Sparks Nugget, Inc. v. Commissioner of Internal Revenue

Appellants Sparks Nugget, Inc. (Sparks Nugget), and R. L. and Flora Graves (sometimes referred to as the Graves), taxpayers whose petitions for redetermination of the Commissioner’s assessments of additional taxes were consolidated for trial, have appealed to this court to reverse the Tax Court’s decision sustaining the said assessments. Jurisdiction to rule on the merits of this appeal has been conferred under Section 7482 of the Internal Revenue Code of 1954.

During 1958 and 1959, R. L. Graves acquired six and one-half lots located in Sparks, Nevada, at a cost of $253,609.04. On June 3, 1959, he transferred title to the lots to Sparks Development Company (Sparks Development), a Nevada corporation wholly owned by the Graves, for cash, an assumption of liabilities and a note, totaling $253,253.05, and for additional Sparks Development common stock with a par value of $20,000. Upon acquiring title to the lots, Sparks Development borrowed $150,000 from the Nevada Bank of Commerce, of which $115,000 was secured by a first deed of trust on several of the lots.

In June of 1959, Sparks Development leased the six and one-half lots to Challenger, Inc. (Challenger), a Nevada corporation…