Brooke v. United States

Physician C.P. Brooke (plaintiff) irrevocably deeded his medical-office property and other rental property to his six school-aged children, then had a state court appoint him their legal guardian; without a written lease, he paid himself, in his capacity as guardian, reasonable rent for his own office use, and used all rental income (including from other tenants) for his children's insurance, education, and other expenses. The federal tax commissioner (defendant) argued the transfer lacked a business purpose, so Brooke's rent payments couldn't be deducted, and that the rental income used for the children's care should count as Brooke's own taxable income since he was personally obligated to support them. Brooke sued for a refund and won in district court; the government appealed.