Wattley v. Comm'r of Internal Revenue
| Decision Date | 11 December 1958 |
| Docket Number | Docket No. 62297. |
| Parties | RALPH B. WATTLEY AND JOSEPHINE R. WATTLEY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Ralph B. Wattley, pro se.
Clarence P. Brazill, Jr., Esq., for the respondent.
Petitioner, the owner of all of the stock of a corporation, conducted a real estate brokerage business in its name. In 1951 he received from it a commission which it earned, through services rendered by him as its representative, for negotiating a lease. The commission received did not represent at least 80 per centum of the total compensation for personal services received by petitioner from the corporation during the period covered by the services. Held, the entire commission is taxable income of petitioner for 1951, and section 107(a) of the Internal Revenue Code of 1939 is not applicable.
Respondent determined a deficiency in income tax of petitioners for the calendar year 1951 in the amount of $3,439.66.
The principal issue is whether petitioner Ralph B. Wattley is entitled to the benefits of section 107(a) of the Internal Revenue Code of 1939 with respect to a payment of $30,666.67 received by him in 1951.
Petitioners, husband and wife, are residents of New York City. They filed joint income tax returns for the calendar years 1951 and 1952 with the collector of internal revenue for the first district of New York. Petitioner Josephine Wattley is involved in this proceeding only because she filed a joint return with her husband. Petitioner Ralph B. Wattley will hereinafter be referred to as the petitioner.
Merchants Realty Service, Inc., was incorporated November 3, 1939, with Charles Rex Stoddard, S. Michael Ress, and Lillian Goodkind as president, treasurer, and secretary, respectively, each of them being a director and subscribing for 2 shares of the corporation's stock. Petitioner purchased such subscription stock January 6, 1931, or shortly thereafter. On January 8, 1931, Merchants Realty Service, Inc., changed its name to R. B. Wattley Co. Inc. Petitioner became president, treasurer, and a director of the corporation on January 13, 1931, and was authorized to open bank accounts in its name. On February 7, 1931, petitioner paid $1,000 for 10 shares of the corporation's capital stock. He was the sole stockholder from 1931 throughout all the years in controversy.
The purposes for which the corporation was formed were stated in its certificate of incorporation to be, in part, as follows:
As principal, agent or broker, and on commission or otherwise: to buy, sell, exchange, lease, let, grant or take licenses in respect of, improve, develop, repair, manage, maintain and operate real property of every kind, * * * . To act as loan broker. Generally to do everything suitable, proper and conducive to the successful conduct of a real estate and real estate agency and brokerage business in all its branches and departments.
One of the objects petitioner had in mind in acquiring Merchants Realty Service, Inc., and forming R. B. Wattley Co. Inc. was to ‘limit his liability as to possible acts of his associates.’
At a meeting of the board of directors of the corporation held on January 13, 1931, a motion was adopted authorizing petitioner to take such proceedings as might be necessary to have himself designated ‘as the representative of the company in the company's real estate brokerage license.’
Petitioner retained the position of president, treasurer, and director of the corporation from January 13, 1931, until its dissolution sometime after 1951. Other officers and directors between 1930 and 1952 were the following:
Michael Ress, director.
Lillian Goodkind, secretary and director.
Nell Wattley, assistant secretary, secretary, or assistant treasurer.
M. Vincent Brady, vice president.
Harry G. Hart, vice president.
Fabyan R. Saxe, vice president.
Josephine Wattley, director.
Howard B. Kavelin, secretary.
R. B. Wattley Co. Inc. was held out to the public as a corporation. It transacted business in its corporate name; hired employees; had a telephone listed in its name; entered into contracts signed by petitioner as its president; authorized petitioner ‘for and on behalf of this corporation’ to borrow from the Bank of Manhattan on April 1, 1937, the amount of $2,500, November 1, 1937, the amount of $2,000, September 16, 1938, the amount of $1,300, November 20, 1938, the amount of $300, and February 9, 1940, the amount of $3,500; endorsed a note in the amount of $3,000 on September 2, 1948, to which it confessed judgment March 4, 1949, and paid on April 24, 1951; and filed Federal income tax returns from 1931 through 1952. It maintained a bank account with the Corn Exchange Bank and Trust Company, New York, in which corporate income was deposited and amounts were withdrawn for rent, salaries, commissions, and other expenses. Petitioner was authorized to make withdrawals from this account by checks signed by him in the name of the corporation as president or treasurer. Employees of the corporation received a percentage of commissions earned on transactions handled by them. The amounts due them were paid by checks drawn on the bank account of the corporation.
Petitioner received income from R. B. Wattley Co. Inc. in the following amounts:
This income was reported by petitioner in income tax returns filed for the years 1931 to 1943 inclusive. The corporation income tax returns of R. B. Wattley Co. Inc. for the years 1944 to 1952 inclusive, filed on behalf of the corporation by petitioner as its president and treasurer, contained notations that the corporation was inactive and had no income.
Schulte Real Estate Co., Inc., the owner of the fee in property located at 508-514 Fifth Avenue at the southwest corner of 43rd Street, New York, New York (hereinafter sometimes called the Fifth Avenue property), offered such property for sale on May 21, 1931, and again on April 7, 1937. R. B. Wattley Co. Inc. did not have an exclusive right to sell the property as the offer was a general offer to hundreds of licensed real estate brokers. Mutual Life Insurance Company (hereinafter referred to as Mutual) held a $3,000,000 first mortgage due April 1, 1934, on the Fifth Avenue property. This mortgage was foreclosed and, in February 1941, Mutual acquired title.
Petitioner, acting as the representative of R. B. Wattley Co. Inc., made the following contacts with respect to the Fifth Avenue property during the years 1931 to 1940 inclusive:
In his return for 1942, he reported $50.15 received from R. B. Wattley Co. Inc. in ‘Schedule I.— Income from partnerships, fiduciaries, and other sources.’ In his 1934 return, the source of the income of $9,711 reported as ‘Salaries, Wages, Commissions, Fees, etc.’ is not disclosed.
1 In petitioner's income tax return for 1934, he reported income from “Salaries, Wages, Commissions, Fees, etc.” in the amount of $9,711, but did not disclose the source of this income.
1 Contact made by F. R. Saxe, and employee of R. B. Wattley Co. Inc.
In March 1941 petitioner, acting as the representative of R. B. Wattley Co. Inc., made his first contacts with both Mutual and Manufacturers Trust Co. (hereinafter referred to as Manufacturers) with reference to the construction of a new bank building on the Fifth Avenue property of Mutual and the lease of this building to Manufacturers. During March 1941 and continuing through the early part of 1942, a number of letters...
To continue reading
Request your trial
-
Burr v. Commissioner
...v. Moline Properties 42-2 USTC ¶ 9728, 131 F. 2d 388, 389 (C. A. 5), affirmed 43-1 USTC ¶ 9464 319 U. S. 436; Ralph B. Wattley Dec. 23,276, 31 T. C. 510, 521, affirmed in this respect, 60-1 USTC ¶ 9283 275 F. 2d 461, 465 (C. A. 2), certiorari denied, 364 U. S. 864. In the circumstances, we ......
-
Wattley v. CIR
...of such receipt or accrual." The Tax Court has held that the remedial provision of § 107(a) is inapplicable to the taxpayer's* situation. 31 T.C. 510. We have here the familiar situation where the taxpayer acquired and operated for a time a one-man corporation. It suits the taxpayer's posit......
-
Estate of Lichstein v. Commissioner
...should not be recognized as a taxable entity. It was neither a "sham", nor "front", nor "dummy", nor "cover". Cf. Ralph B. Wattley Dec. 23,276, 31 T. C. 510, 520-521, approved in this respect but remanded on other grounds 60-1 USTC ¶ 9283, 275 F. 2d 461, 465 (C. A. 2), certiorari denied, 36......
- McCaffrey v. Comm'r of Internal Revenue