Legal Document

337 U.S. 733 69 Supreme Court Reporter 1210 93 L.Ed. 1659 COMMISSIONER OF INTERNAL REVENUEv.CULBERTSON et al. Number 313. Argued Feb. 7, 1949. Decided June 27, Mr. Arnold Raum, Washington, D.C., for petitioner. [Argument of Counsel from page 734 intentionally omitted] Be jamin L. Bird, Fort Worth, Tex., respondents. Chief Justice VINSON delivered the opinion Court. 1 This case requires our further consideration family partnership problem. The Commissioner Internal Revenue ruled that entire income a allegedly entered into by respondent and his four sons must be taxed to respondent,1 Tax sustained determination. Appeals Fifth Circuit reversed. 168 Federal Reporter, 2nd Series 979. We granted certiorari, 335 883, 235, consider Commissioner's claim principles versus Tower, 1946, 327 280, 66 532, 90 670, 164 American Law Reports 1135, Lusthaus Commissioner, 293, 539, 679, have been departed in this other courts appeals decisions. 2 Respondent taxpayer is rancher. From 1915 until October 1939, he had operated cattle business with R. S. Coon. Coon, who numerous interests Southwest largely financed partnership, was 79 years old 1939 desired dissolve because ill health. To end, bulk herd sold until, year, only about 1,500 head remained. These were all registered Herefords, brood or foundation herd. Culbertson wished keep these approached Coon an offer $65 head. agreed sell at price, but upon condition would undivided one-half interest same price. His reasons imposing intense maintaining Hereford strain which developed, conviction too carry on work alone, personal boys. Culbertson's enthusiastic proposition, so thereupon bought remaining $99,440. Two days later boys, following day they gave their father note $49,720 4 per cent due one year date. Several months new $57,674 executed boys replace earlier note. increase amount covered purchase properties formerly owned Culbertson. paid manner: Credit overcharge.......... $ 5,930 Gifts respondent........... 21,744 One-half loan procured & Sons partnership.. 30,000 3 repaid proceeds operation ranch. agreement between oral. local paper announced dissolution continuation under name Sons. A bank account opened name, taxpayer, bookkeeper could check. At time formation oldest son 24 old, married, living ranch, two foreman partnership. He college graduate received $100 month plus board lodging himself wife both before after entering Army. second 22 married finished 1940, first during operated. went directly Army graduation rendered no services younger sons, 18 16 respectively school winter worked ranch summer.2 5 tax here involved are 1940 1941. return filed indicating division approximating capital attributed each partner. It disallowance brings courts. 6 First. read decisions supra, as setting out essential tests income-tax purposes: partner contribute either vital originating him. Its decision based finding none respondent's satisfied those requirements question. Sanction use 'tests' sought paragraph Tower case: 7 'There can question husband may, certain circumstances, becomes partners tax, other, purposes. If she invests her substantially contributes control management business, otherwise performs additional services, does things may contemplated 26 United States Code KF62 §§ 181, 182, Annotated KF65 U5 182. has recognized such circumstances belongs wife. become general limited husband. But when not share service, where purports some way given interest, properly take determining whether real within meaning federal revenue laws.' 290, 537, 1135. contention Court's should reinstated mere reaffirmation quoted paragraph. 8 Appeals, hand, without thought avoidance recognition taxwise it intended actually made contributions, since formed 'with full expectation purpose would, future, partnership.'3 consider, therefore, intention sometime future sufficient satisfy ordinary concepts required case. sections 181 182,4 set method taxing income, 11 22(a),5 relate taxation individual incomes. 9 In we held despite claimed evidence fully justified holding husband, through ownership c eated right receive enjoy benefit thus taxable 22(a). case, members cannot considered 'Individuals carrying partnership' 'liable * capacity' § 181. conceded contributed neither nor question, apparently willing do present hardly contended any responsible production years.6 are, course, geared relating imposed such. hold include persons nothing period violate principle taxation: him earns it. Lucas Earl, 1930, 281 111, 50 241, 74 731; Helvering Clifford, 309 331, 60 554, 84 788; National Carbide Corporation 1949, 336 422, 726. 10 Furthermore, clearly indicates importance participation year. there said created 'when join together money, goods, labor, skill trade, profession, community profits losses.' is, all, application often iterated definition income—the gain derived capital, combined7—to particular form organization. words, organization ingredients income—capital services. Ward Thompson, 1859, How. 330, 334, 249. intent provide meet demands 22(a) presently own labor utilization therefor. vagaries human experience preclude reliance even good faith conduct basis income.8 Second. turn next approach treated membership purposes contribution 'vital services' 'original capital.'9 Use indicates, best, error emphasis. ignores what ultimate decision, namely, 'whether laws' makes decisive d scribed 'circumstances (to taken) consideration' making determination.10 12 provides support approach. depends really truly sharing losses both. And respect fact, determined testimony disclosed 'agreement, whole, execution its provisions.' Drennen London Assurance Co., 113 51, 56, 341 (343), 344, 28 919; Cox Hickman, H.L.Cas. 268. see reason why rule apply cases Government challenges existence purposes.' 287, 536, 13 objective standard supposedly established whether, considering facts—the agreement, parties provisions, statements, disinterested persons, relationship parties, respective abilities actual used, facts throwing light true intent—the acting enterprise.11 There particularly difficult test. Triers fact constantly called determine person acted.12 Court, example, make determination every estate transfer contemplation death, 'The necessarily, state mind donor.' Wells, 1931, 283 102, 117, 51 446, 451, 75 867. See Allen Trust company Georgia, 326 630, 389, 367. Whether not, think, more manifestations less perceptible than Mich. 70, 242 Northwestern KF135 N69 841; Zuback Bakmaz, 14 did view concerning bona fide partners. Not once oblique reference lack part combine 'for business.' Instead court, focusing entirely capital,' simply decided alleged compared court's replete statements 'we discern constituting think requisite find adding service' place clear case.'13 15 Unquestionably 'vital' participated 'management business'14 capital' effect placing heavy burden show conclusive, vice adopted assumes room honest difference furnished justify inclusion If, facts, found partne joined having value contributor participate distribution profits, sufficient. purport authorize substitute judgment parties; guides intent. Even though admitted original say matter law valid said, instead, was, thus, ample genuine union ever intended, earned income.' 292, 538, (Italics added.) Third. isolation also erroneous reading opinion. donee intra-family gift never investment trusts invalid supra. indicate, contrary, therefrom property well law, applying supra; Horst, 311 112, 61 144, 85 75, 131 655, purported gift, technically complete, substantial change economic relation income. continued manage before, invested used expended characterized results transactions 'a reallocation among members,' noting actualities change.' This, thought, provided grounds intended; still earner 17 Clifford-Horst nto follow automatically member one's family, followed did, necessary define 'family' precise limits therein. done obvious create status itself determines questions,15 warning seem. frequently stated will carefully scrutinized. particularly, possible shift incidence surface changes disturbing least dominion over subject used. able, retain 'the substance enjoyment rights previously property.' 336, 557, 788.16 transfers group camouflage however, mean invariably are. circumstance originated elsewhere family.17 then exercises property—and influences disposition income—he free to, does, fruits strongly indicative reality enterprise. distinguished active affairs passive acquiescence donor other.18 distinction parties. meaningless if test 19 cause therefore remanded which, any, As them, performed years, contributions owners, defined term cases? No allocation presented intimate subject. 20 reversed directions remand proceedings conformity 21 Reversed remanded. BLACK mr. RUTLEDGE applied decisions, However, paramount court interpretation applicable statute, guidance application. Accordingly, acquiesce judgment. 23 BURTON, concurring, states that, 1941 basis. physical absence necessarily them others obligations benefits Their commitments render service material factors considered. commitment weighed considerations JACKSON affirm below, being common-law validity partnerships met 25 FRANKFURTER, concurring. finds wrong legal standards arrangement controversy constitute remands ascertain, appropriate criteria, provisions Int.Rev.Code, With conclusions N Dec. Immigration Nationality Decisions agree. Courts Treasury bar explicit criteria 27 rested misconception fair led phrases culled inadequate attention entirety—both significantly say. now urges Court; position concurring short, announce hobbling presumptions commercial partnerships; against partnerships. On defining relevant relied familiar formulating concept various situations nature decisive. significant cited leading today reaffirms quotation final sentence portion underlines special 'partnership' differing rules commercial-law cases. is: 29 'We t 535, 30 taxability 182 purely problem like whom attributable. word 'income' significance, analysis. Cf. 731. import different sort. 'partnership.' carries meaning, just 'negligence' Employers' Liability Act, 45 seq., content throughout country speaks. basic applicability long implicitly incorporated Code's 'partnership.'1 Congress thereby stamped nationwide disregards minor variants occasional sport. Only data relevant, inevitably inferences triers fact. appraisal difficulty arises, reflected appellate degree accords tribunal whose review. 31 That, it, crux tax. Men put habiliments whenever advantages underneath, although King clothes on' sharp eyes law. Since temptations appear order avoid hardships taxation, presumably gifted superior discernment differentiating thing imitation—the Court—will naturally alert taken in. Therefore, outward appearance engage common enterprise associated venture ought respected challenged another unless wholly warrant or, applied. 32 entirety reflects formulation forth beginning analysis quotes. While recognizing 'who books,' issue wi e partnership.' 289, course brought result drew pay type consequence giving peculiar Code. They characterized, rather, 'more intended' and, corollary, 'that 33 Recognition importance, manifest why, quite apart contained 3797, State pointed out, foreclose contrary charged administration laws. Such inconsistency inconsistent; common-place finder Texas Florida, 306 398, 411, 59 563, 570, 83 817, 121 1179. Nor concern protection creditors lead seize adoption So, indeed, might authorities refuse precluded election adopt Higgins Smith, 308 473, 477, 355, 357, 406. need guarding misuse device obtaining vigilance distorting redefinition erection presumptions, amend virtually ban composed group. 34 nevertheless, manifestation impression precisely effect.2 seems me important, crystal purposes, while assume virtue sake savings, men women guise gimlet eye entitled pierce. leave doubt minds 'no reason' 'general rule' 'should 35 plain English, puts boat, get boat merely seek varying rewards varied responsibilities, cease collector appears. Gladys Culbertson, W. O. Sr., party daughter one-quarter contend Cir., 979 982. said: 'Neither sense, impelling precedent prior equally effective rendered.' 983. Note, 47 Mich.L.Rev. 595. 11, 22(a), Of lose military government contended. conventional sense called. Eisner Macomber, 1920, 252 189, 207, 40 193, 64 521, 1570; Merchants Loan Smietanka, 1921, 255 509, 519, 41 386, 388, 65 751, 1305. Treas. Reg. 101, Article 22(a)—1. Mertens, Income Taxation, 159 seq. reductio ad absurdum theory children parents capable entrusted funds contributing occurred Tinkoff 120 564, accounting firm born. factors, After had, opinion, either, continued: 'In addition above inquiry presence elements deemed recognizable *' Commerce Clearing House TCM 692, 699. Again, commented: 'Though petitioner many businesses fathers industry requires, probably industries wish them. Nevertheless, override services.' 700. Mannheimer Mook, Taxwise Evaluation Family Partnerships, Iowa L.Rev. 436, 447—48. understand Bureau most recent statement policy. I.T. 3845, 1947 Cum.Bull. 66, Page 67: 'Where closely related blood marriage enter purporting so-called income-producing venture, arties accorded treatment designated prescribed responsibilities strangers dealing arm's length; actions legally relation; terms dealings policy disregard close existing recognize, agreement. instrument expressly child shall silent point, extent evidentiary weight partners.' Nearly three-quarters century ago, Bowen, L.J., classic man's much digestion.' Edgington Fitzmaurice, L.R.Ch.Div. 459, 483. always determinative See, e.g., 1884, 341, 343, Meehan Valentine, 1892, 145 611, 621, 972, 974, 36 835; Barker Kraft, 1932, 259 mich. 1943, 346 Pa. 279, Atlantic 473; Kennedy Mullins, 155 Va. 166, 154 Southeastern S6 568. argued reduce taxes means, agreed. motive gives indication up motives behind irrelevant. Although business' emphasized along alternative 'test' discussion, infra, Third, 17. Except, defines attaches consequences thereto. e.g. 503(a)(2), 503(a) (2). enough Clifford 'It hard imagine felt poorer (partnership agreement) rational fact.' 788. worth $50,000 immediately sustain conclude approximately twice Coon's noted (note 13), equal prominence relation, discarded assumption retaining essentials ownership, included cover situation passed donee. prime importance. record fall failed testimony. Without intimating probative value, terms: 3797. Definitions. '(2) Partnership includes syndicate, group, pool, joint unincorporated organization, means financial operation, carried on, title, trust corporation; 'partner' organization.' implications: (1) recourse precluded, 29.3797(1), 29.3797(4); Lyeth Hoey, 305 188, 193—194, 155, 158, 119, 119 410; (2) words includes' presupposes content. State, Fletcher 182; Hougland 166 815. connection Tuttle Wilson, Confusion Ga.B.J. 353 (1947).

Classification Label: 11