Pulliam v. Commissioner

Clark Pulliam (plaintiff) was the president and sole shareholder of Pulliam Funeral Homes, P.C., which had a location in Oblong, Illinois. Earl Deckard was the manager and embalmer at this facility. Deckard wanted to acquire stock in Pulliam Funeral Homes, but he had disagreements with Pulliam. Deckard purchased property with the intent of constructing and operating a funeral home of his own. Pulliam wished to prevent both the establishment of a competing funeral home in Oblong and the loss of a key employee. Pulliam and Deckard entered an agreement under which the Oblong facility’s assets were transferred to a spin-off business, Pulliam Deckard Funeral Chapel, P.C. (Chapel). Pulliam Funeral Homes distributed all stock in Chapel to Pulliam, but a stock-purchase agreement provided for Deckard to acquire 49 percent of the Chapel shares for a total of $386,610, payable mostly in annual installments. Deckard also agreed not to compete with Pulliam Funeral Homes. Deckard later defaulted on his payments, his employment ended, and Pulliam reacquired almost all the Chapel stock. The Commissioner of Internal Revenue (the commissioner) (defendant) assessed a deficiency against Pulliam on unreported dividends of $789,500, the total fair market value of the Oblong facility. Pulliam challenged the commissioner’s assessment in the United States Tax Court. In addition to the twin purposes of preventing competition from Deckard and retaining Deckard as an employee, Pulliam contended that Illinois law required funeral homes to be professional-service corporations with licensed funeral directors and embalmers as shareholders.