Weiss v. Commissioner

Robert Weiss (plaintiff), a real estate developer, entered an agreement with David Hillman, a real estate investor, to purchase a motel. Weiss, Hillman, and two of Hillman’s associates, Martin Thaler and Melvin Lenkin, formed the Hawaiian Village Partnership (the partnership) for that purpose. It was agreed that profits and losses would be allocated 50 percent to Weiss and 50 percent to Hillman, Thaler, and Lenkin. The partnership borrowed $1 million from a bank—a loan jointly and severally guaranteed by the four partners. When the loan was renewed, another bank participated in $300,000 of the amount, which Weiss personally guaranteed. Under Weiss’s management, the hotel encountered financial difficulties, resulting in the need for an additional $400,000 capital infusion. Weiss failed to remit his 50 percent of the capital call. In accordance with the partnership agreement, Hillman, Thaler, and Lenkin acquired Weiss’s interest in the partnership, terminated the partnership, and continued doing business without Weiss. Nevertheless, Weiss claimed partnership-loss deductions on his federal income-tax return. The Commissioner of Internal Revenue (the commissioner) (defendant) assessed a deficiency, reasoning that the termination of Weiss’s partnership interest had relieved him of partnership liabilities. Weiss petitioned the United States Tax Court for a redetermination. The court sustained the deficiency. Weiss appealed. The United States Court of Appeals for the Eleventh Circuit granted certiorari.