Source: http://openjurist.org/227/f2d/399/hulbert-v-commissioner-of-internal-revenue
Timestamp: 2016-12-11 03:40:23
Document Index: 177896345

Matched Legal Cases: ['§ 218', '§ 116', '§ 1141', '§ 1141', '§ 22', '§ 22']

227 F2d 399 Hulbert v. Commissioner of Internal Revenue | OpenJurist
227 F. 2d 399 - Hulbert v. Commissioner of Internal Revenue HomeFederal Reporter, Second Series 227 F.2d.
227 F2d 399 Hulbert v. Commissioner of Internal Revenue 227 F.2d 399
Bruce W. HULBERT, Petitioner,
Charles H. EDWARDS, Petitioner,
No. 11354.
Robert Anderson Littleton, Washington, D. C., for petitioners.
H. Brian Holland, Asst. Atty. Gen., Marvin W. Weinstein, Atty., U. S. Dept. of Justice, Washington, D. C., for respondent.
Petitioners ask us to review1 the decisions of the Tax Court holding that they are liable for deficiencies in individual income tax for the taxable year 1946, arising from their alleged receipt of $91,220.94 as ordinary income in the transaction hereinafter referred to.
Century Biscuit Company2 was a copartnership consisting of Charles H. Edwards and his wife and Bruce W. Hulbert and his wife, each having a one fourth interest.
We now set forth the essential facts.3
Following protracted negotiations, Century, on March 26, 1946, entered into a written contract for the sale of the partnership business, including a leasehold of its business premises, to Kungsholm Baking Company.4 This contract was in the form of a letter addressed by Kungsholm to the copartners of Century, accepted on its face by the four partners. The contract showed that the sale was made upon the basis of the January 26, 1946 balance sheet of the firm. It provided that the firm "shall operate" the business for the benefit of the buyers from "January 26, 1946" to the date of consummation of the agreement, which was fixed by the agreement as "on or before June 26, 1946" but not thereafter. The contract designated this period as the "Buyer's Business Period." It further provided that one half of the net profits of the business from January 26, 1946 to the date of consummation of the agreement, after deducting federal income taxes computed on the profits at the rate of 38 per cent and Indiana gross income taxes, would belong to Kungsholm. The other half of said net profits would constitute a part of the purchase price of the above described leasehold, and would be paid by Kungsholm to Century.
The business operated by the sellers during the Buyer's Business Period and the net profits5 accruing therefrom were the business and the profits of the sellers. The fact that their agreement required them to deliver that business and those profits to Kungsholm does not detract from the fact that, by use of their own property, the sellers as a firm made profits and that as a matter of law the partners became liable for income taxes on such profits in the year when they accrued.
In Heiner v. Mellon, 304 U.S. 271, at page 281, 58 S.Ct. 926, at page 931, 82 L.Ed. 1337, speaking of income tax under § 218(a) of the Revenue Act of 1918, the court said:
To the same effect see Harriss v. Commissioner of Internal Revenue, 2 Cir., 143 F.2d 279, 281; Ruprecht v. Commissioner of Internal Revenue, 5 Cir., 39 F. 2d 458, 459 and 47 C.J.S., Internal Revenue, § 116, p. 246. In Scherf v. Commissioner of Internal Revenue, 5 Cir., 161 F.2d 495, at page 497, the court said:
By their contract, the Century partners undertook to dispose of the income of the partnership during the Buyer's Business Period. The power to dispose of income is the equivalent of ownership of it and the exercise of the power to procure its payment to another is within the reach of the statute6 taxing income "`derived from any source whatever.'" Harrison v. Schaffner, 312 U. S. 579, 580, 61 S.Ct. 759, 760, 85 L.Ed. 1055. To the same effect are Lucas v. Earl, 281 U.S. 111, 114, 50 S.Ct. 241, 74 L.Ed. 731; Galt v. Commissioner of Internal Revenue, 7 Cir., 216 F.2d 41, 46 and 47, and Pleason v. Commissioner of Internal Revenue, 7 Cir., 226 F.2d 732.
1. Pursuant to § 1141(a) of the Internal Revenue Code of 1939, as amended, 26 U. S.C.A. § 1141(a).
2. Hereinafter referred to as "Century."
3. A more detailed statement of the facts will be found in 12 T.C.M. 1443, C.C.H. Dec. 20,056.
4. Hereinafter referred to as "Kungsholm."
5. $91,220.94.
6. § 22(a) Internal Revenue Code of 1939, as amended, 26 U.S.C.A. § 22(a).