Harlan E. Baxter and Imogene Baxter v. Commissioner of Internal Revenue, Lovell J. Proby and Eva M. Proby v. Commissioner of Internal Revenue

Two decisions of the Tax Court are combined for review. Taxpayers Harlan and Imogene Baxter seek to reverse a decision in favor of the Commissioner, and Taxpayers Lovell and Eva Proby seek to sustain a decision in their favor against the Commissioner. The Commissioner seeks review of the Proby decision only by way of a protective petition, i. e., asking reversal of Proby only if the Baxter decision is reversed.

The facts, substantially as found by the Tax Court, are summarized as follows:

Between 1945 and 1959, Proby developed a profitable business selling traffic-light systems to municipal governments in the Pacific Northwest. Proby’s most valuable contract was a franchise, personal to himself, and cancelable on thirty days’ notice, under which Proby had the exclusive right to sell Eagle Signal Company equipment in the states of Oregon and Washington. This franchise was, by its terms, “nontransferable.”

In 1959, Proby employed Baxter as a salesman. Baxter was a former traffic engineer with the City of Eugene, Oregon, and was widely acquainted with traffic engineers in other cities in the region. Proby, during this period, began developing an orchard, and devoted substantial…