Kenyatta Corp. v. Commissioner

86 T.C. No. 12, 86 T.C. 171, 1986 U.S. Tax Ct. LEXIS 154
CourtUnited States Tax Court
DecidedFebruary 12, 1986
DocketDocket No. 22262-84
StatusPublished
Cited by11 cases

This text of 86 T.C. No. 12 (Kenyatta Corp. v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kenyatta Corp. v. Commissioner, 86 T.C. No. 12, 86 T.C. 171, 1986 U.S. Tax Ct. LEXIS 154 (tax 1986).

Opinion

FEATHERSTON, Judge:

Respondent determined a deficiency in the amount of $24,943 in petitioner’s personal holding company tax for its fiscal year ended January 31, 1978. The only issue to be decided is whether, during that year, petitioner was a personal holding company within the meaning of section 542(a).1

FINDINGS OF FACT

Petitioner Kenyatta Corp. was a Washington State corporation with its principal office located in Seattle, Washington, at the time the petition was filed. Petitioner timely filed its corporate Federal income tax return for its fiscal year 1978 with the Internal Revenue Service Center, Ogden, Utah.

Background

Petitioner was incorporated under the laws of the State of Washington on July 9, 1973. However, no organizational meeting was held for petitioner, and no stock certificates were ever issued. Each year from its inception through the close of its 1978 fiscal year, petitioner’s president was William F. Russell (hereinafter Russell).

Russell, a former professional basketball player, has long been a well known and highly regarded sports personality. Since 1969, following his retirement from professional basketball, Russell has been employed, first by Felton Productions and later by petitioner, to provide a variety of his own personal services. These services included hosting radio talk shows, making personal appearances, lecturing on college campuses, sportscasting, writing newspaper columns, coaching and managing a professional basketball team, speaking on radio and television programs, and performing services for various advertising and promotional efforts.

In 1969, Robert Walsh (hereinafter Walsh), then program director for KABC radio station in Los Angeles, hired Russell as a radio talk show host and television sportscaster. In 1973, Russell moved to Seattle to become the coach and general manager of the Seattle SuperSonics professional basketball team (hereinafter Sonics).

Russell was joined in Seattle by Walsh, who became assistant general manager of the Sonics under Russell, and by Anita Dias (hereinafter Dias), who had been employed in Los Angeles by Felton Productions, the California corporation which provided Russell’s personal services from approximately 1970 to 1973. From 1973 to 1977, Dias worked for the Sonics and provided services to petitioner as administrative assistant and secretary to Russell, handling his calendar, travel arrangements, and banking. She signed most of the documents requiring Russell’s signature. Dias ran the day-to-day operations of petitioner’s office, kept books for some transactions, and maintained a checking account for petitioner in Seattle.

Petitioner was organized on the advice of Richard Covey (hereinafter Covey), who served as petitioner’s secretary from its inception through at least September 6, 1978. In his capacity as secretary, Covey maintained a bank account for petitioner in Los Angeles and kept most of petitioner’s books and records with him in Los Angeles during petitioner’s 1978 fiscal year. Covey was also Russell’s attorney and business agent from 1969. until 1982. During that period, he assisted in developing Russell’s career and generating business opportunities and handled legal matters, such as negotiating and drafting contracts. Covey generally received fees for his legal services and compensation on a percentage basis for his services as Russell’s agent.

In addition to providing Russell’s services for speaking engagements, personal appearances, and the like, petitioner arranged for the services of other sports personalities. Petitioner was asked to provide substitutes when Russell was unavailable or not inclined to make certain types of personal appearances; for example, Russell made it a policy never to sign autographs.

Fiscal Year 1978

Ken Duncan (hereinafter Duncan), a certified public accountant, was hired in 1977 to prepare both petitioner’s corporate Federal income tax return for its 1978 fiscal year and Russell’s individual tax return. In preparing petitioner’s 1978 return, Duncan used two lists of checks drawn from and deposits made into petitioner’s checking accounts — one handwritten list prepared by Dias and one typewritten list prepared by Covey (bank deposits and disbursements list).2 Duncan never received a cash receipts journal, check register, or canceled checks for fiscal year 1978.

At the request of the revenue agent who examined petitioner’s fiscal year 1978 income tax return, Duncan prepared a handwritten breakdown of. petitioner’s cash receipts from its 1978 fiscal year (cash receipts breakdown). The document is dated June 4, 1983, and bears the notation: “Big Rush — Vacation starts this afternoon for 1 week out of town.” Duncan prepared the cash receipts breakdown using “scraps of paper” and whatever information was available at the time.

On its corporate income tax return for fiscal year 1978, which was signed by Russell as president, petitioner reported gross receipts in the amount of $138,895 and taxable income in the amount of $44,919. Petitioner reported no reduction for cost of goods sold, and no deductions for commissions, salaries, and wages paid.3 On page 3 of the return, item H(2) names Russell as the. individual who owned, at the end of the taxable year, 50 percent or more of petitioner’s voting stock, and an attached schedule shows that he owned 100 percent of the stock in that year.4

Petitioner’s gross receipts from its 1978 fiscal year were derived from various sources, among which were several service contracts here in dispute. The following are our findings with respect to each of those agreements.

1. Seattle SuperSonics

In 1973, the professional basketball franchise known as the Seattle SuperSonics was owned by the Seattle Super-Sonics Corp., a wholly owned subsidiary of First Northwest Industries of America, Inc. (FNI). During that year, the Sonics’ image and popularity had declined as a result of poor public relations and unfavorable press coverage. The board of directors of FNI discharged the Sonics’ coach and made an effort to replace him with the best name in basketball to restore the team’s credibility. Consequently, Russell was hired as coach and general manager of the Sonics in July 1973.

The contract negotiations eventually produced two contracts, one between FNI and Russell covering Russell’s services as coach and general manager of the Sonics (coaching agreement) and the other between FNI and petitioner covering publicity and public relations services to be provided by petitioner (public relations agreement). Both contracts were signed by or on behalf of the parties,5 dated “As of July 1, 1973,” and ran for a term of 5 years commencing on that date and terminating on June 30, 1978.6

Under the public relations agreement, petitioner agreed to provide Russell’s services in connection with certain public relations work for the Sonics, including a series of 5-minute radio programs to be broadcast prior to the Sonics’ games.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Calypso Music, Inc. v. Commissioner
2000 T.C. Memo. 293 (U.S. Tax Court, 2000)
Blanton v. Commissioner
1998 T.C. Memo. 211 (U.S. Tax Court, 1998)
Gerald D. Roberts Consultants, Inc. v. Commissioner
1991 T.C. Memo. 490 (U.S. Tax Court, 1991)
Rosberg v. Comm'r
1990 T.C. Memo. 328 (U.S. Tax Court, 1990)
RAS of Sand River, Inc. v. Commissioner
1990 T.C. Memo. 322 (U.S. Tax Court, 1990)
Markman v. Commissioner
1987 T.C. Memo. 407 (U.S. Tax Court, 1987)
Kenyatta Corp. v. Commissioner
812 F.2d 577 (Ninth Circuit, 1987)
Deskins v. Commissioner
87 T.C. No. 19 (U.S. Tax Court, 1986)
Kenyatta Corp. v. Commissioner
86 T.C. No. 12 (U.S. Tax Court, 1986)

Cite This Page — Counsel Stack

Bluebook (online)
86 T.C. No. 12, 86 T.C. 171, 1986 U.S. Tax Ct. LEXIS 154, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kenyatta-corp-v-commissioner-tax-1986.