The opinion
Nims, J., dissenting: While I sympathize to some extent with the majority’s efforts to rescue these petitioners from a quandary not entirely of their own making, but rather one created by the concept of usury rendered archaic by the cold reality of contemporary economics, nevertheless I find it inappropriate to here sanction an end-run around Moline Properties and its holding that so long as the purpose of incorporation is the equivalent of business activity, or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity. Moline Properties v. Commissioner, 319 U.S. 436 (1943). The Courts have been confronted with just such an effort by the Commissioner in the one-person corporation arena, for example, where the Commissioner purports to recognize the legitimacy of the corporation but then proceeds to vitiate its effectiveness as a separate taxable entity by seeking to reallocate all of its income to the sole shareholder under the anticipatory assignment of income doctrine. See Rubin v. Commissioner, 429 F.2d 650 (2d Cir. 1970), revg. 51 T.C. 251 (1968). It may well be that, as posited by Emerson, 1 a foolish consistency is the hobgoblin of little minds, but here consistency is not foolish and judicial even-handedness requires it.
It seems indisputable, in the case before us, that to avoid the Louisiana usury law there had to be some substance to the corporation’s activities beyond the mere functioning as nominee or agent for the actual owners. 2 In this case, the corporation’s activities went far beyond the mere holding of title: as the findings of fact indicate, the corporation took title to the property, executed a mortgage note for a construction loan, contracted for the construction of the property, and executed a note and mortgage for the permanent financing.
True, the corporation and the partnership entered into various side agreements purporting to spell out the relationship (nominee and later agent) of the corporation with the partners, and the officers of the various lenders acquiesced, if they did not actually participate, in the usury-avoidance charade, but the corporation was held out to the world by recordation of title and mortgage documents, at least, as a viable independent corporate entity. To have publicly revealed an agency or nominee status would have completely destroyed the usury-law-avoidance strategem.
In short, I would hold that these taxpayers cannot have it both ways: either the corporation must be recognized as a viable entity engaged in business, with all the tax benefits and burdens attendant thereupon, or its relationship with the partnership must be exposed as a transparent artifice, i.e., a sham, designed solely to thwart the law of Louisiana, an effort upon which this Court should seriously reflect before lending its support.
As the Supreme Court observed at the conclusion of Moline Properties, "the question of agency or not depends upon the same legal issues as does the question of identity previously discussed.” I think the activities of the corporation in this case mandate the conclusion that it is to be dealt with as a separate, viable entity, and that the question of agency thereby becomes subsumed.
Furthermore, there is no real substantive distinction between this case and Strong v. Commissioner, 66 T.C. 12 (1976) (Reviewed by the Court). If Strong was wrongly decided, then, at least, we should say so.
Fay, Hall, and Chabot, JJ., agree with this dissenting opinion. Ralph Waldo Emerson, Essays, First Series (1841).
For example, financial institutions typically use street name nominees for convenience in holding registered securities, but the true ownership of the securities remains unquestioned. That is not our case.