Commissioner v. Bollinger
485 U.S. 340 (1988)

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U.S. Supreme Court

Commissioner v. Bollinger, 485 U.S. 340 (1988)

Commissioner of Internal Revenue v. Bollinger

No. 86-1672

Argued January 13, 1988

Decided March 22, 1988

485 U.S. 340


Because Kentucky's usury law limited the annual interest rate for noncorporate borrowers, lenders willing to provide money only at higher rates required such borrowers to use a corporate nominee as the nominal debtor and record titleholder of mortgaged property. Accordingly, respondents, who formed a series of partnerships to develop Kentucky apartment complexes, in each instance entered into an agreement with a corporation wholly owned by respondent Bollinger, which provided that the corporation would hold title to the property as the partnership's nominee and agent solely to secure financing, that the partnership would have sole control of and responsibility for the complex, and that the partnership was the principal and owner of the property during financing, construction, and operation. All parties who had contact with the complexes, including lenders, contractors, managers, employees, and tenants, regarded the partnerships as the owners and knew that the corporation was merely the partnerships' agent, if they were aware of the corporation at all. Income and losses from the complexes were reported on the partnerships' tax returns, and respondents reported their distributive share of the income and losses on their individual returns. Although the Commissioner of Internal Revenue disallowed respondents' losses on the ground that they were attributable to the corporation as the owner of the property, the Tax Court held that the corporation was the partnerships' agent, and should therefore be disregarded for tax purposes, and the Court of Appeals affirmed.

Held: The partnerships were the owners of the complexes for federal income tax purposes, since in each instance the relationship between them and the corporation was, in both form and substance, an agency with the partnership as principal. It is reasonable for the Commissioner to demand unequivocal evidence of an agency relationship's genuineness in the corporation-shareholder context in order to prevent tax evasion. However, there is no merit to the Commissioner's contention that National Carbide Corp. v. Commissioner,336 U. S. 422, requires such evidence to include arm's-length dealing between principal and agent and the payment of an agency fee. The genuineness of an agency is adequately assured, where, as here, the fact that the corporation is acting as

Page 485 U. S. 341

its shareholders' agent with respect to a particular asset is set forth in a written agreement at the time the asset is acquired, the corporation functions as agent and not principal with respect to the asset for all purposes, and the corporation is held out as the agent, and not the principal, in all dealings with third parties relating to the asset. Pp. 485 U. S. 344-349.

807 F.2d 65, affirmed.

SCALIA, J., delivered the opinion of the Court, in which all other Members joined, except KENNEDY, J., who took no part in the consideration or decision of the case.

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