Dean and his wife owned a
corporation. When the corporation was having some financial trouble, the
Deans transferred ownership of their house to the corporation.
They continued to live in
The IRS found that the fair
rental value of the house should be included in Dean's gross income.
Basically, the IRS was
saying that the corporation was letting Dean live there for free, and so
the rent Dean wasn't paying was like getting income from the corporation.
The Tax Court found for the
IRS. Dean appealed.
The Appellate Court affirmed.
The Appellate Court found
that the house was legally the property of the corporation. So when the
corporation let Dean live there rent free, that constituted a gain for
Dean, and should be considered gross income.
The fact that Dean owned
the corporation was immaterial.
Contrast this case to Helvering
v. Independent Life Ins. Co. (292
U.S. 371 (1934)).
In Independent, the corporation was using the building they
owned for their own office, and they did not have to pay taxes on what
they would have earned had they rented out the building to someone else.