Source: https://openjurist.org/223/f2d/103/united-states-v-d-snow-k
Timestamp: 2018-03-20 15:44:17
Document Index: 376736948

Matched Legal Cases: ['§ 182', '§ 182', '§ 183', '§ 183', '§ 181', '§ 22']

223 F. 2d 103 - United States v. D Snow K
223 F2d 103 United States v. D Snow K
223 F.2d 103
We were informed at oral argument (and the partnership return reflects) that the partnership was on the accrual accounting basis.  The appellees reported on the cash receipts basis.  Although appellees were on the cash receipts tax accounting basis, the lack of actual receipt presents no problem because of the language of 26 U.S.C. § 182:
26 U.S.C. § 182, referred to above, sets forth:
'In the Swiren case (183 F.2d 660) the retiring partner was paid, at the time of his withdrawal from the firm, a sum coinciding with the amount of fees uncollected at that time by his firm, plus his share in other assets of the partnership.  We pointed out that 'uncollected fees for work in process not yet completed had not been transformed on the date of taxpayer's sale of his interest into gross income within the meaning of Sec. 183(b)(2), Internal Revenue Code, 26 U.S.C.A. § 183(b)(2).'  183 F.2d 656, 660.  Those fees were for personal services and we particularly observed that 'Taxpayer was on a cash receipts basis, as was the partnership.'  At the same time we there said: '* * * taxpayer's partnership interest as a whole was a capital asset within Sec. 117 of the Internal Revenue Code * * *.'  183 F.2d 660.'  (Emphasis added.)
The court in the Meyer case appears to rely upon its language in the prior Swiren case-- the Meyer case was substantially different in that the partnership in the Meyer case was on the accrual tax accounting basis and uncollected fees would be "gross income within the meaning of Sec. 183(b)(2), Internal Revenue Code, 26 U.S.C.A. § 183(b)(2)."
The Fisher case reviews the touchstone cases in this field of taxation, including: Helvering v. Horst, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75; Hort v. Commissioner, 313 U.S. 28, 61 S.Ct. 757, 85 L.Ed. 1168; and Rhodes' Estate v. Commissioner, 6 Cir., 131 F.2d 50.  We believe that these cases support the conclusion we reach.3  It has been the rule since Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731, that income tax cannot be escaped by a tax payer's assigning to another the right to receive ordinary income.  In the case at bar the partnership had approximately.$390,000 of ordinary income for the fiscal year ending on February 28, 1945.  It is not contested that appellees' share of the partnership's ordinary income for the fiscal year ending February 28, 1945, was something over $97,000.  Since a partnership is not a tax-paying entity, the partners pay tax upon their share of the partnership earnings, 26 U.S.C. § 181.
The appellants have urged, and we agree, that the lower court erred in refusing to hold that a portion of the receipts (i.e., the amount equal to John Snow's share of the partnership's net earnings for the partnership year from March 1, 1944, to February 28, 1945) should be taxed as ordinary income under Sections 22 and 182 of the Internal Revenue Code, 26 U.S.C. §§ 22, 182, rather than as capital gain under Section 117.