Alstores Realty Corp. v. Commissioner

46 T.C. 363 (1966)

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Alstores Realty Corp. v. Commissioner

United States Tax Court
46 T.C. 363 (1966)

  • Written by Rose VanHofwegen, JD

Facts

Steinway and Sons sold a warehouse to Alstores Realty Corp. (Alstores) (plaintiff) at below market value for $750,000 but continued using the warehouse for two and a half years without making rent payments. The contract resembled a sale and a leaseback and arguably acknowledged that Steinway had prepaid rent in some form because it referenced “further payment.” Alstores assumed control of the premises and risks and benefits of ownership, including providing utilities, and agreed to pay Steinway per square foot if the space became unusable during the term, or if Steinway vacated during the final six months. The tax commissioner (defendant) assessed a deficiency, finding that Alstores earned $250,000 in rental income, the difference between the warehouse’s market value and the $750,000Alstores paid. The tax court had already ruled in a companion case that Steinway had realized $1 million on the sale and could deduct $250,000 as prepaid rent. Alstores filed a petition disputing the deficiency, arguing that Alstores received no rental income because Steinway’s rent was free.

Rule of Law

Issue

Holding and Reasoning (Hoyt, J.)

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