Maxcy v. Comm'r of Internal Revenue
| Decision Date | 01 March 1973 |
| Docket Number | Docket No. 870-71. |
| Citation | 59 T.C. 716 |
| Parties | JAMES G. MAXCY AND LOUISE C. MAXCY, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Thomas D. Aitken and James W. Ault, for the petitioners.
Donald W. Williamson, Jr., for the respondent.
Petitioner James G. Maxcy, his brother, Von, and sister, Elizabeth, were partners in certain businesses. The partnerships in question had taxable years ending July 31. Von died on Oct. 3, 1966. The final agreement relating to the acquisition by James of Von's and Elizabeth's interests was executed on Feb. 26, 1968. Petitioners claimed the partnerships terminated on the death of Von and were thereafter operated as sole proprietorships by James. Held, the partnerships did not terminate until Feb. 26, 1968, and petitioners are entitled to deduct only James' pro rata share of the losses of the partnerships for the period Oct. 3, 1966, to Feb. 26, 1968. Held, further, James did not acquire the partnership interests of Von and Elizabeth until Feb. 26, 1968, and is entitled to depreciation in respect of the assets representing those interests only from that date. Held, further, petitioners are entitled to the benefit of an unused investment credit for fiscal 1964 to the extent of, but not in excessive carryback of a net operating loss for fiscal 1967 even though a claim for refund or credit for fiscal 1964 is otherwise barred by the period of limitations under secs. 6511(a) and (b) and 6512(b)(2), I.R.C. 1954.
Respondent determined the following deficiencies in petitioners' income tax:
+------------------------------+
¦FYE July 31— ¦Deficiency ¦
+-----------------+------------¦
¦ ¦ ¦
+-----------------+------------¦
¦1964 ¦$1,898.17 ¦
+-----------------+------------¦
¦1965 ¦12,871.98 ¦
+-----------------+------------¦
¦1966 ¦21,142.36 ¦
+------------------------------+
The parties have stipulated that the issues which remain for decision are as follows:
(a) Whether petitioners are entitled to the investment credit in the amount of $3,500.00 for the fiscal year ended 7/31/64, to the extent needed to offset any deficiency for that period otherwise determined by this Court.
(b) The date of termination of the Maxcy & Maxcy partnership.
(c) The date of termination of the Maxcy Groves partnership.
(d) The date of termination of the Arcadia partnership.
(e) Whether petitioner is entitled to deduct depreciation on assets acquired from (Charles Von Maxcy's) estate and from (Laura Elizabeth Maxcy) using the declining balance method at a rate not exceeding 150% of the straight line rate.1
(f) At what date is the petitioner entitled to claim depreciation on the assets acquired from (Charles Von Maxcy's) estate and from (Laura Elizabeth Maxcy).
All of the facts have been stipulated and are found accordingly. The stipulation of facts and exhibits are incorporated herein by this reference.
James G. Maxcy (hereinafter referred to as the petitioner) and Louise C. Maxcy, husband and wife, resided in Sebring, Fla., at the time of the filing of the petitioner herein. Joint income tax returns for the years in question as well as for the fiscal years ended July 31, 1967, July 31, 1968, and July 31, 1969, were filed with the district director of internal revenue, Jacksonville, Fla. Amended returns were filed for fiscal years 1964, 1965, and 1969. Louise C. Maxcy is a party to this action solely because she filed joint returns with petitioner for the years in question.
Petitioner, as of October 3, 1966, was a member of three family partnerships:
(a) Maxcy Groves, in which petitioner, his brother, Charles Von Maxcy (hereinafter referred to as Von), and their sister, Laura Elizabeth Maxcy (hereinafter referred to as Elizabeth), were equal partners and equal coowners of the citrus groves and land. The business of the Maxcy Groves partnership consisted of growing and selling citrus fruit.
(b) Maxcy Groves and C. Von Maxcy (a/k/a and hereinafter referred to as the Arcadia partnership), which consisted of Von, who owned a 65-percent interest in the partnership, and the Maxcy Groves partnership, which owned the other 35-percent interest. The principal business of the Arcadia partnership was the growing and selling of citrus fruit.
(c) Maxcy & Maxcy (a/k/a/ C. V. and J. G. Maxcy Groves), which was owned equally by Von and petitioner at all times pertinent hereto, except that prior to August 1, 1965, Von owned a 60-percent interest therein and petitioner owned the other 40 percent. The principal business of this partnership was also the growing and selling of citrus fruit.
Von was killed on October 3, 1966. At the time of Von's death, there existed no written partnership agreement between or among the partners in any of the three partnerships. Neither was there any agreement, written or otherwise, as to the disposition of a deceased partner's interests in the event of the death of a partner.
Irene H. Maxcy (Von's widow) and the Citizens National Bank of Orlando were appointed coexecutors of Von's estate.
On or about November 8, 1966, Von's executors filed a petition with the County Judge's Court of Highlands County, Fla., which read, in pertinent part, as follows:
2. That your petitioners have not as yet had sufficient time to assemble the information required for an inventory to be filed in said estate, but are aware of the fact that among the assets of the estate are certain partnerships in which decedent was a partner to wit:
(a) C. V. and J. G. Maxcy Groves (1/2 interest)
(b) Maxcy Groves (1/3 interest)
(c) Arcadia (2/3 interest)
3. In addition to said partnerships decedent owned certain groves and certain equipment pertaining to caretaking and grove operation and marketing.
4. That petitioners are aware of Florida Statutes 733.37 requiring that in the absence of an agreement to the contrary, partnerships will be liquidated upon the death of a partner.
5. That the immediate liquidation of said partnership is not practical now (sic) would it be in the best interests of the estate.
6 That pending an orderly liquidation of said partnerships numerous decisions relating to caretaking, marketing and other matters are necessary to conserve said assets of the estate.
7. That petitioners desire a court order authorizing them to continue the business of the decedent and to participate in the decisions relating to the partnership businesses of decedent.
WHEREFORE, petitioners pray that this Honorable Court authorize them as Executors to continue in behalf of the estate of the business of decedent and to participate in the business affairs of said interests owned in partnership pending orderly liquidation of said partnerships and disposition thereof in the best interests of the estate.
The parties have stipulated that, in seeking the aforementioned relief, Von's executors were primarily interested in continuing certain businesses other than the partnerships in question and in assuring their participation in any decisions regarding the liquidation of the partnerships and the disposition thereof.
By order dated November 8, 1966, the relief prayed for in the petition was granted and the coexecutors were ordered to participate in the business affairs of said interests owned in partnership pending orderly liquidation of said partnerships and disposition thereof, all in the best interests of the estate.'
Following Von's death, the business of each of the three partnerships was continued essentially the same as before Von's death. Each of the businesses was managed by petitioner. The coexecutors of Von's estate did not actively participate in the management of any of these business operations, and they advised petitioner almost immediately after Von's death that petitioner was to be responsible for such management. The Citizens National Bank was kept apprised of the operations of the business through monthly financial statements furnished by petitioner. In accordance with the advice of petitioner's counsel, the books of account of each of the three partnerships were, until February 26, 1968, maintained in the same manner as they had been prior to Von's death.
Following Von's death, petitioner made additional contributions to the operating capital of the three businesses. The coexecutors of Von's estate refused to make any such contributions, although the petitioner requested them to do so.
The first meeting at which the liquidation and termination of the three partnerships was discussed by the interested parties was held on February 22, 1967. Among those present at this meeting were the petitioner, Elizabeth, and the coexecutors of Von's estate. At this meeting, among other things, the parties considered liquidating the partnerships as of July 31, 1967. Consideration was also given at this meeting to having either Von's estate or the petitioner purchase the other's interests in the partnerships, but no offer or offers were made by either party at that time.
The next meeting was held on August 22, 1967. At this meeting, an oral offer was made by petitioner to purchase Von's interests in the three partnerships. The offer price was computed in the following manner: The value of Von's interests in the three partnerships as of October 3, 1966, as set forth in the appraisal of the estate of Charles Von Maxcy, deceased, made by Alvin R. Schneider, M.A.I., and L. C. Smith, broker, dated August 10, 1967, was reduced by the petitioner's estimate of the appraiser's over evaluation of Von's interests in the three partnerships as of the date of death, and further reduced by petitioner's estimate of the decline in the value of Von's interests in the three partnerships from October 3, 1966, to July 31, 1967, to arrive at a gross purchase price. The offer also contemplated the following reductions, credits, and setoffs against the gross purchase price:
(a) The estate would pay its pro rata...
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