Silberman v. Commissioner
| Decision Date | 28 December 1983 |
| Docket Number | 5626-80.,5296-80,5295-80,5293-80,5297-80,5298-80,5294-80,2089-80,Docket No. 2088-80 |
| Citation | 47 TCM (CCH) 778,1983 TC Memo 782 |
| Parties | William J. Silberman and Jane Silberman, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Thomas A. McKinney and David Waldman, 1107 Goffle Rd., Hawthorne, N.J., for the petitioners. Marwin A. Batt, for the respondent.
Memorandum Findings of Fact and Opinion
In these consolidated cases, respondent determined deficiencies in petitioners' Federal income taxes as follows:
Docket Taxable
No. Petitioners Year Ending Amount
2088-80 Silberman ... 12/31/75 $ 3,351.89
2089-80 Giordano .... 12/31/75 987.00
5293-80 Wisotsky .... 12/31/75 1,242.00
5294-80 Wein, Inc. .. 3/31/76 50,010.64
5295-80 Sole ........ 12/31/75 1,621.73
5296-80 Henderson ... 12/31/75 4,297.27
5297-80 Leone ....... 12/31/75 948.19
5298-80 Malanka ..... 12/31/75 33,337.00
12/31/75 14,554.00
5626-80 Stamato ..... 12/31/75 13,779.00
12/31/76 17,556.00
Respondent alternatively claimed an increase in deficiencies should this Court decide certain issues, as discussed below, adversely to him.2
The issues for decision are: (1) whether Communion Productions entered into the transaction of producing a motion picture for profit; (2) whether the partnership's use of the cash receipts and disbursements method of accounting was proper or, in the alternative, whether respondent may require capitalization of expenses to avoid distortion of income; and (3) whether various petitioners were in fact partners in Communion Productions at the times when various items of partnership income or expense were received or incurred.
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioners William J. Silberman and Jane Silberman resided in Wyckoff, New Jersey, when they filed their petition in this case. Petitioner Theresa Giordano resided in Clifton, New Jersey, when she filed her petition in this case. Petitioners Charles Wisotsky and Eva Wisotsky resided in Paterson, New Jersey, when they filed their petition in this case. Petitioner David Wein, Inc. was a corporation with its principal place of business at Paterson, New Jersey, when it filed its petition in this case. Petitioners Alfred Sole and Rosalyn Sole resided in Hackensack, New Jersey, when they filed their petition in this case. Petitioners Robert R. Henderson and Diane Henderson resided in Bedminster, New Jersey, when they filed their petition in this case. Petitioners Frank Leone and Kathleen Leone resided in Kinnelon, New Jersey, when they filed their petition in this case. Petitioners Daniel Malanka and Philomena Malanka resided in Union City, New Jersey, when they filed their petition in this case. Petitioner Jacqueline Stamato resided in Essex Fells, New Jersey, when she filed her petition in this case. All petitioners filed their respective Federal income tax returns for the years in issue with the Internal Revenue Service Center at Holtsville, New York.
On or about May 14, 1975, a document entitled "Limited Partnership Agreement" (hereinafter "the agreement") was executed by Alfred Sole (hereinafter "Sole"), general partner, and Richard K. Rosenberg (hereinafter "Rosenberg") and David Waldman (hereinafter "Waldman"), limited partners, under the laws of the State of New Jersey. Under the terms of the agreement, the name of the limited partnership was to be Communion Productions (hereinafter "the partnership") and the partnership was to exist until May 14, 1989. The agreement provided that additional partners could be admitted only with the consent of the general partner. The agreement, together with a certificate of limited partnership, was duly recorded with the Passaic County Clerk's office on July 8, 1975.
Under the terms of the agreement, all partners were to share equally in the profits at 33 1/3 percent each. Each of the two limited partners was to receive 45 percent of the losses, and the general partner was to receive 10 percent of the losses.
Several subsequent changes in the composition of the partnership occurred. A first amendment to the agreement was executed on December 12, 1975, and filed with the Passaic County Clerk's office on December 31, 1975. Thereunder, Rosenberg was removed as a limited partner. Rosenberg had been a nominal partner only, in order to permit formation of the partnership.
The following petitioners were added as limited partners under the first amendment to the agreement: Daniel Malanka, Robert Henderson, William J. Silberman, Frank Leone, Charles Wisotsky, Jacqueline Stamato, and Theresa Giordano. Under the terms of the first amendment to the agreement, each limited partner was entitled to profits of three times his or her capital investment and to losses of two times his or her capital investment.
A second amendment to the agreement was executed on December 15, 1975, but was not filed with the Passaic County Clerk's office until October 19, 1977. This second amendment added petitioner David Wein, Inc., as a limited partner.
On December 20, 1975, a document entitled "Sale of Limited Partnership Interest" was executed. Thereunder, Waldman was removed as a partner of the partnership.
The capital investments made by each of the limited partners3 were as follows:
Petitioner Amount Date
Silberman ....... $ 5,000 June 10, 1975
Giordano ........ 5,000 October 1, 1975
Wisotsky ........ 5,000 July 22, 1975
David Wein, Inc. 50,000 December 29, 1975
Henderson ....... 5,000 June 11, 1975
Leone ........... 5,000 July 18, 1975
Malanka ......... 30,000 $15,000 on each of
May 27, 1975 and
September 22, 1975
Stamato ......... 25,000 July 3, 1975
The purpose of the partnership, as stated in the agreement, was "to engage in the business of producing and selling motion pictures." Pursuant to this purpose, the partnership entered into a production agreement with Rand Productions (hereinafter "Rand") on May 15, 1975. Under the terms of the production agreement, the partnership was to produce a motion picture photoplay entitled "Communion" (hereinafter "Communion" or "the motion picture"). The agreed specifications required that the motion picture be filmed in technicolor, be a full-length film with a running time between 90 and 120 minutes, and be produced for a budget estimated between $1,000,000 and $1,500,000. Principal photography of "Communion" was to commence not later than June 1, 1975, and the motion picture was to be delivered to Rand not later than December 15, 1975.
The essential elements of the production were set forth in the production agreement. "Communion" was to be based on an original screenplay by Alfred Sole and Rosemary Puglia Ritvo. The individual producer was to be Rosenberg, and the director was to be Sole. The principal stars, as well as the composer and lyricist, were named in the production agreement.4
The producer, Rosenberg, was also an attorney. In this capacity, he formed the partnership and his office also prepared the production agreement with Rand. Although his brother was a shareholder of Rand, Rosenberg held no interest in Rand. Rosenberg had a previous attorney-client relationship with Sole. By his own admission, Rosenberg did not actively produce motion pictures prior to "Communion". However, he had some experience in the business and was involved with many people, including Sole and others, in various aspects of the process. Rosenberg took an active role in the production of "Communion". Before undertaking the project, he consulted with experts in the motion picture business, including people familiar with Sole's work as a director. He was involved with all production aspects and problems of "Communion". Furthermore, both before and since the production of "Communion", Rosenberg has been involved in pre-production of a variety of motion picture projects. As respondent himself acknowledges on brief, Rosenberg produced "Communion". We find that Rosenberg was the individual producer of "Communion".
Sole, the director, had directed at least two motion pictures prior to "Communion": "American Soap" and "Deep Sleep". "Deep Sleep" had achieved some notoriety as a "risque" film, but had also enjoyed a measure of artistic acclaim. "Communion" itself enjoyed a degree of critical success. It received numerous awards, including winning the Virgin Islands Film Festival and the Chicago Film Festival. "Communion" was reviewed in several publications, including "Variety" and the "London Times". It was voted one of England's top ten pictures when released there in 1977. We find that Sole was the director of "Communion".
The partnership complied with all terms of the production agreement, including adherence to the estimated budget. At least $1,050,000 was expended by the partnership in the production of "Communion".
In addition to setting forth the above and other details of the partnership's responsibility for the production of "Communion", the production agreement also provided that Rand had and was to have all distribution and ownership rights in the motion picture. Furthermore, the production agreement required payment by Rand to the partnership as consideration for the partnership's production of "Communion". The payment terms were as follows:
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