Wheeler v. Commissioner
United States Tax Court
37 T.C.M. 883 (1978)
Richard Wheeler (plaintiff) and Ainslie Perrault went into business together to develop real estate. Wheeler provided the real estate development knowledge, and Perrault provided the finances. Wheeler and Perrault’s business agreement (the agreement) stated that they were creating a joint venture to develop and manage property together. Under the agreement, the initial profits from the business were to go to Perrault to repay his initial investment. Subsequent profits would be split, with Wheeler receiving 25 percent and Perrault receiving 75 percent. The agreement further specified that all property would be in Perrault’s name and that Perrault would bear all the business’s losses. Wheeler reported his share of the profits on his income-tax return as long-term capital gain made through a joint venture. The Commissioner of Internal Revenue (the Commissioner) (defendant) assessed a deficiency against Wheeler, arguing that his profit was income rather than long-term capital gain. The Commissioner believed that Wheeler was an employee of Perrault’s rather than a business partner. The Commissioner argued that under the terms of the agreement, Wheeler did not bear the business’s losses or hold title to its property. Wheeler petitioned the United States Tax Court for a redetermination.
Rule of Law
Holding and Reasoning (Irwin, J.)
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