Bill J. Malone, Jr. and Sarah J. Malone - Page 13

                                       - 13 -                                         
               Taking into account the three factors listed above, we find            
          that Malone Music, if a trade or business within the meaning of             
          section 162(a), was not, during the years in issue, petitioner’s            
          trade or business, but the trade or business of one or more of              
          the Malone children.8  It follows that the items of income9 and             
          deductions attributable to Malone Music are not properly                    
          includable on petitioners’ return for either year in issue and we           
          so hold.10                                                                  
               For each year in issue, respondent imposed a section 6662(a)           
          accuracy-related penalty upon the ground that the underpayment of           
          tax required to be shown on petitioners’ return for each year is            
          due to negligence or disregard of rules or regulations.  Sec.               

               8  Obviously, we have no jurisdiction in this proceeding               
          with respect to any of the Malone children for any year and make            
          no findings regarding the Federal income tax liabilities of any             
          of them.                                                                    
               9  The issues presented and positions of the parties in this           
          case focus our attention on disallowed deductions.  Nevertheless,           
          with respect to the income reported on the Schedules C, we note             
          that our conclusion is entirely consistent with Lucas v. Earl,              
          281 U.S. 111 (1930) (income is taxed to the person who earned               
          it).  Our conclusion is further consistent with sec. 73, which              
          provides, in general, that amounts received in respect of                   
          services rendered by a child are includable in the child’s gross            
          income and not in the gross income of the child’s parents, even             
          though such amounts are not received by the child, sec. 73(a),              
          and expenditures paid by the parent or the child attributable to            
          amounts which are includable in the gross income of the child are           
          generally treated as paid or incurred by the child, sec. 73(b).             
               10  Our holding in this regard makes it unnecessary to                 
          address respondent’s other grounds for the disallowance of the              
          deductions claimed on the Schedules C.                                      

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011