Serianni v. Comm'r of Internal Revenue , Docket Nos. 847-77
| Decision Date | 31 May 1983 |
| Docket Number | 1079-81.,1001-81,Docket Nos. 847-77 |
| Parties | CHARLES SERIANNI, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENTJOSEPHINE M. SERIANNI, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners Charles and Josephine Serianni were divorced in 1973. As part of its divorce decree, the trial court found under Florida law that Josephine had a special equity interest in a large block of Servan stock previously held in Charles' name alone. Subsequent to this award, Servan completed a sale of its major assets and the corporation was liquidated pursuant to sec. 337, I.R.C. 1954. A large liquidating distribution with respect to Josephine's stock interest was made by Servan; however, Josephine's receipt of this money was delayed for 2 years pending Charles' appeals of the trial court's decree. Neither Charles nor Josephine reported the capital gain from the stock on their individual returns. Held, having been awarded a special equity interest, Josephine is the party properly taxable on the capital gain from the Servan stock. Bosch v. United States, 590 F.2d 165 (5th Cir. 1979), followed. Held, further, Josephine is entitled to increase her basis which she inherited from Charles in the stock by her legal fees attributable to obtaining ownership of the stock. Held, further, Josephine is taxable on the interest which was earned on the liquidating distribution with respect to her stock. Hugh G. Isley, Jr., Louis J. DeReull, and Jack R. Loving, for the petitioner in docket Nos. 847-77 and 1079-81.
Charles P. Sacher and Nicholas E. Christin, for the petitioner in docket No. 1001-81.
Linda R. Dettery, for the respondent.STERRETT , Judge:
In these consolidated cases, respondent determined deficiencies in petitioners' Federal income taxes as follows:
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¦Docket No. ¦Petitioner ¦TYE Dec. 31— ¦Deficiency ¦
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¦ ¦ ¦ ¦ ¦
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¦847-771 ¦Charles Serianni ¦1973 ¦$361,702 ¦
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¦ ¦ ¦1974 ¦21,067 ¦
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¦1001-81 ¦Josephine M. Serianni¦1975 ¦343,052 ¦
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¦1079-81 ¦Charles Serianni ¦1975 ¦376,715 ¦
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The primary issue in this case involves the question of which of the two petitioners should properly be taxable on a capital gain from a stock liquidation that was the subject of their 1973 divorce suit. Consequently, the interests of Charles Serianni and Josephine M. Serianni are clearly adverse in this case, and respondent is in the enviable position with respect to the primary issue of being an interested bystander. Respondent obviously acknowledges that the capital gain should be recognized only once by one of the petitioners and thus concedes that, regardless of which petitioner we ultimately find for, our decision in the other dockets on this issue must be for petitioner and against respondent.
Moreover, our ultimate decision with respect to the primary issue will be determinative of which other issues we must decide. If we should find that Charles Serianni is liable for the tax on the capital gain either solely in 1973 or in taxable years 1973 and 1974 (docket No. 847-77), then no additional issues must be considered since they have all been agreed to previously by the parties. However, if we should determine that Charles Serianni is liable for the capital gains tax in 1975 (docket No. 1079-81), then we must also address the issue of whether he must include additional interest in his income for that year. If, on the other hand, we decide that Josephine M. Serianni rather than Charles Serianni is the party properly taxable on the capital gain in question in 1975 (docket No. 1001-81), then we must also determine her basis in the stock and whether she must include additional interest in her income.
Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Petitioner Josephine M. Serianni (hereinafter referred to as Josephine), resided in Hollywood, Fla., at the time of filing her petition in this case. Her Federal income tax return for the calendar year 1975 was prepared on the cash receipts and disbursements method of accounting and was filed with the Office of the Internal Revenue Service at Chamblee, Ga.
Petitioner Charles Serianni (hereinafter referred to as Charles), also resided in Hollywood, Fla., at the time of filing his petitions herein. His Federal income tax returns for the calendar years 1973, 1974, and 1975 were prepared on the cash receipts and disbursements method of accounting and were filed with the Office of the Internal Revenue Service at Chamblee, Ga.
Josephine and Charles were married on November 23, 1949. In March 1949, prior to their marriage, Charles started a paving business in Florida called Di-Mar Paving Co., with a net worth of $40. In October 1949, his financial condition was such that he had to borrow $90 from Josephine to return to Florida from Stroudsburg, Pa.
Josephine worked prior to marrying Charles and had accumulated $2,400 in cash, and jewelry with an approximate value of $7,000. Since Charles had no credit at the time of their marriage, Josephine transferred her $2,400 in savings along with her jewelry to Charles for use in the business. At that time, Charles told her that they would be business partners, a representation which he subsequently repeated to her. Charles deposited the $2,400 into the business checking account and used the jewelry as security for a bank loan for the business. By making her savings and jewelry available to the business, Josephine supplied a substantial portion of the capital necessary to get the business started.
Shortly after their marriage, Josephine and Charles purchased a house in joint name from which the business was conducted for several years. The couple during those years maintained only one checking account which was used in the conduct of the business. Josephine worked in the business on a regular basis acting as a message center for the business, taking and making telephone calls. She also did the billing along with whatever other services Charles requested to further the business. Until the business was removed from the house, a period of at least 3 years, Josephine regularly drew a salary of $35 and Charles a salary of $75 per week.
Charles proved to be an industrious, skillful, and dedicated businessman and consequently has enjoyed extraordinary success in his business endeavors. In addition to Di-Mar Paving Co., Charles formed Hollywood Quaries, Inc., Florida Asphalt, Inc., Di-Mar Trucking, Inc., Ferncrest Mining Co., Inc., and Ferncrest Land Co., Inc. He also obtained a substantial interest in Servan Land Co., Inc., a Florida corporation organized in 1960, which owned a golf course and country club in Broward County, Fla. All of these interests can be traced back to Di-Mar Paving Co., the earnings of which provided the financial means by which Charles entered each succeeding business.
On July 19, 1972, Charles petitioned for dissolution of his marriage to Josephine. In the divorce proceeding that followed, the Circuit Court of the 17th Judicial Circuit of Florida, in and for Broward County, found that Josephine “by clear and convincing evidence has proven beyond a reasonable doubt special equities in all of the properties of [Charles], real, personal and intangible.” In its decree of April 24, 1973, the court then went on to state:
The equities of this cause are with the wife. Her special equities are declared to be the 26.79% stock interest of Husband in Servan Land Company, Inc., which represents an approximate equity of $1,018,020 or 22% of Husband's disclosed net worth.
The court based its holding on the fact that “from the capital acorn planted by [Josephine], the entire tree of Serianni businesses with all their branches sprang.” The court also found that Josephine had performed personal services for Charles over and above her regular marital obligations.
The 26.79-percent stock interest of Servan Land Co., Inc. (hereinafter referred to as Servan) consisted of 187.5 shares which were registered in the name of Charles Serianni. The remaining shareholders of Servan, the number of shares held by each, and their respective percentages of interest are shown as follows:
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