The opinion of the court was delivered by: JOSEPH H. RODRIGUEZ
This matter is before the court on the motion of plaintiffs James W. Upper and Carol A. Upper for summary judgment and on the cross-motion of defendant the United States for summary judgment. For the following reasons, the court will deny plaintiffs' motion for summary judgment and grant defendant's motion for summary judgment.
Plaintiffs James and Carol Upper filed an income tax return for the 1982 tax year on April 15, 1983, which reported a total income of $ 24,200.00. According to the attached W-2 form, that figure represented Carol Upper's wages during 1982 as an employee of Palm-Aire C.C. Inc. The Uppers also took a $ 12,473.00 deduction for home mortgage interest.
However, the Internal Revenue Service ("IRS") determined that $ 13,295.00 owing on the Uppers' home mortgage during 1982 was paid out of the funds of Jim Upper & Co. Inc., a corporation owned by the Uppers. The Uppers did not include this amount as personal income for 1982, but did deduct the interest portion of the $ 13,295.00 paid by the corporation on the mortgage. The IRS maintained that the $ 13,295.00 paid on the mortgage by the corporation was unreported personal income for 1982. Accordingly, the IRS issued a notice of deficiency to the Uppers. On February 3, 1986, the IRS made an assessment against the Uppers in the amount of $ 3,848.08, including tax, interest and penalty.
The entry of summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If a disputed fact exists that, under the controlling substantive law, might affect the outcome of the suit, then entry of summary judgment is precluded. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
In this case, there is no genuine issue as to the single material fact -- whether $ 13,295.00 owing on the Uppers' home mortgage during 1982 was paid out of the corporate funds of Jim Upper & Co., Inc. The Uppers admit in their pleadings that the mortgage payments were made out of the corporate checking account. The Uppers argue that they also deposited personal monies into the corporate checking account, but the fact remains that they never reported the $ 13,295.00 as personal income at any time, though they did deduct the interest portion of the mortgage payments from their personal income. This is a classic case of trying to eat your cake and have it, too.
There is also no doubt that the government is entitled to a judgment as a matter of law. The Internal Revenue Code provides that "gross income means all income from whatever source derived." 28 U.S.C. § 61(a). Amounts paid from corporate funds to cover personal expenses of a shareholder are clearly income as defined in § 61(a) where there is no evidence of an intention to repay the funds. See Silverman v. Commissioner, 28 T.C. 1061, 1064 (1957); aff'd, 253 F.2d 849 (8th Cir. 1958). There is no evidence of an intention to repay the $ 13,295.00 to the corporation in this case; therefore, the money should have been reported as personal income.
Accordingly, the court will deny the Uppers' motion for summary judgment and grant the government's cross-motion for summary judgment.
For the foregoing reasons,
IT IS ORDERED on this 7th day of March, 1995, that the motion of plaintiffs James W. Upper and Carol A. Upper for ...