Haeri v. Commissioner
United States Tax Court
T.C. Memo 1989-20 (1989)
Fadhlalla Haeri (plaintiff) was an officer and shareholder of Project Development Corporation (PDC), a consulting company for oil companies active in the Middle East. In February 1981, Haeri, who owned 47 percent of PDC, transferred his shares to a trust for the benefit of himself and his family. PDC owned many subsidiary corporations, including Haeri and Associates (H&A). H&A was organized under the laws of Panama for purposes of providing consulting services to European and American oil companies, and it issued stock, had officers and directors, and maintained a bank account. In July 1981, H&A entered into a contract with Ashland Industries (Bermuda) Limited (AIBL) to perform services aimed at increasing oil allotments for AIBL and obtaining release from certain other consulting contracts. Throughout 1981 and 1982, AIBL made large payments to H&A, totaling over $3,000,000, that were deposited into H&A’s bank account and immediately transferred to PDC’s account. Haeri did not report the payments as personal income in 1981 or 1982. In a notice of deficiency, the commissioner of internal revenue (defendant) assessed the entire amount as income to Haeri personally, rather than to the business entity, on the ground that H&A was a sham corporation.
Rule of Law
Holding and Reasoning (Cohen, J.)
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