Miller v. Commissioner
| Decision Date | 07 July 1986 |
| Docket Number | 6775-84.,Docket No. 3043-84 |
| Citation | 1986 TC Memo 278,51 TCM (CCH) 1378 |
| Parties | Alvin E. Miller and Berneice M. Miller v. Commissioner. |
| Court | U.S. Tax Court |
Keith H. Gill, for the petitioners. Ross W. Paulson, for the respondent.
Memorandum Findings of Fact and Opinion
In separate statutory notices of deficiency, respondent determined deficiencies in and additions to petitioners' Federal income taxes as follows:
Additions to Tax
Docket No. Year Deficiency Sec. 6651(a)(1)1 Sec. 6653(a)
6775-84 .......................... 1977 $ 23,474 $ -- $ 1,174.00
1978 19,819 -- 991.00
1979 28,874 3,063 1,581.00
3043-84 .......................... 1980 190,677 -- 9,533.85
1981 253,577 -- 12,678.85
After concessions, the issues for decision are (1) whether the income from an auto product distributor business is taxable to petitioners or to the Alvin E. Miller Equity Trust; (2) whether petitioners are liable for additions to tax under section 6653(a); (3) whether petitioners are liable for an addition to tax under section 6651 for the year 1979; and (4) whether damages should be awarded to the United States under section 6673.
Petitioners were residents of Canoga Park, California, at the time they filed their petitions herein. They timely filed 1977, 1978, 1980, and 1981 Federal income tax returns with the Internal Revenue Service Center at Fresno, California. Their 1979 Federal income tax return was filed on June 18, 1980.
Petitioners did not obtain an extension of time to file and had no reasonable cause for late filing of their 1979 return.
In or about 1950, petitioner Alvin Miller (petitioner) began employment as a fireman for the Los Angeles City Fire Department. In 1954, petitioners started a part-time business of selling auto care and maintenance products out of their home, with sales primarily to auto dealerships. The business was known as "Martin Distributors." In November 1975, petitioner retired from the Fire Department and began working full-time with Martin Distributors. Petitioner also attended Loyola Law School in Los Angeles for 1 year.
Three pages of the document entitled "Trustees' Declaration of Purpose" set forth various religious beliefs of the trustor, petitoner, including the following principle:
The Trust document provided for beneficial interests, to be represented by certificates entitling "the holder thereof to a pro rata share of any distribution of income distributed by the Trustees in their sole discretion, and to a pro rata share of the Trust corpus upon the termination of the Trust."
As for the life of the Trust, the document provided:
This Trust shall continue for a period of twenty-five years from date, unless The Trustees shall unanimously determine upon an earlier date. The Trustees may at their discretion, because of threatened depreciation in values, or other good and sufficient reason necessary to protect or conserve trust assets, liquidate the assets, distribute and close The Trust at any earlier date determined by them. The Trust shall be proportionately and in a pro rata manner distributed to the beneficiaries. ***
The Trust was acknowledged by petitioner as trustor-creator, Berneice Monna Miller (Mrs. Miller) as a trustee, and Evelyn M. Fons (Fons), as a trustee. Fons was a personal friend of petitioners. The document was recorded in the County of Los Angeles on July 21, 1976.
According to Minutes of the First Meeting of the trustees of the Trust, on June 1, 1976:
5. *** THE TRUSTEES of THIS TRUST received Alvin E. Miller's offer of certain of his real and personal properties listed below in accordance with applicable law and the Declaration of TRUST, for and in exchange for One Hundred (100) Units of Beneficial Interest being ALL of the Beneficial Interest of THIS TRUST; the lifetime services of Alvin E. Miller and Berneice Monna Miller and all the currently earned renumeration accruing therefrom.
The Trust and petitioner entered into an "Agreement of Services Contracts between Martin Distributors, the Alvin E. Miller Equity Trust and Alvin E. Miller," by which Martin Distributors agreed to pay 90 percent of its profits to the Trust and 10 percent to petitioner as compensation for services rendered. That Agreement further stated: "All receipts from Martin Distributors are held in joint tenancy with the Alvin E. Miller Equity Trust." According to this Agreement, "Martin Distributors is also known as the Alvin E. Miller Equity Trust" and "Martin Distributors was conveyed to the Alvin E. Miller Equity Trust on June 1, 1976."
The Minutes of the Second Meeting of the trustees, dated June 2, 1976, reflect:
Attached to those minutes was a document by which petitioners purported to assign to the Trust "the right to manage, use, control or profit from" their services.
On June 2, 1976, petitioners executed:
(1) A quit claim deed by which certain real property in Hidden Hills, California, was conveyed to the Trust;
(2) A bill of sale by which other real and personal property was conveyed to the Trust, including "the exclusive use of the lifetime services of BERNEICE MONNA MILLER and all the currently earned remuneration accruing therefrom"; and personal property including savings accounts, furniture (described in great detail) and other personal property specified down to toothbrushes, towels, and Christmas decorations; and the Hidden Hills real property that was used by petitioners as their residence.
On June 2, 1976, Certificates of Beneficial Interest in the Trust were executed in a series of transactions. Petitioner was initially allocated 100 units of beneficial interest but immediately redistributed them. As a result of the transactions, petitioners held 46 units, their children held 39 units, and Fons held 15 units.
On or about June 30, 1976, Edward L. Vance (Vance), who was married to Mrs. Miller's mother, was elected as an additional trustee of the Trust. Fifteen units of beneficial interest were transferred from Mrs. Miller to Vance. Thereafter, petitioners, Vance, and Fons commenced acting as trustees. Various permits and notices were filed with State and local agencies in the name of the Trust doing business as Martin Distributors, and bank accounts were open in the same manner. Petitioners were signatories on the bank accounts. Petitioners' automobiles and trucks were leased to the Trust for $1 per year per vehicle. None of the executed documents reflected specific transfer of inventory, accounts receivable, or other assets of Martin Distributors to the Trust.
In January 1979, Vance resigned as trustee. Fifteen units of beneficial interest were...
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