Pollack v. Comm'r of Internal Revenue, Docket Nos. 4534-62
| Decision Date | 28 October 1966 |
| Docket Number | Docket Nos. 4534-62,385-63,765-64. |
| Citation | 47 T.C. 92 |
| Parties | SAMUEL POLLACK AND ANNE POLLACK, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Hugh F. Culverhouse and Arthur J. England, Jr., for the petitioners.
James D. Burroughs and Louis J. DeReuil, for the respondent.
1. A group of persons joined together to buy and operate a hotel. They formed a Florida corporation for this purpose and purchased its stock. An amendment to the corporate charter stated that there were to be 100 shares of stock made up of classes A, B, C, and D, consisting of 33 1/3, 33 1/3, 16 2/3, and 16 2/3 shares, respectively. Each class had the right to elect a director. Held, the corporation had four classes of stock with disproportionate voting rights (not withstanding that the certificates issued failed to contain descriptive words identifying the various classes) and did not qualify as a ‘small business corporation’ under sec. 1371(a), I.R.C. 1954.
2. Amount of loss on sale of stock determined.
3. Election on taxpayer's return to report the entire gain from a sale of land in the year of sale was final. The disallowance of losses claimed in that year in an unrelated venture does not enable taxpayer to change his mind and elect to report the gain on the installment method.
The Commissioner determined the following deficiencies in income tax against petitioners for the calendar years 1958 and 1959:
+------------------------------------------------+
¦ ¦1958 ¦1959 ¦
+----------------------------+---------+---------¦
¦ ¦ ¦ ¦
+----------------------------+---------+---------¦
¦Samuel and Annie Pollack ¦$7,239.72¦$3,584.62¦
+----------------------------+---------+---------¦
¦Irving and Marcella Pollack ¦13,731.83¦10,565.38¦
+----------------------------+---------+---------¦
¦Irving E. and Shirley Miller¦37,998.92¦18,720.41¦
+------------------------------------------------+
At issue is whether a corporation of which petitioners were shareholders qualified under subchapter S of the 1954 Code as a ‘small business corporation’ so that the losses of the corporation could be deducted by the shareholders on their returns. Two other issues are also presented, namely, the determination of the amount of gain or loss recognized by Irving Pollack on the sale of some of his stock in the corporation in 1959, and the availability of the installment method of reporting the gain on a 1959 sale of certain real estate by Irving E. Miller where the Millers had elected to report such gain in full on their original 1959 return.2
The facts stipulated by the parties along with accompanying exhibits are incorporated herein by this reference.
Petitioners Samuel and Annie Pollack, Irving and Marcella Pollack, and Irving E. and Shirley Miller were husbands and wives, respectively, during the years 1958 and 1959. During those years Samuel And Annie Pollack lived at 16551 NE. 10th Avenue, North Miami Beach, Fla., and Irving and Marcella Pollack lived at 4595 N. Michigan Avenue, Miami Beach, Fla. In 1958, Irving E. and Shirley Miller resided at 1451 N. Bayshore Drive, Miami, Fla., and in 1959 they resided at 1674 Meridian Avenue, Miami Beach, Fla. Each couple filed joint Federal income tax returns for the years 1958 and 1959 with the district director of internal revenue, Jacksonville, Fla. Samuel Pollack, since deceased, was the father of Irving Pollack.
Irving Pollack (hereinafter sometimes referred to as Pollack) has been in the hotel business since 1945. As such he has been active in the ownership and management of a number of hotels primarily, but not exclusively, in the Miami Beach, Fla., area. From time to time he would organize groups with capital to build or purchase a hotel and then operate it.
In the early part of 1957, Pollack learned that the Shelborne Hotel in Miami Beach was for sale. It was owned by Hasam Realty Corp. which was controlled by a person named Sam Friedland. The sales price for the hotel was $2,250,000, of which $1,750,000 was payable from the proceeds of mortgage notes in respect of the property, thereby leaving $500,000 in cash required to make the purchase. There were then tentative plans to enlarge the hotel by building an addition thereto with about 100 rooms. Friedland, who was anxious to effect a sale, agreed to various demands made by Pollack, including the furnishing of primary financing for constructing the proposed addition to the hotel. In view of the secondary financing that was said to be available for such construction, it appeared that no further cash investment would be required in order to erect the proposed addition.
Under the conditions upon which the hotel was offered to him Pollack believed that it represented a good investment, and efforts were then made to obtain the $500,000 cash that was necessary to buy the property. As hereinafter more fully set forth, such cash was obtained from four different sources in the amounts of $125,000 each, namely, from Pollack himself, from Charles Yavers and members of his family, from Morris Popkin, and from Irving E. Miller.
Charles Yavers had been in the hotel business for many years and had been associated with Pollack in various ventures in Miami Beach since 1950. He agreed to join in the acquisition of the Shelborne Hotel and took some part in the negotiations for its purchase. It was understood that he and Pollack together would manage the hotel.
Isidore Yavers, brother of Charles Yavers, is a New York attorney. He had invested in hotels in Miami Beach on previous occasions, some with his brother and Pollack that had proved successful, and he agreed to join with Charles in investing in the Shelborne Hotel. Also, three other members of the Yavers family were permitted to join in investing the total of the $125,000 share identified with Charles Yavers, namely, another brother named Joseph Yavorofsky and two other relatives named Louis Weinberg and William B. Hirsch.
Morris Popkin, a resident of New York, was in the fish business. He had know Isidore Yavers for many years and had been associated with him in some real estate deals. At the suggestion of Isidore Yavers, Popkin agreed to invest $125,000 in the purchase of the Shelborne Hotel. It was understood that he would not be active in the management of the hotel.
Irving E. Miller, petitioner herein, had been in the real estate business in and around Miami Beach for a number of years. He had been associated with Pollack and Charles Yavers in several ventures. He agreed to invest $125,000 in the purchase of the hotel with the understanding that he would be a ‘silent partner’ and would not be active in its management.
It was understood that Miller and Popkin would each obtain a one-sixth interest in the venture, but that Pollack and the Yavers group would each obtain a one-third interest in the venture.
After making a deal with Same Friedland to purchase the Shelborne Hotel, Pollack restrained Milton Weiss of the law firm of Meyer, Weiss, Rosen & Rose of Miami Beach to represent the purchasers in the acquisition of the hotel. Weiss conferred with Friedland's attorney to work out the details of the purchase. Thereafter, on February 14, 1957, a contract was entered into for the purchase of the Shelborne Hotel. Hasam Realty Corp. appeared therein as the seller and Irving Pollack, Charles Yavers, and Isidore Yavers as the purchasers. The purchase price was $2,250,000, $150,000 of which was payable upon execution of the contract and $350,000 upon closing;3 notes and a purchase money mortgage were to be given for the remaining $1,750,000. The closing was to take place on March 1, 1957, in the law office of Milton Weiss. The contract was transferable to a corporation.
At Pollack's request, Milton Weiss proceeded to organize Shelborne Enterprises, Inc., as a corporation to take title to the property and to take care of all the formalities necessary to put the corporation in business. Shelborne enterprises, Inc., was incorporated under the laws of Florida on February 26, 1957, and its articles of incorporation were filed with the secretary of state of Florida on February 28, 1957. Those articles authorized the issuance of 100 shares of stock having a par value of $100 per share, for a total capital investment of $10,000. Milton Weiss and employees of his law firm acted as dummy officers, directors, and stockholders, and appeared as subscribers as follows:
+---------------------------------------+
¦ ¦Number of shares ¦
+-------------------+-------------------¦
¦Name ¦and present value ¦
+-------------------+-------------------¦
¦ ¦ ¦ ¦
+-------------------+-------+-----------¦
¦Milton Weiss ¦33 1/3 ¦$3,333.33 ¦
+-------------------+-------+-----------¦
¦Audrey M. Bernstein¦33 1/3 ¦3,333.34 ¦
+-------------------+-------+-----------¦
¦Geraldine F. Brooks¦16 2/3 ¦1,666.66 ¦
+-------------------+-------+-----------¦
¦Phyllis Rosenthal ¦16 2/3 ¦1,666.67 ¦
+---------------------------------------+
As of March 15, 1957, the foregoing persons resigned as officers and directors. Irving Pollack, Charles Yavers, Irving E. Miller, and Morris Popkin were thereupon elected directors. Also at the same time the dummy subscribers transferred all of their subscription rights as follows: Milton Weiss, 33 1/3 shares, to Irving Pollack; Audrey M. Bernstein, 33 1/3 shares, to Charles Yavers; Geraldine F. Brooks, 16 2/3 shares, to Irving E. Miller; Phyllis Rosenthal, 16 2/3 shares, to Morris Popkin. Charles Yavers was designated as president of the corporation and Irving Pollack as secretary. No further meetings of either officers, directors, or stockholders were ever held.
During the years 1957 to 1959, inclusive, Shelborne Enterprises, Inc., had its legal place of business at 1801 Collins Avenue,...
To continue reading
Request your trial
-
Grelsamer v. Commissioner
...testified at the trials in these cases. See Bresler v. Commissioner [Dec. 33,478], 65 T.C. 182, 188 (1975), Pollack v. Commissioner [Dec. 28,165], 47 T.C. 92, 108 (1966), affd. [68-1 USTC ¶ 9318] 392 F.2d 409 (5th Cir. 1968), and Wichita Terminal Elevator Co. v. Commissioner [Dec. 15,171], ......
-
Singer v. Commissioner
...[Dec. 49,373], 101 T.C. 374, 386 (1993), affd. without published opinion 40 F.3d 385 (5th Cir. 1994); Pollack v. Commissioner [Dec. 28,165], 47 T.C. 92, 108 (1966), affd. [68-1 USTC ¶ 9318] 392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner [Dec. 15,171], 6 T.C. 115......
-
Zenkel v. Commissioner
...that she was an unsophisticated investor. See Bresler v. Commissioner [Dec. 33,478], 65 T.C. 182, 188 (1975); Pollack v. Commissioner [Dec. 28,165], 47 T.C. 92, 108 (1966), affd. [68-1 USTC ¶ 9318] 392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner [Dec. 15,171], 6 ......
-
Mecom v. Comm'r of Internal Revenue
...Blackshear, his testimony would have been favorable to respondent and would not have supported petitioner's allegations. Pollack v. Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d 409 (5th Cir.1968); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2......