Seltzer v. Comm'r of Internal Revenue, Docket No. 34172.
| Decision Date | 24 December 1953 |
| Docket Number | Docket No. 34172. |
| Citation | 21 T.C. 398 |
| Parties | LOIS SELTZER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
John A. Bostwick, Jr., Esq., for the petitioner.
R. B. Wallace, Esq., for the respondent.
Petitioner filed her income tax return for the year 1945 on or before March 15, 1946. More than 3 years, but less than 5 years after petitioner's return was filed, the Commissioner mailed the deficiency notice to petitioner in which he determined a deficiency in petitioner's income tax for the year 1945 of $1,558.71. Petitioner, among other assignments of error, pleads the 3-year statute of limitations against assessment of the deficiency. Respondent, in his amended answer, pleads the 5-year statute of limitations and affirmatively alleged that petitioner had omitted from her return in excess of 25 per centum of her gross income for 1945. Held, that the burden of proof is on respondent to sustain his affirmative allegations and he has not met that burden of proof. Held, further, that the 3-year statute of limitations provided in section 275(a), Internal Revenue Code, has run and assessment of the deficiency is barred.
The Commissioner has determined a deficiency in petitioner's income tax for the year 1945 of $1,558.71. The deficiency is due to an adjustment which is explained in the deficiency notice, as follows:
(a) It is held that you realized taxable income in the amount of $5,972.84 from the exchange during the calendar year 1945 of your twenty-five percent partnership interest in Arcadia Roller Rink for six percent notes of Leo O. Seltzer having a face value, and a fair market value of $15,000.00. Since you reported no profit on the transaction, your income has been increased in the amount of $5,972.84. Section 22(a) of the Internal Revenue Code.
Petitioner contends: (1) That the deficiency notice was mailed more than 3 years after the return was filed; (2) that the $15,000 was received in settlement of her right to support and maintenance which the decree of divorce expressly provided, as follows:
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the said Property Settlement Agreement entered into by the parties is in lieu of alimony to the plaintiff and that the plaintiff shall forever be barred from any claim or right to any allowance of alimony for herself;
and that a lump-sum payment in lieu of alimony is not taxable to her under the provisions of section 22(k) of the Code; and (3) that, even if the transaction relied upon by respondent constituted a sale, the adjusted basis of the partnership interest was more than $15,000, and there was no gain from such alleged sale.
With reference to petitioner's plea of the statute of limitations, respondent, in his amended answer, affirmatively alleges:
8. In her income tax return for the taxable year 1945, petitioner failed to include in her gross income certain income received from sales in an amount of at least $5,972.84, which amount is properly includable therein.
9. Petitioner omitted from gross income, as reported in her income tax return for the taxable year 1945, an amount properly includable therein which was in excess of 25 per centum of the amount of gross income reported in said return.
10. That the assessment of the deficiencies for the taxable year 1945 is not barred by the statute of limitations.
The facts previously found by this Court in a related case, Lois Reynolds Atkins, 15 T.C. 128, have been stipulated and are so found. We state herein such of those facts as we deem necessary to an understanding of the issues to be decided, together with other findings of fact based upon evidence received at the hearing of the instant case.
Petitioner, Lois Seltzer, formerly known as Lois Reynolds Atkins, now resides in Birmingham, Alabama. She filed her individual tax return for the calendar year 1945 on January 14, 1946, in the district of Alabama, Birmingham, Alabama. In the return petitioner reported gross income in the amount of $2,350. The statutory notice of deficiency was mailed to petitioner on February 13, 1951.
On April 19, 1942, petitioner married Leo A. Seltzer. At the time of their marriage petitioner was the record owner of slightly over one-half the capital stock of Arcadia Garden Corporation, a corporation dominated by Leo A. Seltzer. The corporation operated the Arcadia Roller Rink.
The Arcadia Garden Corporation was dissolved in May 1942. Thereafter the Arcadia Roller Rink was operated by a partnership in which the petitioner and Fred Morelli were equal partners. The corporation transferred to the partnership depreciable assets valued on the partnership return for the year 1942 at $19,618.99. Petitioner and Fred Morelli continued as equal partners until January 13, 1944. On that date a new partnership agreement was entered into between petitioner, Leo A. Seltzer, Fred Morelli, and Sol Morelli, whereby all four became partners in the operation of the rink, each having a one-fourth interest.
The composition of the partnership again changed when petitioner was granted a decree divorcing her from Seltzer dated December 11, 1944. The decree incorporated a property settlement entered into by the parties dated November 29, 1944. Among other things, the agreement provided:
(7) That the wife shall sell, assign and set over to the husband all of her right, title and interest in and to a certain partnership in which she is the owner of a twenty-five (25%) percent interest which partnership is now doing business as the ‘ARCADIA ROLLER RINK‘, located at 4444 North Broadway in Chicago, Illinois, said sale and assignment to be subject to all of the presently outstanding liability of said partnership; in consideration of the transfer of the wife's interest in said partnership and the husband shall pay to the wife the sum of Fifteen Thousand ($15,000.00) Dollars, payable in semi-annual installments of Two Thousand Five Hundred ($2,500.00) Dollars each, the first of say payments to be made on or before six months from the date of the entry of the Decree of Divorce between the parties;
The entire $15,000 was paid petitioner by Seltzer in the year 1945. Respondent computed petitioner's profit on the transaction as follows:
+----------------------------------------------------------------------------+
¦Sales Price ¦ ¦$15,000.00¦
+-------------------------------------------------------+---------+----------¦
¦Basis: Fair market value of assets received on Jan. 19,¦ ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦1942, for 50 per cent of stock in Arcadia Roller Rink ¦ ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦Company ¦$1,000.00¦ ¦
+-------------------------------------------------------+---------+----------¦
¦Less: One-half given to Leo O. Seltzer on Jan. 13, 1944¦500.00 ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦ ¦ ¦$500.00 ¦
+-------------------------------------------------------+---------+----------¦
¦You received your share of partnership profits in cash ¦ ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦for years 1942 and 1943. Your share of 1944 ¦ ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦partnership income has been determined as ¦$5,454.33¦ ¦
+-------------------------------------------------------+---------+----------¦
¦Less: Total 1944 distribution of partnership income to ¦ ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦you ¦2,900.00 ¦ ¦
+-------------------------------------------------------+---------+----------¦
¦ ¦ ¦2,554.33 ¦
+-------------------------------------------------------+---------+----------¦
¦Total basis ¦ ¦$3,054.33 ¦
+-------------------------------------------------------+---------+----------¦
¦Profit (Sales price minus basis) ¦ ¦$11,945.67¦
+-------------------------------------------------------+---------+----------¦
¦Taken into account-50 per cent, sec. 117 (b), I.R.C. ¦ ¦$5,972.84 ¦
+----------------------------------------------------------------------------+
The divorce decree which incorporated the property settlement agreement which petitioner and Leo A. Seltzer had entered into prior to their...
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