Smith v. Comm'r of Internal Revenue
| Decision Date | 09 December 1959 |
| Docket Number | 73031-73039.,Docket Nos. 65283-65291 |
| Citation | 33 T.C. 465 |
| Parties | CRAIG M. SMITH AND RUTH E. SMITH, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
J. Terrell Vaughan, Esq., for the petitioners.
Robert A.Roberts, Esq., for the respondent.
Longstreet, Abbott, Smith, and Hilby composed the membership of LACO, a partnership engaged in trading of commodity futures and spot commodities and in rendering advice on the commodity markets. Pursuant to ‘partnership’ agreements LACO also managed several Funds engaged in commodity trading, and managed accounts for several individual investors. LACO received a portion of the profits realized by the Funds and by the individual trading accounts in return for its management services:
1. Held, the Funds were associations taxable as corporations, not partnerships as petitioners contended.
2. Held, further, the Funds realized capital gains and losses on their commodity trades, not ordinary income and loss as respondent determined.
3. Held, further, the share of the Funds' profits realized by LACO in return for its management services was ordinary income rather than capital gain. LACO had no economic interest in the commodity futures and spot commodities traded, but only an interest in a share of the profits realized from the trades.
4. Held, further, the petitioners composing LACO realized ordinary income in the form of dividends from their individual participation through personal investment in the Funds, for the Funds were associations taxable as corporations, not partnerships as petitioners contended.
5. Held, further, LACO and the petitioners composing LACO did not sustain deductible losses when the Funds suffered net losses for a calendar year.
6. Held, further, because the Funds were associations taxable as corporations, the petitioners composing LACO did not sustain deductible losses by reason of their participation through personal investment in a Fund, when the Fund suffered a net loss for a calendar year.
7. Held, further, LACO was not a partner with individuals whose trading accounts it managed, and had no economic interest in the commodity futures and spot commodities traded. LACO'S share of the profits from the commodity trading was ordinary income in the form of compensation for personal services.
8. Held, further, neither LACO nor the petitioners composing LACO sustained deductible losses when individual trading accounts managed by LACO suffered net losses during a calendar year.
9. Held, further, respondent's additions to tax pursuant to section 294(d)(1) (B) sustained. Petitioners failed to show ‘reasonable cause’ for failure to pay timely installments of estimated tax.
10. Held, further, respondent's additions to tax pursuant to section 294(d) (2) sustained. Contrary to petitioners' arguments, a substantial underestimate of estimated tax occurs when 80 per cent of the actual tax liability, as opposed to 80 per cent of the tax reported on the return, exceeds the estimated tax. Petitioners have not shown that they came within an exception precluding the Commissioner from determining the additions.
These consolidated proceedings involve deficiencies and additions to tax as follows:
+-----------------------------------------------------------------------------+
¦ ¦ ¦ ¦Deficiencies ¦
+------+--------------------------------+----+--------------------------------¦
¦Docket¦Petitioner ¦Year¦ ¦Additions to tax ¦
+------+--------------------------------+----+----------+---------------------¦
¦No. ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+---------------------¦
¦ ¦ ¦ ¦Income tax¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦Sec. 294 ¦Sec. 294 ¦
¦ ¦ ¦ ¦ ¦(d)(1)(B),¦(d)(2), ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦I.R.C.1939¦I.R.C.1939¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦( ¦$1,709.60 ¦ ¦$96.62 ¦
¦ ¦ ¦1950¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65283 ¦Craig M. Smith and ¦( ¦10,625.91 ¦ ¦625.77 ¦
¦ ¦ ¦1951¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦Ruth E. Smith. ¦( ¦8,050.90 ¦ ¦514.55 ¦
¦ ¦ ¦1952¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦( ¦9,918.52 ¦$4.00 ¦1,202.29 ¦
¦ ¦ ¦1953¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦( ¦2,057.40 ¦ ¦133.88 ¦
¦ ¦ ¦1950¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65284 ¦Francis M. Hilby ¦( ¦16,665.18 ¦ ¦999.51 ¦
¦ ¦ ¦1951¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦and Laura E. ¦( ¦11,134.46 ¦ ¦727.48 ¦
¦ ¦ ¦1952¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦Hilby. ¦( ¦13,181.86 ¦37.50 ¦1,581.14 ¦
¦ ¦ ¦1953¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦( ¦19,721.15 ¦ ¦1,100.97 ¦
¦ ¦ ¦1950¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65285 ¦Roy W. Longstreet ¦( ¦196,955.34¦ ¦11,885.07 ¦
¦ ¦ ¦1951¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦and Ruth E. ¦( ¦77,153.80 ¦ ¦4,487.60 ¦
¦ ¦ ¦1952¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦Longstreet. ¦( ¦105,779.89¦79.68 ¦8,594.36 ¦
¦ ¦ ¦1953¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦( ¦4,192.52 ¦ ¦264.25 ¦
¦ ¦ ¦1950¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65286 ¦Lester M. Abbott ¦( ¦26,841.92 ¦ ¦1,575.62 ¦
¦ ¦ ¦1951¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦and Mary Agnes ¦( ¦18,398.20 ¦ ¦1,221.15 ¦
¦ ¦ ¦1952¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦Abbott. ¦( ¦17,069.74 ¦ ¦2,102.77 ¦
¦ ¦ ¦1953¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65287 ¦Commodity Trading Fund Account ¦1953¦3,820.71 ¦ ¦ ¦
¦ ¦of Longstreet-Abbott & Company. ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65288 ¦Personal Trading Fund Account of¦1953¦53,363.41 ¦ ¦ ¦
¦ ¦Longstreet-Abbott & Company. ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65289 ¦Commodity Syndicate Account of ¦1953¦36,375.50 ¦ ¦ ¦
¦ ¦Longstreet-Abbott & Company. ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65290 ¦Missouri Group Account of ¦1953¦26,493.41 ¦ ¦ ¦
¦ ¦Longstreet-Abbott & Company. ¦ ¦ ¦ ¦ ¦
+------+--------------------------------+----+----------+----------+----------¦
¦65291 ¦Missouri Trading Fund Account of¦1953¦831.14 ¦ ¦ ¦
¦ ¦Longstreet-Abbott & Company. ¦ ¦ ¦ ¦...To continue reading
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