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Carriage Square, Inc. v. Commissioner

69 T.C. 119 (1977)

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Carriage Square, Inc. v. Commissioner

United States Tax Court

69 T.C. 119 (1977)

Facts

Arthur Condiotti owned 79.5 percent of Carriage Square, Inc. (Carriage) (plaintiff). Condiotti provided funds to have five separate trusts created for Condiotti and his wife and three children. Carriage organized a limited partnership called Sonoma Development Company (Sonoma) in which Carriage was the general partner and each trust was a limited partner. Carriage and the trusts collectively contributed around $5,500 as an initial contribution to Sonoma, and the trusts were liable for Sonoma’s debt only to the extent of their initial contributions. Pursuant to the partnership agreement, Carriage would receive 10 percent of Sonoma’s profits, and the trusts would receive 90 percent of the profits split equally among them. Sonoma borrowed capital to finance its property-development operations via significant loans guaranteed by Condiotti. Sonoma generated significant profits over its first three years in business, which were allocated according to the 10-percent/90-percent split pursuant to the partnership agreement. However, the Commissioner of Internal Revenue (the Commissioner) (defendant) allocated all of the partnership income to Carriage, claiming that Carriage performed all services and assumed all risks of the partnership.

Rule of Law

Issue

Holding and Reasoning (Forrester, J.)

Concurrence (Goffe, J.)

Dissent (Tannenwald, J.)

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