Allison v. Commissioner

35 T.C.M. 1069 (1976)

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Allison v. Commissioner

United States Tax Court
35 T.C.M. 1069 (1976)

  • Written by Rose VanHofwegen, JD

Facts

Ian Allison and Stanley Krikac ran a commercial-property-loan brokerage called Lumberman’s Acceptance Company (Acceptance), which owned Lumberman’s Mortgage Company (collectively, the taxpayers) (plaintiffs). Acceptance entered a “Joint Venture Agreement” with McCoy Investment Company, Inc. (Investment), owned by real estate broker James McCoy, to purchase and subdivide a ranch into 200 lots. The agreement did not say the parties intended to sell the lots together or share in profits and losses. Instead, Acceptance would receive 75 lots in exchange for providing funding, and the agreement would terminate when the lots were distributed. Acceptance loaned Investment $53,000 and arranged an $80,000 bank loan to buy the property. McCoy testified that Investment was directly liable for those loans even though Acceptance later paid off the outstanding indebtedness. Investment had no control over how Acceptance disposed of its lots. When Acceptance received its 75 lots, it had already arranged to sell 72 without Investment’s input. Acceptance and Investment worked together toward developing the property in only a few instances and did not keep books or file tax returns for the partnership. The taxpayers listed the lots as nontaxable distributions of partnership property on their tax returns, claiming Acceptance entered a joint venture with Investment and received the properties in exchange for services, not as ordinary income. The tax commissioner assessed deficiencies, contending Acceptance had not entered a joint venture with Investment, meaning the lots represented ordinary income to Acceptance for providing financial services. The taxpayers petitioned the tax court for review.

Rule of Law

Issue

Holding and Reasoning (Sterrett, J.)

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