Salvatore v. Commissioner

Brief Fact Summary.

Petitioner’s husband died and left her title to the oil and gas service station that she ran. She and her children decided to sell the property to Texas. Prior to the sale, Petitioner transferred one-half of her interest to her children.

Synopsis of Rule of Law.

A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title.

Facts.

Petitioner’s husband died and left her the oil and gas service station that he owned. Petitioner and her children operated the station after his death. Petitioner and her children decided to sell to Texaco after two of her children has stopped working there and it had become too much to manage. As part of the sale, Petitioner executed a warranty deed conveying an undivided one-half interest in the property to her five children. This interest was also sold to Texaco. Petitioner filed a tax return reporting gifts to each of her five children of a 1/10th interest in the property. She also reported a long-term capital gain of $115,063 plus an ordinary gain of $665. The Commissioner of Internal Revenue determined a deficiency because Petitioner should have reported the full amount of the sale of the property as long-term capital gain.

Issue.

Is Petitioner taxable on all or only one-half of the gain realized on the sale of the real property?

Held.

Judge Featherston issued the opinion for the Tax Court in holding that the full amount is taxable as capital gain.

Discussion.

Petitioner transferred the property to her children to avoid taxes and they only acted as a conduit. She had already contracted to sell the property. The assignment to her children was done without consideration.