                        T.C. Memo. 2009-136



                      UNITED STATES TAX COURT



                 SOLOMON WINDHEIM, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23188-07.                Filed June 10, 2009.



     Solomon Windheim, pro se.

     Lisa P. Lafferty, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   The issue for decision concerns the taxation

of income from a partnership in which petitioner holds legal

title but of which he denies that he is the beneficial owner.
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Respondent determined Federal income tax deficiencies and

additions to tax against petitioner as follows:

                                   Additions to Tax
Year       Deficiency   Sec. 6651(a)(1)   Sec. 6651(a)(2)    Sec. 6654

2000         $26,790         $6,028            $6,698         $1,441
2001          14,075          3,167             3,519            557
2002          20,904          4,703             4,076            699
2003          15,870          3,571             2,142            409

       After concessions, the issues for decision are:

       (1)   Whether petitioner is liable for tax on partnership

income from Martinique Realty Associates, L.P. (Martinique),

during the years at issue.     We hold petitioner is not liable;

       (2)   whether petitioner is liable for additions to tax for

failure to file under section 6651(a)(1), failure to pay under

section 6651(a)(2), and failure to pay estimated taxes under

section 6654(a) for the years at issue.1       We hold petitioner is

not liable.

                            FINDINGS OF FACT

       Some of the facts have been stipulated and are so found.

The stipulation of facts, the accompanying exhibits, and the

stipulation of settled issues are incorporated herein by this

reference.     Petitioner resided in Montreal, Quebec, Canada, at

the time of filing his petition.



       1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Amounts are rounded to
the nearest dollar.
                                   - 3 -

        During the years at issue petitioner held legal title to an

18.879-percent limited partnership interest in Martinique.

Martinique is a limited partnership that owns real estate in New

York.2      Petitioner acquired legal title to the Martinique

partnership interest from his late father, Joseph Windheim, in

1976.

        In 1959 Joseph Windheim formed Les Promotions Taillon

Limitee (Taillon).3      Before 1981 Joseph Windheim was Taillon’s

sole shareholder.       At the time of Joseph Windheim’s death in 1981

he had transferred all of his Taillon stock to petitioner and

petitioner’s sister.      From 1981 through 2003 petitioner and his

sister each owned 50 percent of Taillon.       Petitioner served as an

officer and director of Taillon from at least 1981 through 2003.

Taillon was a family investment management company with

investments in securities and real estate.       Taillon maintained a

bank account (the Taillon account) with Toronto Dominion Bank (TD

Bank).       Before the years at issue petitioner treated the Taillon

account as a family bank account with his mother, sister, and

wife.       The family members used the Taillon account to pay their

personal living expenses and routinely deposited their




        2
      Martinique was formerly known as Martinique Twelve Kew
Gardens Corp.
        3
      Taillon was originally incorporated as Efficiency
Development, Ltd., and changed its name in 1967.
                                - 4 -

personal funds into the account.    During this time petitioner did

not have a personal bank account.

     Over time disputes arose between petitioner and his sister

over the management of Taillon.    Petitioner instituted a lawsuit

in Canada to liquidate Taillon.    In the liquidation action

petitioner accused his sister of misappropriating Taillon’s

assets and excluding him from Taillon’s business and operations

beginning in 1995.    The court found that petitioner and his

sister had agreed to divide Taillon’s management in 1995, and

after 1995 the sister managed the real estate investments and

petitioner managed the stock portfolio, which subsequently became

worthless.    The Canadian court denied petitioner’s request to

liquidate Taillon.

     Family disputes continued after 1995.    Petitioner’s sister

and mother continued to use the Taillon account to cash checks.

When petitioner’s mother and sister made deposits into the

Taillon account, they would withdraw the deposits shortly

thereafter. During this time the account generally maintained a

nominal balance.    Petitioner remained an authorized signatory on

the Taillon account but did not use the account during the years

at issue.    Taillon did not pay petitioner’s personal expenses

during the years at issue.

     In 1998 petitioner brought an action against TD Bank in a

Canadian court (the Canadian lawsuit) for negligently honoring
                                 - 5 -

three distribution checks from Martinique totaling $149,635.    The

checks were payable to petitioner in care of his mother.

Martinique mailed the checks to petitioner’s mother’s address

consistent with past practice.    Petitioner’s sister signed her

mother’s name to endorse the checks, deposited the checks into

the Taillon account, and shortly thereafter withdrew the

deposited funds.   Before discovering the three distribution

checks giving rise to the Canadian lawsuit, petitioner was not

aware that Martinique issued distribution checks in his name in

care of his mother.   TD Bank impleaded petitioner’s mother,

sister, and Taillon as defendants in the Canadian lawsuit.

     In response to the Canadian lawsuit petitioner’s mother

filed a lawsuit in New York against petitioner and Martinique to

prohibit Martinique from issuing distribution checks to

petitioner.   In December 2000 the New York court awarded

petitioner’s mother a constructive trust over distributions paid

with respect to the partnership interest to which petitioner held

legal title and ordered Martinique to pay all distributions to

petitioner’s mother until entry of a decision in the Canadian

lawsuit.   The New York court further ordered Martinique to follow

the Canadian court’s decision regarding distributions.    The New

York court found that petitioner’s father transferred the

Martinique partnership interest to petitioner’s name for

convenience only because petitioner was living in New York at the
                                - 6 -

time.   The New York court found that petitioner’s mother and

sister had an interest in the Martinique distribution checks but

did not expressly address who held beneficial ownership of the

partnership interest.

     In July 2001 the Canadian court determined that petitioner

had a beneficial interest in Martinique.    The Canadian court

further held that TD Bank negligently honored the Martinique

checks and that petitioner was the owner of the proceeds from the

three checks.    The Canadian court ordered TD Bank to pay the

proceeds of the three distribution checks to petitioner and

ordered petitioner’s mother and sister to indemnify TD Bank for

the payment.    TD Bank, Taillon, petitioner’s mother, and his

sister appealed.    During the pendency of the appeal Martinique

continued to pay distribution checks to petitioner’s mother

pursuant to the New York court order.

     Following the Canadian court’s decision petitioner attempted

to transfer beneficial ownership of the Martinique partnership

interest to his minor child and legal title to his wife.

However, Martinique refused to transfer ownership of the

partnership interest because the Canadian lawsuit was still

pending.   In November 2003 the Canadian appellate court reversed

the lower court’s decision and held that TD Bank was not

negligent in honoring the checks because petitioner’s sister was

authorized to conduct transactions with respect to the Taillon
                               - 7 -

account on the basis of the family’s past practices.   The

Canadian appellate court did not address who held beneficial

ownership of the Martinique partnership interest.    The question

of beneficial ownership was not material to the Canadian

appellate court’s decision because the lawsuit was against TD

Bank and not petitioner’s mother or sister.   After the Canadian

appellate court decision, petitioner contacted an attorney

regarding an action against his sister.   The attorney informed

petitioner that the statute of limitations barred any further

action.   Petitioner did not initiate any legal action to redirect

payment of the Martinique distribution checks or to recover past

distributions paid to his mother.

     For each year at issue Martinique issued a Schedule K-1,

Partner’s Share of Income, Credits, Deductions, etc., in

petitioner’s name in care of his mother with respect to the

partnership interest to which petitioner held legal title.

Petitioner did not file an income tax return or pay income tax

for any year at issue.

                              OPINION

     A partner must take into account his distributive share of

each item of partnership income, gain, loss, deduction, and

credit when determining his individual income tax.   Sec. 702(a).

Each partner is taxed on his distributive share of partnership

income regardless of whether the income is actually distributed.
                                - 8 -

Vecchio v. Commissioner, 103 T.C. 170, 185 (1994); sec. 1.702-

1(a), Income Tax Regs.

       Although petitioner holds record title to the Martinique

partnership interest, he contends that he was not the beneficial

owner for Federal tax purposes during the years at issue.

Beneficial ownership, not legal title, determines ownership for

Federal income tax purposes.    Ragghianti v. Commissioner, 71 T.C.

346, 349 (1978), affd. without published opinion 652 F.2d 65 (9th

Cir. 1981); Pac. Coast Music Jobbers, Inc. v. Commissioner, 55

T.C. 866, 874 (1971), affd. 457 F.2d 1165 (5th Cir. 1972).       The

determination of the beneficial ownership of a partnership

interest is made at the partner level.      Grigoraci v.

Commissioner, T.C. Memo. 2002-202.      Beneficial ownership is not a

partnership item subject to the partnership unified audit and

litigation procedures enacted by the Tax Equity and Fiscal

Responsibility Act of 1982, Pub. L. 97-248, sec. 402, 96 Stat.

648.    Id.

       Beneficial ownership is determined by actual command over

the property or enjoyment of its economic benefits.        Hang v.

Commissioner, 95 T.C. 74, 80 (1990); Cepeda v. Commissioner, T.C.

Memo. 1994-62, affd. without published opinion 56 F.3d 1384 (5th

Cir. 1995).    In determining beneficial ownership the Court

considers who has the greatest number of attributes of ownership.

Ragghianti v. Commissioner, supra at 349; Baird v. Commissioner,
                                - 9 -

68 T.C. 115, 124 (1977).    Relevant factors include receipt of

economic benefits from the partnership interest, control over the

disposition of the partnership interest, obligations and risks

with respect to the partnership interest, and the manner in which

the parties treat the partnership interest.    See Graham v.

Commissioner, T.C. Memo. 2005-68, affd. 257 Fed. Appx. 4 (9th

Cir. 2007); see also Grodt & McKay Realty, Inc. v. Commissioner,

77 T.C. 1221, 1237-1238 (1981).

     We hold that petitioner was not the beneficial owner of the

Martinique partnership interest during the years at issue.

Petitioner did not have the ability to direct or control the

disposition of the partnership interest.    He could not alienate,

encumber, or receive assets in redemption of the partnership

interest as respondent contends.    Although the New York court

order created a constructive trust over only the distribution

checks and not the partnership interest, the New York order

effectively prevented petitioner from transferring legal title

and beneficial ownership.    After entry of the New York order,

petitioner requested that Martinique transfer legal title to his

wife and beneficial ownership to his daughter.    Martinique

refused to honor the request because the ownership issue was not

resolved in the Canadian lawsuit, which was on appeal.

     In addition, petitioner did not receive an economic benefit

from the partnership interest during the years at issue.
                              - 10 -

Martinique issued the distribution checks to petitioner’s mother.

For a significant portion of the years at issue, December 2000 to

November 2003, the New York court order directed payment of the

distribution checks to petitioner’s mother.    Petitioner credibly

testified that he did not receive any distributions from

Martinique during the years at issue.   We find that Martinique

mailed any distributions made either before or after the New York

order to petitioner’s mother in accordance with Martinique’s past

practice.   There is no evidence in the record that petitioner’s

mother deposited the distribution checks she received during the

years at issue into the Taillon account or that petitioner

benefited in any way from the distributions.   Petitioner credibly

testified that he did not use the Taillon account to pay his

personal expenses during the years at issue.   Petitioner no

longer lived at a family-owned residence and was on increasingly

bad terms with his sister.   In the light of the family disputes

and ongoing litigation, it is reasonable to assume that

petitioner’s mother and sister did not deposit the distribution

checks into the Taillon account.   We acknowledge that

petitioner’s argument that he is not the beneficial owner of the

partnership interest is inconsistent with his positions in
                              - 11 -

previous lawsuits.4   Despite this inconsistency, we find

petitioner’s testimony to be credible.

     Respondent argues that the lower court in the Canadian

lawsuit was the only court to decide the question of beneficial

ownership.   The Canadian lower court decision does not preclude

petitioner from contesting his beneficial ownership for Federal

tax purposes because that court decision was reversed on appeal.

See Hudson v. Commissioner, 100 T.C. 590, 593 (1993) (collateral

estoppel does not apply to a trial court's conclusions of law or

findings of fact when an appellate court has vacated, reversed,

or set aside the trial court’s decision), affd. without published

opinion 71 F.3d 877 (5th Cir. 1995).   The Canadian appellate

court did not address who was the beneficial owner of the

partnership interest.   Petitioner argues that the New York court

order still controls payment of the distribution checks to his

mother because the Canadian lawsuit did not resolve the ownership

issue or the right to receive the Martinique distributions.

Respondent argues that petitioner could have pursued further

legal action to enforce his ownership rights but instead decided



     4
      Respondent also points out an inconsistency in petitioner’s
trial testimony that Taillon stopped paying his personal expenses
in 1995 and the findings of the Canadian court in the liquidation
action that he used the Taillon account to pay his personal
expenses at least until 1998. In its May 2003 decision denying
liquidation the Canadian court made no findings with respect to
the years at issue. We do not find this discrepancy to be
significant for purposes of the years at issue.
                              - 12 -

to allow his mother to continue to receive the Martinique

distributions.   Irrespective of whether petitioner could have

initiated further legal action, we find that petitioner was not

the beneficial owner during the years at issue.

     Petitioner’s late father transferred legal title of the

partnership interest to petitioner for purposes of convenience

because petitioner was living in New York at the time.   See Hook

v. Commissioner, 58 T.C. 267, 276 (1972) (attorney held record

ownership of stock as an accommodation to his client).   At no

time has the family treated petitioner as the beneficial owner of

the partnership interest.   Nor has petitioner acted as the

beneficial owner of the partnership interest, except during the

unsuccessful litigation and his unsuccessful attempt to transfer

the partnership interest.   Petitioner’s mother received the

partnership distributions both before and during the years at

issue.   While petitioner may have benefited from the

distributions in prior years because they were deposited into the

Taillon account, we find that petitioner did not receive an

economic benefit from the distributions during the years at

issue.

     Accordingly, we hold that petitioner is not the beneficial

owner of the Martinique partnership interest and is not subject

to tax on the partnership income attributable to the partnership

interest.   Petitioner is not liable for the additions to tax
                             - 13 -

because respondent has not established that there is an

understatement or underpayment of tax for the years at issue.

See sec. 7491(c); Rule 142(a).

     To reflect the foregoing,


                                        Decision will be entered

                                   for petitioner.
