dissenting: I cannot escape the feeling that, despite their protestations to the contrary, the majority has permitted the assumed illegality of the conduct of the insurance business by Shaw Ford and American to influence its decision herein. As a consequence, Commissioner v. First Security Bank of Utah, 405 U.S. 394 (1972), seems to have had an intimidating effect in a different factual situation involving a different legal issue. In that case, the Supreme Court rejected an attempt by respondent to utilize section 482 in order to tax income to a person who had not actually received the money and who was prohibited by law from engaging in the type of business which earned the income. In this case, the question is whether section 61 can be applied so as to move the incidence of taxation from a person who actually received the money and who appears to have performed the bulk of the services for which the money was paid, but who was prohibited by law from engaging in such services. Thus, we have the reverse of the factual situation which existed in First Security Bank, as well as the question of the applicability of another section of the Internal Revenue Code. Indeed, the Supreme Court itself recognized that it might deal differently with a case such as this. See Commissioner v. First Security Bank of Utah, supra at 401 fn. 11.
There is really no dispute as to the underlying facts herein so that the inhibitions that operate against disagreement by one who was not the trier of the facts are not present. The majority recites and does not dispute the “facts that petitioner consistently treated the proceeds as belonging to the corporations, that the costs of the sale of insurance were buried in the corporations’ general accounting systems without separate identification, that the sale of auto insurance played an important role in the sale of autos by Shaw Ford, and that Shaw Ford employees believed themselves to be working for the corporation rather than petitioner.” It then merely dismisses these facts as “ambiguous.” Having recognized that the illegality of corporate operation of the insurance business was not, in and of itself, sufficient to justify the taxability of the income to petitioner, rather than the corporations, the majority appears to hang its hat on the facts that the petitioner was involved in the corporate enterprises and that he continued to have the ultimate personal liability to the insurance companies.
I disagree with the majority analysis. It is clear that American and Shaw Ford in fact carried on the insurance activities. Their employees sold the insurance and shared in the commissions and handled all the claims. The corporations paid all the expenses; the customers’ premium checks were received and forwarded by the corporations to the insurance companies, the commission checks were deposited directly in the corporate bank accounts, and the right to the commissions as to Shaw Ford’s share of the business was used as collateral for that corporation’s bank loans. Petitioner’s participation was peripheral in his capacity as a corporate supervisory official. His personal liability, although direct in a technical legal sense, was in substance that of a guarantor of performance by the corporations.
There is no dispute that American and Shaw Ford were separate viable entities and entitled to be treated as such. Moline Properties v. Commissioner, 319 U.S. 436 (1943). Additionally, the majority holds — and correctly so — -that the corporations should not be viewed as donees of the commissions. Cf. Blassie v. Commissioner, 394 F. 2d 628 (C.A. 8, 1968), affirming a Memorandum Opinion of this Court; Kimbrell v. Commissioner, 371 F. 2d 897 (C.A. 5, 1967), affirming a Memorandum Opinion of this Court.
In my opinion, the substance of. the instant situation is that American and Shaw Ford performed all the services connected with the insurance and received the commissions in connection therewith. As a consequence, they, and not petitioner, should be taxable on the income represented by those commissions. The fact that the corporations may have been prohibited by law from engaging in the insurance business does not prevent this conclusion. See James v. United States, 366 U.S. 213, 219 (1961). Nor is the fact that the technical legal right to the commission income may have been vested in petitioner in and of itself sufficient to impose taxability on him. I disagree with Blassie v. Commissioner, supra, to the extent that it stands for the proposition that such a legal right is determinative. Moreover, m that case this Court found the stipulation of the parties significant and the burden of proof was on the respondent. Moke Epstein, Inc., 29 T.C. 1005 (1958), is also distinguishable on its facts.
Respondent has raised no issue as to the allocation to petitioner, under section 482, of a portion of the income of the corporation in light of the fact that, at least as to Shaw Ford,1 he received no salary from the corporation, and we express no opinion with respect thereto. Cf. Rubin v. Commissioner, 429 F. 2d 650 (C.A. 2, 1970), reversing and remanding 51 T.C. 251 (1968), on remand 56 T.C. 1155 (1971), affirmed per curiam 460 F. 2d 1216 (C.A. 2, 1972).
Quealy, J., agrees with this dissent.The record does not reveal whether petitioner received any salary from American during the taxable years in question.