Thielking v. Commissioner
| Decision Date | 04 May 1987 |
| Docket Number | Docket No. 893-84,956-84. |
| Citation | 1987 TC Memo 227,53 TCM (CCH) 746 |
| Parties | Paul W. Thielking, O.D., P.C. v. Commissioner. Paul W. and Leila C. Thielking v. Commissioner. |
| Court | U.S. Tax Court |
Paul M. Thielking, 2190 N.W. 82nd St., Des Moines, Iowa, for the petitioners. Mark E. O'Leary, for the respondent.
In these consolidated cases, respondent determined the following deficiencies.
Docket No. Petitioner Year Deficiency
893-84 Paul W. 1976 $ 348.34
Thielking, 1977 44.20
O.D., P.C. 1978 104.80
1979 63,246.65
1980 44,223.47
956-84 Paul W. & 1973 $ 568.78
Leila C. 1974 3,951.86
Thielking 1975 1,804.73
1976 10,653.78
1977 8,301.44
1978 13,764.63
1979 137,940.54
1980 41,930.01
After concessions, the issues for decision are (1) whether withdrawals made by petitioner Paul W. Thielking from petitioner Paul W. Thielking O.D., P.C. during 1979 and 1980 were loans or constructive dividends; (2) if the withdrawals were loans, whether petitioners Paul W. and Leila C. Thielking are entitled to deduct interest expenses claimed to have been incurred on the withdrawals; and (3) whether petitioners Paul W. and Leila C. Thielking are entitled to claim an investment tax credit under section 381 for certain leased property.
This case was submitted fully stipulated. The stipulation of facts and exhibits thereto are incorporated herein by reference. The pertinent facts are summarized below.
Petitioner Paul W. Thielking, O.D., P.C. is an Iowa professional corporation which had its principal place of business in Des Moines, Iowa, at the time its petition was filed. Paul W. Thielking, O.D., P.C. filed its Federal income tax returns using a calendar year as its annual accounting period.
Petitioners Paul W. and Leila C. Thielking, husband and wife, resided in Des Moines, Iowa, at the time their petition was filed. Paul W. and Leila C. Thielking filed joint Federal income tax returns for the taxable years in issue.
Paul W. Thielking (hereinafter referred to as Dr. Thielking), an optometrist, entered into a partnership on August 1, 1958, with two other optometrists, and on August 1, 1972, a fourth optometrist joined the partnership. The partnership conducted business as Optometric Associates. On August 1, 1974, Paul W. Thielking, O.D., P.C. (hereinafter referred to as "the corporation") was incorporated under Chapters 496A and 496C of the Iowa Code. Dr. Thielking was the corporation's sole incorporator. On August 1, 1974, Dr. Thielking executed a document entitled "Assignment" that purported to assign all of his partnership rights in Optometric Associates to the corporation. On the same date, the corporation and Dr. Thielking executed a document entitled "Employment Agreement." That agreement stated in part:
2. Compensation
(a) Corporation Agrees:
To pay Employee of sic the sum of $42,000, commencing August 1, 1974 in 24 equal semi-monthly installments. Employee's compensation is to be reviewed by the Board of Directors annually. The above salary shall be continued until changed by action of the Board of Directors.
At all times from the incorporation through 1980, Dr. Thielking was the president and secretary-treasurer of the corporation, the only member of the board of directors, and the only employee of the corporation. Dr. Thielking and the trustee of the Paul W. Thielking, O.D., P.C. Employee Stock Ownership Trust were the corporation's only shareholders. The number of shares owned by Paul W. Thielking and the trustee of the Paul W. Thielking, O.D., P.C. Employee Stock Ownership Trust on December 31 of each year from 1975 to 1980, inclusive, are as follows:
Paul W. Thielking
O.D., P.C
Dr. Employee Stock
Thielking Ownership Trust
December 31, 1975 30 681
December 31, 1976 30 681
December 31, 1977 30 747
December 31, 1978 30 783
December 31, 1979 30 1,044
December 31, 1980 30 1,044
The trustee of the Paul W. Thielking, O.D., P.C. Employee Stock Ownership Trust for each of the years 1975 to 1980, inclusive, was Daniel D. Hinson. The only beneficiary of the Paul W. Thielking, O.D., P.C. Employee Stock Ownership Trust during the years 1975 to 1980, inclusive, was Dr. Thielking.
From its incorporation through 1980, the corporation did not declare any dividends.
During the taxable years 1975 through 1980, the corporation reported the following gross income:
Gross Income
Year Per Return
1975 ....................... $ 71,408.16
1976 ....................... 82,110.70
1977 ....................... 76,419.90
1978 ....................... 85,207.68
1979 ....................... 144,125.42
1980 ....................... 65,614.13
During the taxable years 1975 through 1980, the corporation reported the following taxable income:
Taxable
Income
Year Per Return
1975 ......................... $ 6,989.96
1976 ......................... 25,788.09
1977 ......................... 18,890.58
1978 ......................... 1,838.23
1979 ......................... 26,312.70
1980 ......................... 12,525.49
During the taxable years 1975 through 1980, the corporation reported the following retained earnings:
RetainedYearEarnings
1975 ....................... ($13,511.58)
1976 ....................... 31,726.24
1977 ....................... 45,179.65
1978 ....................... 49,411.67
1979 ....................... 77,978.31
1980 ....................... 90,498.80
During the taxable years 1975 through 1980, the corporation had the following current earnings and profits:
Current
Earnings
Year and Profits
1975 ......................... $ 7,202.46
1976 ......................... 46,821.19
1977 ......................... 13,674.41
1978 ......................... 4,756.02
1979 ......................... 57,270.64
1980 ......................... 12,520.49
During the taxable years 1975 through 1980, the corporation had the following accumulated earnings and profits:
Accumulated
Earnings
Year and Profits
1975 ......................... ($ 13,511.58)
1976 ......................... 31,726.24
1977 ......................... 45,400.65
1978 ......................... 50,156.67
1979 ......................... 107,427.31
1980 ......................... 119,947.80
During the taxable years 1975 through 1980, the corporation paid Dr. Thielking the following amounts as salary:
Year Salary
1975 ........................ $30,500.00
1976 ........................ 24,000.00
1977 ........................ 17,003.00
1978 ........................ 12,000.00
1979 ........................ 66,718.27
1980 ........................ 12,000.00
During the taxable years 1975 through 1980, the corporation paid Dr. Thielking the following amounts pursuant to its employee medical reimbursement plan:
Employee
Medical
Year Reimbursements
1975 ........................ $1,174.38
1976 ........................ 1,371.45
1977 ........................ 1,195.79
1978 ........................ 4,258.06
1979 ........................ (249.03)
1980 ........................ 4,422.08
During the taxable years 1975 through 1980, the corporation paid Dr. Thielking the following amounts as deferred compensation:
Deferred
Year Compensation
1975 ........................ $ -0-
1976 ........................ 3,600.00
1977 ........................ 2,550.45
1978 ........................ 1,800.00
1979 ........................ -0-
1980 ........................ 1,800.00
At the end of each of the taxable years 1975 through 1980, the corporation reported loans from its shareholders in the following amounts:
Loans From
Year Shareholders
1975 ........................ $37,678.04
1976 ........................ 40,579.20
1977 ........................ 65,437.71
1978 ........................ 34,061.48
1979 ........................ -0-
1980 ........................ -0-
During the taxable year 1979, Dr. Thielking made the following withdrawals from the corporation:
Date of Withdrawal Amount
1-01-79 ..................... $ 4,220.15
1-01-79 ..................... 119.00
1-08-79 ..................... 11.00
1-16-79 ..................... 9,000.00
1-16-79 ..................... 2,000.00
1-18-79 ..................... 11,484.85
1-20-79 ..................... 400.00
2-01-79 ..................... 5,000.00
1-09-79 ..................... 9,521.33
3-03-79 ..................... 14,510.19
3-05-79 ..................... 11,034.62
3-19-79 ..................... 2,000.00
4-09-79 ..................... 5,200.00
4-30-79 ..................... 50.22
4-30-79 ..................... 46.36
5-01-79 ..................... 429.92
5-01-79 ..................... 903.03
5-08-79 ..................... 22,000.00
6-11-79 ..................... 150,000.00
___________
Total ..................... $247,930.67
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During the taxable year 1979, Dr. Thielking's payments or credits toward the withdrawals that he made from the corporation were as...
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