Bonaire Development Company, a California Corporation, Successor by Merger to Branjon, Inc. v. Commissioner of Internal Revenue

The principal issue on this appeal is the deductibility by a cash basis taxpayer of management fees it voluntarily paid in advance for services to be rendered beyond the taxable period. Appellant is transferee of the assets of Branjon, Inc., which was the transferee of the assets of N & V Realty Corporation (“N & V” or “N & V Realty”). Appellant is therefore liable for the deficiency in income taxes levied by the Commissioner against N & V Realty, the original taxpayer.

N & V Realty’s sole asset was a shopping center. In December 1963, N & V entered into a contract with Lazarus Realty Co. under which Lazarus Realty would manage the shopping center property for a management fee of $24,000 a year, payable monthly at the rate of $2,000 per month. Sometime during the first five months of 1964, N & V paid $24,000 to Lazarus for the management fees for the calendar year. Branjon, Inc. purchased all of the stock of N & V Realty in April or May, 1964, and on May 19, 1964, N & V was completely liquidated and its assets were distributed to Branjon. N & V prepared its tax returns on a calendar year basis using the cash receipts and disbursements method of accounting. On its tax return for…