Western Prods. Co. v. Comm'r of Internal Revenue, Docket Nos. 57615–57617.

Citation28 T.C. 1196
Decision Date24 September 1957
Docket NumberDocket Nos. 57615–57617.
PartiesTHE WESTERN PRODUCTS COMPANY, Petitioner,v.COMMISSIONER OF INTERNAL REVENUE, Respondent.THE TIVOLI-UNION COMPANY, PETITIONER,v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.LO RAINE GOOD VICHEY, PETITIONER,v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

1. In July 1946, the petitioners instituted an action against Wilbur F. Denious for an accounting. For a number of years prior thereto Denious had been president, treasurer and managing head of, and attorney for Western Products, Tivoli, and another corporation, in all of which Mrs. Vichey had been the principal stockholder and in which she was the sole stockholder when the action was instituted. Denious also had been an executor and trustee of and attorney for certain estates of which Mrs. Vichey was beneficiary. In addition, Denious had been her attorney and confidential adviser for many years. An accounting was had and in December 1950 a judgment involving numerous items was entered. Thereafter in the same month Denious made payment of the judgment. Taxability as income to the petitioners of various amounts received pursuant to the judgment determined.

2. In 1945 Western Products received a check representing income to it for that year. The check was never cashed and no amount was reported as income with respect to it for 1945. Held, that the amount of the check was not income to Western Products for 1950.

3. Mrs. Vichey during 1949 and Western Products during 1950 paid certain annual taxes levied by the Moffat Tunnel Improvement District. Held, that the provisions of section 164(b)(5)(B), I. R. C. 1954, are not retroactive to the years 1949 and 1950. Held, further, that only the portions of the foregoing taxes paid to the District which were properly applicable to maintenance and interest charges of the District constituted allowable deductions for the years involved.

4. For 1950 the respondent has allowed Tivoli the maximum amount deductible under section 23(q), I. R. C. 1939, on account of contributions or gifts made during 1950 and reported as such in its income tax return for that year. During 1950 Tivoli made contributions or gifts to other organizations which it deducted in its income tax return as advertising expenses and which the respondent disallowed. Held, because of the provisions of section 23(a)(1)(B) and because of the lack of evidence respecting the character of the organizations to which the latter contributions or gifts were made, those contributions or gifts were not deductible as ordinary and necessary business expenses.

5. Respondent's disallowance to Tivoli of a deduction for Mrs. Vichey's club dues paid by it sustained.

6. Amount of deductible loss sustained by Mrs. Vichey on account of a tropical hurricane determined.

7. An indebtedness owing to Mrs. Vichey not shown to have had value at the beginning of 1950 and to have become worthless during that year held not deductible for that year as a nonbusiness bad debt. Stanley L. Drexler, Esq., and Ellis J. Sobol, Esq., for the petitioners.

Frank C. Conley, Esq., for the respondent.

WITHEY, Judge:

The respondent determined deficiencies in the income tax of the petitioners as follows:

+---------------------------------------------------+
                ¦Petitioner                  ¦Docket¦Year¦Deficiency¦
                +----------------------------+------+----+----------¦
                ¦                            ¦No.   ¦    ¦          ¦
                +----------------------------+------+----+----------¦
                ¦The Western Products Company¦57615 ¦1950¦$5,962.61 ¦
                +----------------------------+------+----+----------¦
                ¦The Tivoli-Union Company    ¦57616 ¦1950¦3,231.08  ¦
                +----------------------------+------+----+----------¦
                ¦Lo Raine Good Vichey        ¦57617 ¦1949¦790.58    ¦
                +----------------------------+------+----+----------¦
                ¦                            ¦      ¦1950¦76,614.57 ¦
                +---------------------------------------------------+
                

Issues for determination are the correctness of the respondent's action (1) in determining the amounts of taxable income received by petitioners in 1950 as a result of a court judgment entered and paid during that year; (2) in including in the income of the Western Products Company for 1950 the amount of a check it had received in 1945; (3) in determining that a portion of the payments made in 1949 and 1950 by Lo Raine Good Vichey and the Western Products Company, respectively, to the Moffat Tunnel Improvement District were not deductible as taxes; (4) in disallowing a portion of the deduction taken by the Tivoli-Union Company for 1950 for advertising; (5) in failing to allow the Tivoli-Union Company a deduction for 1950 for the club dues of Lo Raine Good Vichey for that year; (6) in disallowing a deduction taken by Lo Raine Good Vichey for 1949 as a loss from storm; (7) in failing to allow Lo Raine Good Vichey a deduction for 1949 as interest paid in satisfaction of an obligation of Fortuna Investment Company; and (8) in failing to allow Lo Raine Good Vichey a deduction for 1950 for nonbusiness bad debts.

GENERAL FINDINGS OF FACT.

Some of the facts have been stipulated and are found accordingly.

The Western Products Company (sometimes hereinafter referred to as Western Products) is a Colorado corporation, organized in 1921, and has its principal office in Denver, Colorado. It filed its Federal income tax return for 1950 with the collector of internal revenue for the district of Colorado.

The Tivoli-Union Company (sometimes hereinafter referred to as Tivoli) is a Colorado corporation, organized in 1921, and has its principal office in Denver, Colorado. It filed its Federal income tax return for 1950 with the collector of internal revenue for the district of Colorado.

Lo Raine Good Vichey (whose name was Lo Raine Good Kent during the periods involved herein) presently resides in New York, New York. At all other times material herein she resided in Denver, Colorado. She filed her Federal income tax returns for 1949 and 1950 with the collector of internal revenue for the district of Colorado.

The principal business activity of Tivoli since its organization has been the brewing of beer and related products. The principal business activity of Western Products since its organization has been that of distributor of the products manufactured by Tivoli. All of the outstanding stock of Tivoli and of Western Products is presently owned by Mrs. Vichey. During 1946, but subsequent to July 26, the Fortuna Investment Company (sometimes hereinafter referred to as Fortuna), a Colorado corporation, was liquidated and its assets were distributed to Mrs. Vichey, as sole stockholder. Fortuna was organized in 1911 and operated as a holding company.

John Good and Rosalia M. Good were the parents of John Edward Good. John Good died testate in 1918. By his will he created a trust (sometimes hereinafter referred to as the John Good Trust) of which John Edward Good and Rosalia M. Good were the original trustees. Rosalia M. Good was given a life estate in the trust property. The trust terminated by its terms on January 12, 1937. John Edward Good died testate on August 21, 1931. At the time of his death Mrs. Vichey was his wife and she was named in his will as the beneficiary of the residuary portion of his estate. In his will she also was named appointee of an interest in the residuary portion of the John Good Trust. Administration of the estate of John Edward Good was completed on May 21, 1935, and the distribution to Mrs. Vichey of the residuary portion of the estate was then ordered. Rosalia M. Good died testate on October 1, 1936. Mrs. Vichey was named in her will as the beneficiary of the residuary portion of her estate. Administration of the estate of Rosalia M. Good was completed on February 7, 1939, and distribution to Mrs. Vichey of the residuary portion of the estate was then ordered.

Wilbur F. Denious, a Denver attorney, was attorney for John Good. Denious was attorney for the trustees of the John Good Trust. After the death of John Edward Good, Denious acted as successor trustee of the trust with Rosalia M. Good and after her death he acted as sole trustee. Denious was attorney for John Edward Good during his lifetime and acted as executor of his estate. He also acted as executor of the estate of Rosalia M. Good. In handling the John Good Trust and the estates of John Edward Good and Rosalia M. Good, Denious acted not only as trustee or executor but also as attorney for the trust and attorney for the respective estates.

As appointee of an interest in the residuary portion of the John Good Trust and as beneficiary estates of John Edward Good and Rosalia M. Good, Mrs. Vichey, upon distribution of the trust and the estates, became the owner of various properties of considerable magnitude, including 87 1/2 per cent of the stock in Western Products, Tivoli, and Fortuna. The remainder, 12 1/2 per cent, of the stock in the companies was owned by William Burghardt until his death in 1936. Burghardt had been a close business associate of John Good, John Edward Good, and Denious. On August 13, 1938, Denious purchased the 12 1/2 per cent of stock in Western Products, Tivoli, and Fortuna from the executor of Burghardt's estate at a cost of $39,750. On June 21, 1945, Denious purchased from Mrs. Vichey other stock in those corporations at a total cost of $19,875.

After Mrs. Vichey became the owner of the properties she received from the above-mentioned trust and estates, Denious continued to act as her attorney, her financial adviser, and her trusted confidant. Until November 19, 1945, she permitted him to retain and control all of her notes, deeds of trust, abstracts of title to real estate, bonds, certificates of corporate stock, including her stock in Western Products, Tivoli, and Fortuna, and the minute books, and all bank accounts. In fact, he had every muniment of title to all of her property, except her personal checking...

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