Pratt v. Commissioner
United States Tax Court
64 T.C. 203 (1975)
Facts
The tax commissioner (defendant) assessed deficiencies on three years’ worth of tax returns that brothers Edward, William, and Jack Pratt filed jointly with their wives (taxpayers) (plaintiffs). The brothers had formed two limited partnerships to purchase, develop, and operate two shopping centers. Under the partnership agreements, the brothers managed the shopping centers as general partners. The agreements specified that the partnerships were to pay the brothers management fees calculated as a percentage of the rental proceeds from the shopping centers. The partnerships used an accrual method of accounting, whereas the brothers used the cash method. The partnerships accrued and deducted the management fees for three tax years without actually paying those fees to the brothers, while the brothers deferred reporting the fees as income. The commissioner assessed deficiencies, arguing the brothers earned the fees for services performed as partners, making the fees includable in their distributive shares of partnership income when earned. The taxpayers petitioned the tax court for review.
Rule of Law
Issue
Holding and Reasoning (Scott, J.)
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