Decedent did not have an ownership interest in companies.

• Author: Fortunato, Robert C.

The Tax Court held that based on the facts and circumstances a decedent, who had been actively and significantly involved in managing a group of companies, did not have an ownership interest in the companies at his death for estate tax purposes.

Background

Robert Fortunato (Bobby) was a colorful character and a talented manager and business strategist in the warehousing business, with a penchant for living the high life and a strong-willed personality that caused him to "seek and find trouble." After serving a six-year stint in Sing Sing prison, he went on to form a highly successful export business. However, due to financial misappropriation and ill-advised high-interest borrowing, the business failed, leaving Bobby deeply in debt. For a time afterward, Bobby essentially went into hiding at his parents' home, refusing to open a bank account or sign any documents to avoid his creditors.

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In 1984-1985, Anthony Fortunato, Bobby's younger and more responsible brother, started a container freight station (CFS) and bonded warehouse business in New Jersey called St. George Trucking and Warehousing (St. George NJ). Anthony's father and another of the Fortunato brothers, George, were co-investors. Because of Bobby's past experience and business acumen, Anthony brought him into the business. Bobby soon assumed de facto leadership of St. George NJ, but he held no business title and was not on the payroll. In order to pay Bobby for his work while keeping his role in the business secret from both his creditors and the government, St. George NJ made payments to a fictitious person, cashed the checks, and put the money in the company's safe for Bobby's use. Despite his substantial involvement in the business, Anthony and his father did not transfer any legal ownership interest in St. George NJ to Bobby.

At Bobby's instigation, Anthony (with several other investors) opened a subsidiary company in Southern California (St. George CA) to take advantage of the burgeoning West Coast import business. Soon after, Bobby moved to the area and took over all aspects of St. George CA's management. Under his leadership, St. George CA was extremely successful, and the company paid him handsomely (albeit clandestinely) for his efforts. Once again, Bobby held no official title in the company and did not have a legal ownership interest in it. However, at various points in time, Bobby held himself out as either the owner of St. George CA or a partner...