Snyder v. Commissioner
| Decision Date | 23 November 1983 |
| Docket Number | Docket No. 3445-80,2670-81,21800-80,21799-80,2705-81.,2541-81,2537-81 |
| Citation | 1983 TC Memo 692,47 TCM (CCH) 355 |
| Parties | Harry L. Snyder and M. Wilroy Snyder et al. v. Commissioner. |
| Court | U.S. Tax Court |
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Louis B. Fine, 720 Law Bldg., Norfolk, Va., for the petitioners. Scott Anderson and T. Keith Fogg, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in petitioners' Federal income taxes:
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Sec. 6653(a)2
Dkt. No. Petitioner Year Deficiency additions to tax
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3445-80 Harry L. and M. Wilroy Snyder ......... 1975 $26,914.66 $1,345.73
1976 22,374.68 1,118.73
1977 50,663.66 2,533.18
21799-80 United States Sales Corporation ...... 6/30/76 13,393.37 669.66
6/30/77 21,721.44 1,086.07
6/30/78 5,491.62 274.58
21800-80 Defense Marketing Corporation ......... 1975 3,546.03 177.30
1976 3,257.39 162.86
1977 —0— —0—
2537-81 Defense Marketing Corporation ......... 1970 6,485.96 324.30
1971 6,777.36 338.87
1972 12,742.43 637.12
1973 1,196.43 59.82
1974 4,480.13 224.00
2541-81 Harry L. Snyder ........................ 1971 29,648.27 1,482.41
1972 9,501.18 475.06
1973 8,954.39 447.72
1974 9,575.89 478.79
2670-81 Harry L. and Selma O. Snyder .......... 1970 22,913.04 1,145.65
2705-81 United States Sales Corporation ...... 6/30/70 26,288.96 1,314.45
6/30/71 56,243.25 2,812.16
6/30/72 121,562.56 6,078.13
6/30/73 9,326.29 446.31
6/30/74 9,934.12 496.71
6/30/75 11,085.07 554.25
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After concessions by petitioners and respondent, the following issues remain for our decision:
(1) whether United States Sales Corporation (hereinafter US Sales) is entitled to certain net operating losses of L. Snyder's, Inc.;
(2) whether US sales and Harry L. Snyder are entitled to capital losses arising from transactions in L. Snyder's, Inc. shares;
(3) whether certain payments made by US Sales to Selma Snyder were payments of personal expenses of Harry L. Snyder;
(4) whether attorney's fees paid by Harry L. Snyder in connection with his divorce are deductible;
(5) whether rental payments to Harry L. Snyder by US Sales were made as a condition to the continued use of property;
(6) whether premiums paid by US Sales for insurance on Harry L. Snyder are excludable from his income;
(7) whether premiums paid by US Sales for insurance on Harry L. Snyder are deductible by US Sales;
(8) whether we have jurisdiction over a tax year as to which respondent determined no deficiency;
(9) whether certain automobile insurance premiums paid by US Sales are deductible;
(10) whether automobile expenses attributable to the daughters of Harry L. Snyder are deductible by US Sales;
(11) whether Harry L. Snyder must include in income as a constructive dividend amounts paid by US Sales for automobiles used by his daughters;
(12) whether respondent erred in making certain adjustments to depreciation deductions claimed by US Sales;
(13) whether respondent erred in disallowing certain investment tax credits claimed by US Sales;
(14) whether certain expenses attributable to Louis Snyder are deductible by US Sales;
(15) whether unreasonable salary paid to Louis Snyder by US Sales is a constructive dividend to Harry L. Snyder;
(16) whether Gary Snyder received unreasonable compensation from Defense Marketing;
(17) whether US Sales is entitled to deduct certain expenses paid for riding horses;
(18) whether riding horse expenses paid by US Sales are constructive dividends to Harry L. Snyder;
(19) whether payments made on Harry L. Snyder's behalf by US Sales are constructive dividends to him;
(20) whether respondent erred in disallowing Harry L. Snyder's deduction of certain losses of the Squires 4 Racing Stables joint venture;
(21) whether respondent erred in adjusting the basis of a garage apartment owned by Harry L. Snyder;
(22) whether certain site work is a capital expense;
(23) whether office party expenses claimed by US Sales are allowable;
(24) whether expenditures made by US Sales for an office party are constructive dividends to Harry L. Snyder;
(25) whether US Sales is entitled to deductions claimed for fruits and flowers and hams and beverages;
(26) whether expenditures by US Sales for fruits and flowers and hams and beverages are constructive dividends to Harry L. Snyder;
(27) whether amounts paid by US Sales for a condominium are constructive dividends to Harry L. Snyder;
(28) whether respondent erred in determining Harry L. Snyder's state of residence for purposes of calculating his allowable state sales tax deduction;
(29) whether respondent must be sustained on various issues as to which petitioners have presented no evidence;
(30) whether petitioners are liable for the section 6653(a) addition to tax.
Because of the number of separate issues presented for decision, our findings of fact and opinion for each issue are juxtaposed and for some issues are combined; we have, however, made general findings of certain facts relevant to more than one issue.
Harry L. and M. Wilroy Snyder, husband and wife, resided in Miami, Florida, when their petition in this case was filed. Harry L. Snyder and Selma Snyder Ray-field resided in Virginia Beach, Virginia, when the petitions in docket Nos. 2670-81 and 2541-81 were filed. US Sales and Defense Marketing Corporation had their corporate offices in Virginia Beach, Virginia, when their petitions in this case were filed.
Petitioner US Sales was incorporated in 1959. Petitioner Harry L. Snyder (hereinafter Harry) was the president of US Sales, and owned, either directly or constructively, for purposes of section 267(c), 100 percent of its stock during the years before us.
Throughout the years before us, US Sales engaged in the business of brokering merchandise to military exchanges. Nautical Boat Works, a division of US Sales, was established on February 26, 1968. It manufactured small fiberglass boats, beginning sometime during the year following its creation as a division.
Petitioner Defense Marketing Corporation (hereinafter Defense Marketing) was incorporated in 1965. Harry was president of Defense Marketing in 1970 and 1971, and its chairman of the board from 1972 through 1976. Defense Marketing was in the business of brokering merchandise to military exchanges.
L. Snyder's, a department store in Norfolk, Virginia, was founded in 1894 by Louis Snyder, Harry's grandfather. L. Snyder's was incorporated in 1959, at which time its stock was split evenly between the families of Sol Snyder and Ben Paul Snyder, the sons of Louis Snyder.
On October 9, 1965, Harry and his brother, Edward B. Snyder, contracted to manage L. Snyder's department store. They directed L. Snyder's operations until January 31, 1969, when L. Snyder's ceased operations. L. Snyder's then sold its fixtures and factored its accounts receivable, and the building in which L. Snyder's had been located was torn down and replaced with a parking lot.3
Harry acquired 170 shares of L. Snyder's stock in 1959 and 60 shares on December 15, 1965. US Sales began to acquire L. Snyder's stock on May 20, 1966, when it purchased 250 shares on July 21, 1966, and 250 shares on December 20, 1967.
On December 20, 1967, L. Snyder's had outstanding 4,263 shares of stock, of which 230 were held by Harry and 750 by US Sales. Ownership of L. Snyder's stock remained unchanged from December 20, 1967 to at least January 31, 1969.
On April 15, 1969, 4,243 shares of L. Snyder's stock were outstanding, of which 230 were held by Harry and 1,217 by US Sales. On December 15, 1970, 2,126 shares were outstanding, of which 125 were held by Harry and 834 by US Sales.
On December 15, 1970, the shareholders of L. Snyder's agreed to merge L. Snyder's into US Sales. By that time, most of L. Snyder's assets had been distributed to its shareholders, and $37,741.14 in cash remained in corporate solution. US Sales issued stock to the L. Snyder's shareholders in exchange for their shares of L. Snyder's...
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