Laurence M. And Phyllis W. Carlson v. Commissioner of Internal Revenue

The issue is whether the Tax Court held correctly that taxpayer did not manufacture or produce the apple bins he leased to a fruit company, and that he was not entitled to an investment tax credit for the bins. Taxpayer contends that he exercised sufficient control over the bins’ assembly to be considered to have manufactured them, and that he is entitled to the tax credit because he leased the bins for valid business reasons. We affirm.

FACTS

Though actively involved in the apple industry, Carlson was primarily engaged in the practice of law during the years in question. He leased apple bins to Welch Apples, Inc. (Welch) during the years 1973-1976.

The partly assembled bins were ordered by Welch from a third party and delivered to Welch’s facilities. Assembly was completed by workers selected by Welch’s general manager. Those workers received no instructions from Carlson, finished assembly mainly at Welch’s facilities, and were paid directly by Welch.

Carlson reimbursed Welch for costs and expenses associated with assembling the bins. He also allegedly asked Welch’s general manager for the names of competent workers and instructed him to have them do the assembly work.

The…