Al-Hakim v. Commissione T.C. Memo

1987-136 (1987)

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Nature of the Case

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Facts

In 1970, Abdul Jalil al-Hakim (D) began to negotiate contracts for professional athletes. He operated as a sole proprietor under the name 'Superstar Management, the Genius of Randy Wallace' and maintained a business checking account (business account) at Lloyd's Bank in Oakland, California. He used special powers of attorney to effectuate his power to negotiate for the athletes. During 1977, D represented Lyman Bostock (Bostock), a professional baseball player, and negotiated on his behalf with 18 teams, including the Minnesota Twins and the California Angels (Angels). al-Hakim was successful in negotiating a five-year contract for Bostock with the Angels. Bostock and the Angels signed the contract on November 21, 1977, and the American League of Professional Baseball Clubs signed it on January 4, 1978. Under the terms of the contract, the Angels were to pay Bostock a total of $2,250,000. Pursuant to a deferred-compensation-agreement, Bostock was to receive said $2,250,000 over 12 years - $195,000 per year for the first five years, and the remaining $1,275,000 over the next seven years. D's fee for negotiating Bostock's contract was $112,500, i.e., 5 percent of the $2,250,000 contract amount. Bostock was to pay the fee over ten years and in ten equal installments of $11,250 per year. In January 1978, the Angels loaned to Bostock $112,500, and on January 13, 1978, Bostock loaned to D $112,500. In May 1978, D billed Bostock $11,250 for the first installment of his $112,500 fee. D, as payment for the $11,250 installment, reduced the amount, which was shown as a loan from Bostock to him, to $101,250 ($112,500 - $11,250) and reported $11,250 in income from Bostock on his 1978 Federal individual income tax return. In June 1978, a dispute, which concerned the terms of Bostock's contract, arose between Bostock and the Angels. As part of a settlement agreement, Bostock reported the loan from the Angels as income and deducted the balance of the fee he owed D/Genius, Inc., as an expense. Genius, Inc., reported $101,250, the balance of the fee due D/Genius, Inc., as income on its Federal corporate income tax return and reduced to zero the amount of the loan, which DGenius, Inc., owed Bostock.