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Brooke v. United States

United States Court of Appeals for the Ninth Circuit
468 F.2d 1155 (9th Cir. 1972)


Facts

C. P. Brooke (plaintiff) was a physician with six school-aged children. In a gift-leaseback arrangement, Brooke irrevocably deeded to his children a property containing his medical offices, as well as other rental property. Brooke also had a state court appoint him as the guardian of his children, pursuant to state law concerning guardianships. Without a written lease, Brooke paid reasonable rent to himself in his capacity as the children’s guardian. Brooke also collected rent from the other tenants and used all of the rental income to pay for his children’s insurance, education, and other expenses. The federal tax commissioner (commissioner) (defendant) asserted that Brooke’s property transfer to his children did not serve a business purpose, and that his rent payments therefore did not qualify for the business-expense tax deduction. The commissioner also argued that the rental income used to provide for Brooke’s children should be treated as gross income, as Brooke personally had a legal obligation to pay for his children’s care. Brooke filed suit against the United States government (government), seeking a tax refund. The district court entered judgment in favor of Brooke, and the government appealed.

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Holding and Reasoning (Powell, J.)

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Dissent (Ely, J.)

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