Roggin v. Commissioner
| Decision Date | 25 June 1985 |
| Docket Number | Docket No. 11205-81. |
| Citation | 50 TCM (CCH) 216,1985 TC Memo 307 |
| Parties | Gary M. Roggin v. Commissioner. |
| Court | U.S. Tax Court |
Gerald H. Lean, 5700 Smith Ave., Baltimore, Md., for the petitioner. Robert A. Miller, for the respondent.
Memorandum Findings of Fact and Opinion
By notice of deficiency dated February 26, 1981, respondent determined a deficiency in petitioner's Federal income tax for the taxable year ended December 31, 1977 in the amount of $8,394. Pursuant to section 6653(a),1 respondent also sought an addition to tax of $419.70. After concessions, the sole issue before us is whether the amount of distributable income generated by the Perry Hall Medical Group Partnership during the period September 1, 1977 to December 31, 1977 is includible in petitioner's income for 1977.
Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference.
Petitioner, Gary M. Roggin, was a resident of Bethesda, Maryland at the time of filing his petition in this case. He timely filed his Federal income tax return for the taxable year 1977 with the Internal Revenue Service Center in Philadelphia, Pennsylvania.
Petitioner was during 1977, and still is, a licensed Maryland physician specializing in internal medicine and gastroenterology. Prior to September 1, 1977, petitioner practiced medicine in Bethesda, Maryland where he had a sole practice, and also in Perry Hall, Maryland where he practiced medicine with a partnership known as the Perry Hall Medical Group (hereinafter referred to as PHMG). Petitioner became associated with the PHMG in 1969 as an employee and was admitted as a partner in 1977.
On September 1, 1977, petitioner formed a professional association, Gary M. Roggin, M. D., P. A. (herinafter referred to as the corporation), under the laws of the State of Maryland. He transferred all the assets of his sole practice to the corporation in return for all of its stock. Petitioner incorporated to take advantage of adopting a pension plan, a medical reimbursement plan, and other benefits that were available to corporations, but not to other forms of business entities, under the law as then in effect. On that same date, petitioner also executed an assignment of his partnership interest in the PHMG to the corporation, and his corporation was substituted as partner in the PHMG. New stationary was ordered that showed the name of the corporation and the address of the PHMG on the letterhead.
At the organizational meeting of the corporation held on September 1, 1977, a pension plan was adopted, a medical reimbursement plan was initiated, and petitioner was elected president of the corporation. In addition, petitioner entered into an employment contract with the corporation. Pursuant to the contract, petitioner agreed to devote his full time and attention to rendering professional services on behalf of the corporation in return for an annual salary of $70,000. The corporation withheld Federal and state income taxes and FICA employee taxes from the salary it paid to petitioner, and it regularly remitted the appropriate withheld amounts to the Internal Revenue Service and Maryland Income Tax Division.
On or around September 1, 1977, a business checking account was opened for the corporation and all monies received from his medical practice in Bethesda and from the PHMG were deposited into the corporation's bank account. The corporation maintained books and records which reflected its income from these two sources. All of the income received from the PHMG during the period September 1, 1977 to December 31, 1977 was reported on the corporation's income tax return for the taxable year ended August 31, 1978. The corporation also made contributions to its pension trust totaling $10,000 for its fiscal year ended August 31, 1978.
On his return for 1977, petitioner reported $27,676 as his distributive share of income from the PHMG for the period starting on January 1, 1977 and ending on August 31, 1977. In his statutory notice of deficiency, respondent determined that petitioner's distributive share of income from the PHMG for 1977 was $42,475 and increased his income by the difference of $14,799.
OpinionThe sole issue raised by respondent is whether certain income reported by petitioner's corporation should be allocated to petitioner pursuant to the assignment of income doctrine under section 61(a). At the outset, we note that respondent recognizes the validity of petitioner's corporation and does not argue that it was a sham.
The assignment of income doctrine is a fundamental principle of the income tax law, and it requires that income is to be taxed to the person who earned it. United States v. Basye 73-1 USTC ¶ 9250, 410 U. S. 441, 450-451 (1973); Lucas v. Earl 2 USTC ¶ 496, 281 U. S. 111 (1930). However, the extent to which the doctrine is applicable is difficult to determine where a one-man professional service corporation is involved. A corporation is not only a separate legal entity, but is also a separate taxpayer for Federal tax purposes. Moline Properties, Inc. v. Commissioner 43-1 USTC ¶ 9464, 319 U. S. 436, 438-439 (1943). Furthermore, a corporation can act only through its agents. Commissioner v. Consolidated Premium Iron Ores, Ltd. 59-1 USTC ¶ 9387, 265 F. 2d 320, 322 (6th Cir. 1959); Keller v. Commissioner Dec. 38,401, 77 T. C. 1014, 1032 (1981), affd. 83-2 USTC ¶ 9740 723 F. 2d 58 (10th Cir. 1983). Thus, merely labeling the individual as being the "earner" of the income in an attempt to draw the simplistic conclusion that the individual rather than the corporation is the "earner" of the income is not satisfactory. Johnson v. Commissioner Dec. 39,069, 78 T. C. 882, 890-891 (1982), affd. without published opinion 734 F. 2d 20 (9th Cir. 1984).
We find respondent's assertion of the assignment of income doctrine to be unjustified on the facts before us, and we therefore refuse to allocate the $14,799 of income to petitioner. The facts in the instant case are substantially identical to those in Keller v. Commissioner, supra. In Keller, the taxpayer was a doctor specializing in pathology and a partner in a...
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