McIver v. Commissioner
| Decision Date | 08 June 1977 |
| Docket Number | Docket No. 8579-75. |
| Citation | 36 TCM (CCH) 719,1977 TC Memo 174 |
| Parties | Jerry W. McIver and Jamaine L. McIver v. Commissioner. |
| Court | U.S. Tax Court |
Jerry W. McIver, pro se, 1150 N. Lake Elbert Dr., Winter Haven, Fla. Stuart B. Kalb, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined deficiencies in petitioners' 1973 Federal income taxes, and additions to tax, as follows:
Additions to Tax
I. R. C. 1954
Year Deficiency Sec. 6653(a) Sec. 6651(a)
1973 .... $12,130.16 $639.10 $275.50
Due to concessions, the primary issue still in dispute is whether a certain payment received by petitioners in connection with a real estate transaction represents a brokerage commission includible in petitioners' gross income. The only other issue remaining in dispute is the section 6653(a) addition to tax.
Some of the facts have been stipulated. The stipulation of facts, along with attached exhibits, is incorporated herein by this reference.
Petitioners Jerry W. McIver and Jamaine L. McIver, husband and wife, resided in Winter Haven, Florida, at the time their petition in this case was filed. They filed a joint Federal income tax return for the calendar year 1973 with the office of the Director, Internal Revenue Service Center, Chamblee, Georgia. Since Jamaine L. McIver is a party to this proceeding solely by reason of having filed a joint return with her husband, Jerry W. McIver will hereinafter be referred to as the petitioner.
Petitioner Jerry W. McIver was engaged in various business activities in the Winter Haven, Florida, area, both as an individual and through at least one wholly owned corporation. He was, individually, a registered real estate agent entitled to do business in the state of Florida. Prior to the year in issue here, he had co-brokered at least one real estate transaction and had received a brokerage commission therefor.
Jerco, Inc. ("Jerco"), was incorporated on September 27, 1972, and chartered to do business in Florida. It maintained its principal office in Winter Haven, Florida, and engaged primarily in the business of developing mobile home parks and leasing mobile home sites. Petitioner was president, chairman of the board of directors, and sole shareholder of Jerco. Jerco was not a registered corporate real estate broker or salesman in Florida.
On March 3, 1973, Jerco and P.B., Inc., an apparently unrelated corporation, purchased approximately 80 acres of real estate (hereinafter the Lake Hamilton property) from Lake Hamilton Citrus, Inc., for possible development as a mobile home park. The total purchase price was $486,600. P.B., Inc. ("P.B."), made a cash down payment of $60,000 to which Jerco was not required to contribute, and the purchasers executed a purchase money mortgage and note for the balance of $426,600. Jerco and P.B. each obtained an undivided one-half interest in the Lake Hamilton property.
The sale of the Lake Hamilton property had its genesis in the efforts of one Richard Dantzler. Dantzler was a registered real estate broker and a partner in the firm of Town and Country Real Estate of Winter Haven, Inc. ("Town and Country"), and was the individual broker representing Lake Hamilton Citrus, Inc., in the sale of the Lake Hamilton property. He had previously had dealings with petitioner, and on at least one occasion had co-brokered a real estate transaction with him. He also knew that Jerco, petitioner's wholly owned corporation, was a major developer of mobile home parks in the Winter Haven area. After receiving the Lake Hamilton listing, he contacted petitioner with respect to the Lake Hamilton property.
Subsequent to Dantzler's initial contact petitioner, in his capacity as president and chairman of the board of Jerco, handled most of the negotiations and ultimately signed the closing statement. (That statement was also signed by one Gilbert Brown on behalf of P.B.) During the negotiations Dantzler never asked Lake Hamilton Citrus, Inc., if it would accept a lower price for the property, and both the seller and Dantzler understood and intended that the seller would grant no rebates to reduce the selling price of $486,600. Upon consummation of the sale, Town and County became entitled to a brokerage commission of ten percent of the purchase price, or $48,660, which was paid by the seller. For income tax purposes, Lake Hamilton Citrus, Inc., reduced the gain which it realized on the sale of the Lake Hamilton property by $48,660, the amount of the commission, and Town and Country received commission income in the same amount.
It is common practice in the real estate brokerage business in Florida for a seller's broker to "cross-list" the property and to split the commission with the broker for the purchaser. Under this practice, the seller's broker pays one-half of the sales commission over to the buyer's broker or, if the buyer is itself a broker, directly to the buyer. On March 14, 1973, Town and Country issued a check payable to "Jerry McIver, Registered Real Estate Broker" in the amount of $24,330, and bearing the notation that the amount was a real estate commission regarding the sale of the Lake Hamilton property. This check represented one-half of the commission which Town and Country had received from Lake Hamilton Citrus, Inc. Dantzler, on behalf of Town and Country, intended this check for Jerry McIver, personally, as a co-broker's commission. He had intended to split the Lake Hamilton commission with McIver from the first time he discussed the property with McIver; although aware that Jerco was wholly owned and controlled by petitioner, Dantzler considered petitioner individually to have served as broker in the transaction by producing the two buyers (Jerco and P.B.). Dantzler was indifferent as to the use which petitioner might make of the $24,330; he did not consider the check to be a refund of part of the purchase price of the Lake Hamilton property.
Prior to the closing of the Lake Hamilton property purchase, petitioner and Jerco agreed that petitioner would turn over to Jerco any financial consideration which he might receive from Town and Country as a result of the Lake Hamilton purchase, and that such consideration would be considered as a reduction of Jerco's capital investment in the Lake Hamilton property. Upon receiving Town and Country's check for $24,330, petitioner endorsed the check in the form:
/s/ Jerry McIver Reg. Real Estate Broker Deposit Only Jerco Corp.
Petitioner then deposited the check in Jerco's checking account. Jerco accounted for the receipt of the check by debiting its cash account by $24,330, and by crediting the same amount to Account No. 307, petitioner's "shareholder's drawing" account, which was intermingled with and treated as petitioner's capital account as well. No part of the commission paid by Lake Hamilton Citrus, Inc., was received by P.B., Inc., the co-purchaser of the Lake Hamilton property.
Under Florida Statutes, Chapter 475, no person may operate as a real estate broker or salesman or collect a real estate commission in Florida unless such person has a valid current Florida registration certificate. Any registered real estate broker involved in an illegal real estate transaction in Florida would be subject to investigation by the Florida Real Estate Commission and possible loss of his real estate license. Jerco would have been violating state law if it was in the business of acting as a real estate broker. Jerco would have been acting contrary to the language and/or intent of state law if it had received payment of the $24,330 amount from Town and Country as a real estate brokerage commission.
Jerco went out of business and was liquidated in 1973. On their 1973 Federal income tax return, petitioners reported a loss on the sale or other disposition of their Jerco stock (which was section 1244 stock in their hands) in the amount of $85,160.25, and a bad debt on loans to Jerco of $286,153.17. They did not report as gross income the amount of $24,330 received from Town and Country and deposited in Jerco's checking account.
The Commissioner determined that petitioners realized commission income in the amount of $24,330 with respect to the purchase of the Lake Hamilton property. The Commissioner disallowed petitioners' claimed loss on section 1244 stock to the extent that it exceeded $50,000, and petitioners have now conceded the correctness of this adjustment. Finally, the Commissioner asserted addition to tax of $639.10 under section 6653(a) for negligence or intentional disregard of rules and regulations in respect of petitioners' 1973 income tax return.
OpinionThe primary issue in this case is whether petitioner Jerry McIver realized commission income when he received $24,330 from Town and Country Real Estate in connection with the sale of the Lake Hamilton property. Petitioner takes the position that he received the check as the agent of Jerco and that, in effect, the check represented a reduction in the purchase price to Jerco of its interest in the Lake Hamilton property. We note at the outset, however, that the $24,330 paid by Lake Hamilton Citrus, Inc., through Town and Country Real Estate to Jerry McIver clearly represents commission income even if the recipient was Jerco, the purchaser of the property. Commissioner v. Daehler 60-2 USTC ¶ 9565, 281 F. 2d 823 (C.A. 5), reversing Dec. 23,401 31 T.C. 722; Williams v. Commissioner Dec. 33,439, 64 T.C. 1085; see Commissioner v. Minzer 60-2 USTC ¶ 9493, 279 F. 2d 338 (C.A. 5), reversing Dec. 23,493 31 T.C. 1130; Ostheimer v. United States 59-1 USTC ¶ 9300, 264 F. 2d 789 (C.A. 3); Bailey v. Commissioner Dec. 26,661, 41 T.C. 663. The real issue for decision, then, is whether Jerry McIver, personally, or Jerco, through the agency of Jerry McIver, its president and...
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