Rev. Rul. 55-234

Advice has been requested whether a corporation is taxable upon the income from business transactions which for convenience are conducted in its behalf in the name of a sole proprietor.

A domestic corporation engaged in foreign trade is unable to make direct shipments of goods into the X country under the import regulations of such country. In order to execute the orders received from the X country and to facilitate doing business under the import regulations the corporation entered into a contract with one of its officers in which he undertook, under the trade name of a sole proprietorship, to act without compensation of any kind as the shipping agent for the corporation. The sole proprietorship has no capital or operating expenses. All shipments are financed by the corporation and all work is performed by the corporation employees. All financial transactions are reflected in the books of account of the corporation. The sole proprietor maintains no accounting records and renders no account to the corporation except to act as a conduit for funds belonging to the corporation. Under the contract the sole proprietor agreed to transfer to the corporation all profits realized from the business transacted with the X country, while the corporation agreed to be solely responsible for all claims and losses arising therefrom.

On the facts presented, from which it is apparent that the purported sole proprietorship is purely a nominal participant in the business transactions, it is held that the income and expenses involved are those of the corporation and are properly to be reported in its returns rather than in those of its officer