Achiro v. Commissioner

77 T.C. 881 (1981)

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Achiro v. Commissioner

United States Tax Court
77 T.C. 881 (1981)

Facts

Silvano Achiro (plaintiff) and Peter Rossi owned stock in two garbage-disposal companies, including Tahoe City Disposal (Tahoe City). Achiro and Rossi formed a new corporation, A & R Enterprises, Inc. (A&R), to provide management services to the disposal companies. Achiro and Rossi signed exclusive employment contracts with A&R and personally rendered management services to the disposal companies while formally in A&R’s employ. Tahoe City claimed tax deductions for amounts paid to A&R, and A&R claimed deductions for its own expenditures. The Internal Revenue Service (IRS) (defendant) issued a notice of deficiency to Tahoe City. The IRS’s notice denied Tahoe City deductions on amounts paid to A&R and reallocated to Tahoe City the deductions A&R had taken. The notice stated that the reallocations were made “to clearly reflect” the income of the two entities. To challenge the IRS’s notice under this theory, Achiro would have to present evidence to the United States Tax Court establishing that the payments from Tahoe City to A&R were ordinary and necessary business expenses. Achiro filed a petition with the Tax Court to do this. After issuing its original answer to Achiro’s petition, the IRS was granted leave to amend its answer. In its amended answer, the IRS changed its rationale for its reallocation, arguing instead that the reallocation was justified under assignment-of-income and sham-corporation doctrines. To counter these theories, Achiro would have to present different evidence than under the rationales put forward in the IRS’s original notice. Achiro filed a motion with the Tax Court to shift the burden of the proof to the IRS to establish the correctness of the reallocations.

Rule of Law

Issue

Holding and Reasoning (Hall, J.)

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