## Facts

- Real estate partnerships in Kentucky developed apartment complexes and sought construction and permanent financing.
- Kentucky usury law limited interest rates for noncorporate borrowers; lenders required use of a corporate nominee as nominal debtor and record titleholder to obtain higher-rate financing.
- A corporation wholly owned by Bollinger took record title to the properties and signed mortgage and loan documents to satisfy lender requirements.
- Contemporaneous written agreements stated the corporation would hold title solely as the partnerships’ nominee and agent to secure financing; the partnerships were the principals and owners and had sole control and responsibility for the complexes.
- In practice, lenders, contractors, managers, employees, and tenants treated the partnerships as the owners; the corporation did not operate the properties or bear benefits and burdens of ownership beyond holding title and signing financing documents.
- Income and losses were reported on the partnerships’ returns and passed through to the partners’ individual returns.
- The IRS disallowed partners’ claimed losses, asserting the corporation was the owner for federal income tax purposes because it held legal title.
- The Tax Court held the corporation was a nominee and agent and attributed ownership and losses to the partnerships; the Sixth Circuit affirmed.

## Issues

1. Whether a corporation that holds record title and signs financing documents can be treated as a genuine agent (not the taxable owner) for federal income tax purposes when it acts solely as a nominee for partnerships.
2. What evidentiary conditions are sufficient to establish a genuine agency relationship in the corporation–owner context, without requiring arm’s-length dealing or an agency fee.

## Decision

- The Supreme Court unanimously affirmed.
- The partnerships, not the corporation, were the owners of the apartment complexes for federal income tax purposes.
- The corporation was respected as a genuine agent and nominee where the agency relationship existed in both form and substance.
- The Court rejected the Commissioner’s view that prior precedent required arm’s-length dealing and payment of an agency fee to recognize corporate agency.

## Legal Principles

- A corporation is generally a separate taxable entity, but it may be treated as an agent of its owners when the agency is genuine and supported by clear evidence.
- The genuineness of a corporation’s agency for its owners is adequately established where:
  - the agency with respect to a particular asset is set forth in a written agreement at the time the asset is acquired;
  - the corporation functions as agent and not principal with respect to the asset for all purposes; and
  - the corporation is held out as agent, not principal, in all dealings with third parties relating to the asset.
- Merely labeling a corporation an “agent” is insufficient; substance controls, and the arrangement must reflect the principal’s ownership burdens and benefits and the agent’s limited role.
- Prior precedent does not impose categorical requirements of arm’s-length terms or payment of an agency fee as prerequisites to recognizing corporate agency.

## Conclusion

The Court held that when a wholly owned corporation holds title only as a documented nominee and consistently acts and is treated as an agent, the principal may be treated as the property’s owner for federal income tax purposes and may claim the related tax attributes, including losses.


Comm’r v. Bollinger, 485 U.S. 340 (1988)