Gaines v. Commissioner
United States Tax Court
45 T.C.M. (CCH) 363 (1982)
James Mather and members of the Gaines family (plaintiffs) were partners in Gaines Realty Company and other limited partnerships that owned three apartment complexes. Gaines Properties served as general partner in all four limited partnerships. The partnership agreements guaranteed payments to the partners, including Gaines Properties, and expressly stated that those payments “shall constitute guaranteed payments within the meaning of section 707(c) of the [tax] Code.” Each limited partnership accrued and claimed deductions for those guaranteed payments on their 1973 partnership tax returns. The four limited partnerships used the accrual method of accounting, while Gaines Properties used the cash method. Gaines Properties never received the guaranteed payments and did not report them as income. The tax commissioner determined that Gaines Properties should have reported the guaranteed payments that the limited partnerships had deducted but also disallowed part of the limited partnerships’ deductions as capital expenditures not deductible in 1973. The tax commissioner assessed deficiencies reflecting the entire amount of the guaranteed payments against the partners and their spouses, who had not reported the guaranteed payments as distributive shares of partnership income on their joint tax returns. The taxpayers petitioned the tax court for review.
Rule of Law
Holding and Reasoning (Parker, J.)
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