Borge v. Commissioner

405 F.2d 673, cert. denied 395 U.S. 933 (1968)

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Nature of the Case

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Facts

From 1952 until 1958, Borge (P), an individual operated ViBo Farms where he developed, produced, processed and sold quality chickens known as rock cornish hens. He suffered substantial losses each year, but he deducted those from his income he earned as an entertainer. In 1958, P organized Danica and transferred to the corporation, in exchange for all of the stock and a loan payable, the assets of the poultry business except for the farm property. P made large sums from television and stage as well as motion pictures. P and Danica entered into a contract under which P agreed to perform entertainment and promotional services for the corporation for a 5-year period for $50,000 per year. Danica then used the entertainment profits to offset the poultry losses. Danica did nothing to aid P in his entertainment business. Those who contracted with Danica for P's services also required that P personally guarantee the contracts. Danica's only profits were from the entertainment business, and those were attributable solely to P. The only year that Danica paid P anything was in 1962 when P was paid a full $50,000. Under 482 the Commissioner allocated additional monies to P of $75,000 per year from 1958-1961 and another $25,000 in 1962. The IRS reasoned that P had owned both businesses and had merely assigned a portion of his income from the entertainment business to Danica and Danica had done nothing to earn that money. The Tax Court agreed, and P appealed on grounds that he was not an organization or trade or business.