Brockman Building Corporation, Inc., a Corporation v. Commissioner of Internal Revenue

The petition for review of the determination of the Tax Court involves deficiencies in income, declared value excess profits tax and excess profits tax for the taxable years 1942 to 1949, inclusive.

The question presented is whether the Tax Court correctly held that payments made by the sublessee of the taxpayer, through the medium of a trust, directly to the stockholders and bondholder-creditors of Brockman Building Corporation, petitioner here, constituted part of the rental owing by the sublessee under a percentage of sales agreement and were income to the taxpayer.

In 1933, the Security-First National Bank of Los Angeles, owner, as trustee under a trust established in 1922, leased the Brockman Building to petitioner for twenty-eight years. The lessee did not occupy the premises, but subleased them. In the lease, it was provided petitioner would pay to the Bank all gross receipts, less certain listed operating expenses. The lease was subject to cancellation if net rentals from March 1, 1933, to July 31, 1942, did not average $3,500.00 per month, but, if that average had been attained, the net rental after July 31, 1942, would be fixed at $3,500.00 per month and petitioner was…