Fritschle v. Commissioner

Robert and Helen Fritschle (plaintiffs) lived in Missouri with eight of their children. Robert was the general manager of American Gold Label Company (AGL), a printing company. Beginning in 1970, AGL began printing on cloth ribbons and rosettes. AGL needed help assembling the ribbons and rosettes and contracted with Helen to perform the work. Helen was paid on a per-piece basis for the assembly, with all materials provided by AGL. Helen enlisted the help of the Fritschles’ children in assembling the rosettes and ribbons. It was estimated that the children performed roughly 70 percent of the assembly work under Helen’s supervision. The children were not employed by either Helen or AGL, and there were no arrangements for the children to share directly in the money that AGL paid to Helen for the assembly work. The Fritschles did not report some of the payments received by Helen for the assembly work on their federal income-tax returns, arguing that the payments for the work performed by the children should be included in the children’s income. The Commissioner of Internal Revenue (the commissioner) (defendant) disagreed and issued a deficiency notice, informing the Fritschles that their gross income needed to include all payments received by Helen for the assembly work. The Fritschles challenged the deficiency notice in tax court, arguing that under § 73(a) of the Tax Code, amounts received by parents from a child’s services should be included in the child’s gross income and not in the parent’s gross income.