Wigutow v. Commissioner

• Decision Date: 29 September 1983
• Docket Number: Docket No. 2965-80.
• Citation: 1983 TC Memo 620,46 TCM (CCH) 1616
• Parties: Marcus Wigutow, Estate of Rose Wigutow, Deceased, Marcus Wigutow, Administrator, Elizabeth Wigutow and Marcus Wigutow, M.D., Inc. v. Commissioner.
• Court: U.S. Tax Court

46 TCM (CCH) 1616

1983 TC Memo 620

T.C. Memo. 1983-620.

Marcus Wigutow, Estate of Rose Wigutow, Deceased, Marcus Wigutow, Administrator, Elizabeth Wigutow and Marcus Wigutow, M.D., Inc. v. Commissioner.

Docket No. 2965-80.

United States Tax Court.

Filed September 29, 1983.

John F. Beggan and Stephen M. Gatlin, One First National Plaza, Chicago, Ill., for the petitioners. John J. Morrison, for the respondent.

Memorandum Findings of Fact and Opinion

PARKER, Judge:

In separate deficiency notices, respondent has determined the following deficiencies in these joint petitioners' Federal income taxes:

                _________________________________________________________________________________
                                                                  Taxable Year
                                 Petitioners                         Ending       Deficiency
                _________________________________________________________________________________
                       Marcus Wigutow and Estate of Rose Wigutow
                        Deceased (Marcus Wigutow, Administrator)     12-31-72     $14,449.67
                       Marcus Wigutow and Elizabeth Wigutow ....     12-31-73       3,204.19
                                                                     12-31-74       6,111.36
                                                                     12-31-75       3,362.89
                                                                     12-31-76       2,537.10
                

                      Marcus Wigutow, M.D., Inc. .................    4-30-73       8,339.02
                                                                      4-30-74       2,183.62
                                                                      4-30-75       1,707.39
                                                                      4-30-76       1,873.41
                    After concessions, the following issues are presented for our decision
                _________________________________________________________________________________
                

I. Medical Expense Plan. (a) Whether medical reimbursement payments made by Marcus Wigutow, M.D., Inc., to Marcus Wigutow, its president and sole shareholder, were made pursuant to a plan qualifying the payments for exclusion from income under section 105;¹ and

(b) Whether Marcus Wigutow, M.D., Inc., may deduct the medical expense reimbursement payments under section 162(a).

II. Pension Trust. (a) Whether Marcus Wigutow, M.D., Inc., may deduct its contributions to a nonqualified pension trust under section 404(a)(5); and

(b) Whether the corporation's pension plan contributions qualify as earned income to Marcus Wigutow under section 1348.

Findings of Fact

This case was submitted fully stipulated; the stipulated facts are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.

Prior to her death on November 14, 1972, Rose Wigutow ("Rose") was married to petitioner Marcus Wigutow ("Marcus"). Marcus filed a joint 1972 Federal income tax return on behalf of himself and Rose with the Internal Revenue Service Center at Kansas City, Missouri.

On September 24, 1973, Marcus married petitioner Elizabeth Wigutow ("Elizabeth"). Marcus and Elizabeth filed joint Federal income tax returns for 1973, 1974, 1975, and 1976 with the Internal Revenue Service Center at Kansas City, Missouri. Marcus and Elizabeth resided in Chicago, Illinois, when the petition herein was filed.

Marcus Wigutow, M.D., Inc. ("the corporation") was at all relevant times duly organized and existing under the Medical Professional Corporation Act of the State of Indiana. It was incorporated on May 25, 1971. The corporation filed Federal corporate income tax returns for its taxable years ending April 30, 1973, April 30, 1974, April 30, 1975, and April 30, 1976 with the Internal Revenue Service Center at Memphis, Tennessee. The corporation's principal place of business was in Merrillville, Indiana, when the petition herein was filed. Since its incorporation, Marcus has owned 100 percent of the issued and outstanding shares of the stock of the corporation and was president, treasurer, and one of the directors of the corporation. The corporation paid no dividends during any of the years in issue.

Marcus is a medical doctor licensed to practice medicine in the State of Indiana. At all relevant times, Marcus was engaged in the practice of medicine, as a psychiatrist, in the State of Indiana solely as an employee of the corporation. On June 9, 1971, Marcus and the corporation entered into an employment agreement providing in pertinent part:

1. Effective as of June 9, 1971, up to and including April 12, 1972, the Corporation agrees to employ Marcus to serve in Gary, Indiana and environs as designated by the Corporation.

2. This Agreement shall be renewable annually upon agreement of the parties.

* * *

4. It is hereby understood and agreed that Marcus will devote his entire professional efforts to the conduct of the Corporation's practice and that Marcus will not compete in any manner with the Corporation, nor will he aid any competitor of the Corporation in any manner.

* * *

6. The Corporation agrees to compensate Marcus for his services with a salary of $50,000 per year, payable in monthly installments before applicable withholding and social security taxes. Marcus shall also receive a bonus depending upon the profitability of the division of the Corporation conducted by him. * * *.

* * *

With the exception of approximately nine and one-half months in 1975, during all relevant times Marcus was the sole medical doctor employed by the corporation, and the corporation was thereby engaged, solely through Marcus, in the trade or business of the practice of medicine in the State of Indiana. From February 28, 1975 through December 15, 1975, the corporation also employed Borivoj Divcic, M.D. ("Dr. Divcic") as a medical doctor engaged in the practice of psychiatry. During this nine and one-half month period, the corporation was also engaged through Dr. Divcic in the trade or business of the practice of medicine in the State of Indiana. Rose was not employed by the corporation during the year 1972, nor was Elizabeth employed by the corporation during the years 1973-1976.

The corporation had full-time clerical and secretarial employees who were responsible for general typing, bookkeeping, billing, maintenance of files and appointment books, and acting as receptionists. These employees were Joyce Larsen from October 1973 through October 1976, Kathleen McClanahan from August 1971 through September 1973, and Susan Fowble from July 1972 through March 1973.

From May 1971 through April 1974, the corporation employed Judith Lammons as a full-time psychiatric social worker. Her duties included the initial screening of patients, both new and return. In this screening, Ms. Lammons recorded one or two pages of the patient's history, including the patient's complaint, family conflicts, and stresses and strains. Marcus utilized these patient histories in counseling sessions with such patients. From May 1971 through August 1975, the corporation employed Sharon Griegor as a part-time cotherapist for group therapy. Her duties included assisting Marcus in group therapy sessions conducted by Marcus. Her job was to reassure the patients and assist them in formulating their problems.

During all relevant periods, the corporation employed no other individuals who performed services, other than solely clerical or secretarial services, for or on behalf of the corporation.

At a meeting of the board of directors and the shareholder on April 10, 1973, the corporation passed a resolution awarding Marcus a bonus of $10,300, "thus making the total compensation paid to him for the year ending April 30, 1973, the sum of $60,000.00 . . . ." These minutes also authorized contributions to the corporation's Pension Trust and Profit Sharing Trust.

Medical Expense Plan. On June 10, 1971, the corporation declared the "MARCUS WIGUTOW, M.D., INC., MEDICAL EXPENSE BENEFIT PLAN" (the "Medical Plan") in a written instrument, which provided in pertinent part:

WHEREAS, it is the intention of the Corporation to provide medical expense coverage for all the employees of this corporation as hereinafter set out. However, in the uncontrolled discretion of the Board of Directors, this plan shall include other employees, at any subsequent date.

* * *

1. This plan shall be completely revocable by action of the Board of Directors of this Corporation at any time and shall continue until so revoked. There shall be no liability for medical expenses submitted following termination of this plan by the Board of Directors.

2. As of the annual period to begin June 10, 1971, and thereafter, the Corporation will reimburse all the employees and their dependents, exemptions and members of family, for any medical expense, dental expense, or other expenses as defined by the Internal Revenue Code of 1954, Section 213, as amended, provided such expenditures are not otherwise compensated for by accident and health insurance maintained. Expenses shall also include drugs and medical supplies prescribed by a physician or other professional medical technician.

3. This plan shall continue pursuant to the Internal Revenue Code, Section 105(b) and regulations issued thereunder, and shall be changed in accordance with said section as it may be subsequently amended from time to time.

4. The Corporation shall reimburse the Employees set forth hereinabove for any expenses as defined herein but only when adequate substantiation in the form of bills, invoices or cash receipts, cancelled checks or other documentary evidence are presented and only if reimbursement is requested after a reasonable time after said expenses have been incurred. A decision whether or not any expense is reimbursable medical expense and the timeliness of its submission to the Corporation, shall be in the Corporation's sole discretion and shall be final and conclusive and binding upon all of the parties hereto.

* * *

Marcus signed the declaration of the Medical Expense Plan both for the corporation, in his capacity as president,...