Sholund v. Comm'r of Internal Revenue
| Decision Date | 24 June 1968 |
| Docket Number | 2351-67.,Docket Nos. 2350-67 |
| Citation | 50 T.C. 503 |
| Parties | RONALD W. SHOLUND AND ELIZABETH G. SHOLUND, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTELMER F. ERICKSON AND MARY C. ERICKSON, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Ronald W. Sholund, for the petitioners.
Millard D. Lesch, for the respondent.
1. Petitioners retained the services of Realty to facilitate the sale of the Evergreen Ballroom. Realty found a purchaser and the sale was consummated. The purchase price was $55,000, payable $10,000 down and $300 per month with interest at 6 percent on deferred monthly balances. Petitioners agreed with Realty to defer the payment of its commission. Petitioners authorized the bank on receipt of payments from the purchaser to remit them directly to Realty until the commission was paid. Held, petitioners must report their allocable portions of gain and interest income resulting from each monthly payment.
2. Held, further: Petitioner Ronald Sholund has not met his burden of proof in reference to the deduction of various expenses. Respondent's disallowance is sustained.
Respondent determined deficiencies in the Federal income taxes of petitioners as follows:
+---------------------------------------------------------+
¦Docket ¦Petitioners ¦Year ¦Amount ¦
+-------+----------------------------------+------+-------¦
¦No. ¦ ¦ ¦ ¦
+-------+----------------------------------+------+-------¦
¦ ¦ ¦ ¦ ¦
+-------+----------------------------------+------+-------¦
¦2350-67¦Ronald W. and Elizabeth G. Sholund¦( 1964¦$426.94¦
+-------+----------------------------------+------+-------¦
¦ ¦ ¦( 1965¦251.73 ¦
+-------+----------------------------------+------+-------¦
¦ ¦ ¦( 1964¦366.63 ¦
+-------+----------------------------------+------+-------¦
¦2351-67¦Elmer F. and Mary C. Erickson ¦( 1965¦293.53 ¦
+---------------------------------------------------------+
Various adjustments made in the statutory notice of deficiency in each docket have been stipulated to by the parties. Because the petitioners in docket No. 2350-67 did not contest a portion of one of the adjustments relating to 1964, we hold that portion to be conceded. The issues remaining for determination are (1) whether petitioners in both dockets must report interest income in 1964 and 1965 and gain from the sale of property in 1965, and (2) whether respondent properly disallowed various alleged business expenses in docket No. 2350-67 in both 1964 and 1965.
Some of the facts have been stipulated, and the stipulation of facts, together with the exhibits attached thereto, is hereby incorporated by this reference.
Ronald W. Sholund (hereinafter referred to as Ronald) and Elizabeth G. Sholund are husband and wife. They resided at Olympia Wash., at the time the petition herein was filed. They filed joint Federal income tax returns for the calendar years 1964 and 1965 with the district director of internal revenue at Tacoma, Wash.
Petitioners Elmer F. Erickson and Marcy C. Erickson, Ronald's mother (hereinafter referred to as Mary), are husband and wife. They resided at Olympia, Wash., at the time the petition herein was filed. They filed joint Federal income tax returns for the calendar years 1964 and 1965 with the district director of internal revenue at Tacoma, Wash.
In 1964 Ronald and Mary were members of a partnership known as the Evergreen Ballroom. Ronald had a one-sixth interest and Mary had a two-thirds interest in the partnership.1 During that year the partners retained the services of Tacoma Realty, Inc. (hereinafter referred to as Realty), a real estate broker, to attempt to locate a purchaser for the Evergreen Ballroom.
Realty found a prospective purchaser, Richard B. Campbell (hereinafter referred to as Campbell). Campbell made an offer of $55,000, with $10,000 as a cash downpayment. The partners decided to accept the offer and the sale was completed.
All papers relating to the transaction were prepared by Realty. The ‘Earnest Money Receipt and Agreement’ prepared by Realty provided as follows:
Received from RICHARD B. CAMPBELL & MADELINE M. CAMPBELL (husband & wife) TEN THOUSAND AND NO/100 Dollars ($10,000.00) $1,000.00 in cash and an additional $9,000.00 in cash on the date of closing * * * paid to agent as earnest money and part payment on the purchase price * * * Total purchase price is FIFTH FIVE THOUSAND AND NO/100 Dollars ($55,000.00) balance of $45,000.00 to be paid as follows: By a real estate contract payable at the rate of $300 or more per month including interest at The rate of 6% on deferred (sic) monthly balances, 1st payment due 30 days after date of possession and due on that date monthly thereafter until entire amount of principal and interest are paid in full. * * *
(Signed) RICHARD B. CAMPBELL (Signed) MADELINE M. CAMPBELL
We approve this sale and agree to deliver deed or contract for deed in accordance with the terms of this agreement, and pay to Tacoma Realty, Inc., agent, a commission of $4,000.00 for services rendered. In the event the Earnest Money is forfeited, the same, after deduction of expenses incurred by the agent, shall be divided equally between the seller and agent. SEE COMMISSION AGREEMENT attached hereto and is part of this Earnest money agreement.
(Signed) MARCY C. ERICKSON (Signed) RONALD W. SHOLUND
The commission agreement provided as follows:
IT IS UNDERSTOOD AND AGREED that the undersigned owe TACOMA REALTY, INC. * * * a commission of Four Thousand and No/100 Dollars ($4,000.00) for services rendered in securing a purchaser and consummating (sic) a sale on the Evergreen Ballroom * *
IT IS FURTHER UNDERSTOOD AND AGREED that the referred to commission may be deferred if so desired by the undersigned. The payments shall be Three Hundred and No/100 Dollars ($300.00) or more per month without interest. Said Three Hundred and No/100 Dollars ($300.00) shall be payable only if the contract purchasers make their payments on the referred to contract. Payments are to be made only the The National Bank of Commerce, Olympia Branch, Olympia, Wash., until above-stated amount of commission is paid in full.
NOW, IT IS FURTHER UNDERSTOOD AND AGREED, that if it should become necessary for the undersigned to bring action against the purchasers for fulfillment of said Real Estate Contract and Conditional Sales Contract that the balance of commission then due shall be paid to TACOME (sic) REALTY, INC. upon final disposition of the action only if full purchase price is recovered.
DATED THIS 30TH DAY OF OCTOBER, 1964.
(Signed) MARY C. ERICKSON (Signed) RONALD W. SHOLUND
Ronald and Mary (the sellers) then authorized the bank to receive the contract payments from Campbell. The bank was instructed to remit the $300 monthly payments to Realty until the $4,000 commission was paid in full.
Campbell made timely contract payments of $300 a month to The National Bank of Commerce, Olympia Branch, Olympia, Wash., from December 1964 to December 1965.
On their Federal income tax returns for 1964 and 1965, petitioners reported the sale of the Evergreen Ballroom as follows:2
In his statutory notices of deficiency for the taxable years 1964 and 1965, respondent made the following adjustments to petitioner's taxable income:
+-----------------------------------------------+
¦ ¦ ¦Interest ¦Gain from sale ¦
+------+-----+-----------------+----------------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+------+-----+--------+--------+--------+-------¦
¦ ¦(1964¦Increase¦$150.00 ¦Decrease¦$772.86¦
+------+-----+--------+--------+--------+-------¦
¦Mary ¦ ¦ ¦ ¦ ¦ ¦
+------+-----+--------+--------+--------+-------¦
¦ ¦(1965¦Increase¦1,780.15¦Increase¦156.18 ¦
+------+-----+--------+--------+--------+-------¦
¦ ¦(1964¦Increase¦37.50 ¦Decrease¦9.23 ¦
+------+-----+--------+--------+--------+-------¦
¦Ronald¦ ¦ ¦ ¦ ¦ ¦
+------+-----+--------+--------+--------+-------¦
¦ ¦(1965¦Increase¦445.04 ¦Increase¦56.03 ¦
+-----------------------------------------------+
Respondent's interest adjustments relate to petitioners' sale of the Evergreen Ballroom.4
During the taxable years 1964 and 1965 Ronald was an attorney-at-law practicing in Olympia. In 1964 he ran for election to the office of Superior Court Justice for Thurston and Mason Counties, Wash. He paid a filing fee of $150 to the secretary of state of the State of Washington in connection with his candidacy. In addition, he expended $507.83 for advertising during his campaign. Ronald was unsuccessful in his campaign for this office.
During the years in question, Ronald's law practice required him to engage in little, if any, travel. Most of his time was spent in his office which was located in the courthouse building. During this period he and his wife owned only one automobile. He was in the habit of walking to his office and the automobile was left at home for the convenience of his wife. She had the automobile for her personal use at all times during the day. The automobile was used by Ronald and his wife for personal travel in the evenings and on weekends. Ronald expended the following amounts in connection with the operation and maintenance of the automobile: $674.48 in 1964 and $521.64 in 1965.
During the years in issue Ronald belonged to the Olympia Country and Golf Club, located some 7 miles from his home. Both he and his family used the facilities of the club. Ronald, on many occasions, played golf at the club. He would...
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