Thereafter, on August 14, 1953, Lozoff entered into a written agreement similar in nature to the prior arrangement covering the 10-year period from August 14, 1953 to August 14, 1963. The agreement was executed by Robert B. Schnering, son of Otto, as president of Curtiss and by Irvin S. Lozoff, doing business as Sales Promotion Company. Curtiss agreed in part as follows:

"1. The Second Party hereby appoints and engages the First Party as its sole and exclusive agent for the purchase for and on its behalf of all finished products, materials and commodities of whatsoever nature, make, kind or description, including private label and all other labelled or brand products (all of which are herein for convenience called `finished products and materials') that the Second Party requires or finds necessary in carrying on and conducting its principal business of a candy manufacturer, and also all finished products and materials which the Second Party requires or uses in supplementing or aiding in any manner whatsoever the sale of its said candy and other merchandise whether the Second Party sells or gives the same away as premiums, prizes or other sale incentives in the marketing of its products; and the Second Party hereby grants to the said First Party the sole and exclusive right to purchase for and on its behalf all of such finished products and materials and the Second Party agrees that it will purchase through the First Party as its exclusive purchasing agent, all of such finished products and materials. The Second Party may, however, upon advance written notice to the First Party purchase such finished products and materials direct from the suppliers thereof upon condition that the Second Party shall pay or shall cause such suppliers to pay the First Party his usual brokerage fee of five (5%) per cent on the amount so purchased at the time herein specified. Such payments to be made on or before the 10th day of each calendar month for all purchases of finished products and materials from any and all suppliers delivered or invoiced to the Second Party during the preceding calendar month.

* * * * * *

"3. The Second Party guarantees that its purchases under this agreement shall be not less than One Million Five Hundred Thousand ($1,500,000.00) Dollars during each year of said ten (10) year term, and in the event its purchases for any one of said years shall be less than said minimum, the Second Party shall pay to the said First Party on or before the 10th day of September next following the close of such year such additional amount of money as shall be necessary to make the total brokerage fees paid to him with respect to such year the sum of Seventy-five Thousand ($75,000.00) Dollars."

The agreement also provided:

"9. This agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs and legal representatives, successors and assigns, and the parties hereto agree for themselves and their respective heirs and assigns, to execute any further instrument which may be necessary or desirable to carry out the intent and purposes of this agreement."

On the same day, August 14, 1953, Lozoff and Robert Schnering, as an individual, entered into a partnership agreement under the name of Sales Promotion Company for the purpose of promoting sales of commodities of all kinds, purchasing commodities for sale to others acting as sales consultants, engaging in package engineering and a general food brokerage business. The partnership income tax returns for the years 1953, 1954 and 1955 disclose that the net income after payment of a salary to Lozoff was divided between the partners equally in 1953, and on the basis of two-thirds to Lozoff and one-third to Robert Schnering in the years 1954 and 1955. The only income reported by the partnership were the commissions received from Curtiss pursuant to the August 14, 1953 agreement. In none of those years did these commissions received by the partnership amount to the $75,000 set forth in the agreement between Curtiss and Sales Promotion Company heretofore described as the minimum brokerage fee to be paid to Lozoff, doing business as Sales Promotion Company. In 1953 (partial year) the commission income was $26,203.32, in 1954, $71,612.75, and in 1955, $28,045.77.

As indicated in a letter of July 25, 1955 from Sales Promotion Company by Irvin S. Lozoff to Robert Schnering as president of Curtiss the commissions due and owing Sales Promotion Company from the inception of the contract were in excess of $100,000. The letter requested a full settlement and accounting by Curtiss no later than August 4, 1955 or the matter would be placed in the hands of an attorney for collection.

At the time this letter was written, Robert B. Schnering, in effect, occupied a dual role. On the one hand, he was president of the company which allegedly owed Sales Promotion Company certain money, and on the other, as an undisclosed partner in the Sales Promotion Company he was a creditor of Curtiss.

Approximately six months later on January 16, 1956, ...