PELLAR V. COMMISSIONER
25 T.C. 299 (1955)
NATURE OF THE CASE: IRS (D) determined a tax deficiency in that Pellar (Ps) received
income from the construction of their residence because they paid less than the cost of its
construction to the contractor. Ps petitioned the court.
FACTS: Ps, husband and wife, entered into a contract for a house to be built for $40,000.
Because of his friendship for and pleasant business relationships with Sam Briskin, the
wife's father, and because Briskin had recommended his organization to others, together with
his hope of future business stemming from Briskin and his recommendations, it was builder's
intention to build the house without profit. There was no written agreement between Ps and
the builder. It was eventually determined that the cost would actually be about $80,000. The
builder reaffirmed that he would stand by his verbal agreement. Letters were exchanged
wherein Ps would only pay $40,000. The total cost of construction of the house was
$101,936.52. In August 1949, the fair market value of the house was $70,000. Ps spent
$55,000 total including prepping the land for construction. D determined that P had received
$15,000 in income. Ps filed this case.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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