Dean v. Commissioner

Brief Fact Summary. Taxpayer and his wife were the only shareholders in corporation. The residence of taxpayer and his wife was transferred to the corporation as collateral for a bank loan. Taxpayer and his wife continued to occupy the property as their residence.

Synopsis of Rule of Law. Gross income may include benefits not inclusive of cash or receipt of property.

Facts. Taxpayer and his wife are the shareholders in a holding company called the Nemours Corporation, and the wife owns 80% of the stock. The residence of the taxpayer and his wife was owned by the wife prior to marriage. The Corporation became indebted to a bank and the real property was transferred to the corporation at the bank’s requirement. The parties continued to live on the property after this transfer. The Commissioner of Internal Revenue found that the fair rental value of the residence should be included in taxpayer’s gross income.

Issue. Should the fair rental value of the property be considered income of the taxpayer?

Held. Circuit Judge Goodrich issued the opinion for the United States Third Court of Appeals in affirming that tax court and holding that taxpayer should report the fair rental value as income.

Discussion. The Court of Appeals found that the corporation’s existence was bona fide, the property belonged to the corporation because of the transfer, and taxpayer occupied the corporation’s real estate as his residen.