Court Opinion

ID: 4621903
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:45:37.844126+00
Date Added: 2024-06-11T07:56:05.354265
License: Public Domain

BARDWELL, PRITCHARD & CO. (A PARTNERSHIP COMPOSED OF D. G. BARDWELL, CLUFF PRITCHARD, AND BENTON NEELY), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bardwell, Pritchard & Co. v. CommissionerDocket Nos. 36771, 41521.United States Board of Tax Appeals20 B.T.A. 350; 1930 BTA LEXIS 2147; July 28, 1930, Promulgated *2147  The petitioner was a common-law partnership during the years 1923 and 1924, and as such it is not liable to taxation as a corporation nor as an association taxable as a corporation.  Nelson E. Taylor, Esq., for the petitioner.  R. W. Wilson, Esq., for the respondent.  LOVE*350  These are proceedings for the redetermination of deficiencies in income taxes for the years 1923 and 1924 in the amounts of $777.66 and $808.29, respectively.  The petition alleges error in respondent's determination that for the year 1923 Bardwell, Pritchard & Co. was an association taxable as a corporation, rather than a nontaxable partnership, and for the year 1924 in determining that the partnership was taxable as a corporation.  FINDINGS OF FACT.  In January, 1921, D. G. Bardwell and Cluff Pritchard, residents of Charleston, Miss., formed a partnership under the firm name of Bardwell & Pritchard, to engage in the feed and grain business at Charleston.  The formation of this partnership resulted from a conference between Bardwell and Pritchard in which Bardwell, who was a practicing physician, proprietor of a drug store and interested in other business enterprises, *2148  assured Pritchard, who was at that time in search of employment, that if he could locate a position or create some type of employment for himself, he, Bardwell, would render such assistance as he could to promote Pritchard's success.  Shortly after this conference Pritchard informed Bardwell that E. E. Eddington, proprietor of a feed store in Charleston, desired to sell out his business.  Bardwell and Pritchard Agreed to form *351  a partnership and buy out Eddington, Bardwell to furnish the entire purchase price and to take Pritchard's note for one-half the amount.  The business was purchased and Pritchard assumed its operation.  Under his management the business increased and it became necessary to either hire help or take in another partner.  Eddington expressed a desire to reenter the business and some time in 1921 he purchased a one-third interest and became a partner.  Later in 1921, or early in 1922, I. F. Sayle, proprietor of an ice business at Charleston, became a member of the partnership, acquiring a one-fourth interest, for which he paid in his business equipment, receiving in addition to his partnership interest a cash adjustment representing the amount by which*2149  the value of his equipment exceeded the value of the partnership interest he acquired.  The acquisition of the ice business enabled the partnership to compete with another firm engaged in a similar business at Charleston.  Sometime during 1921 the name of the partnership was changed to Bardwell, Pritchard & Co., and its business was expanded to include groceries, coal, hardware and general merchandise.  Each of the four partners, while he was a partner, held an interest equal to that of each of the other partners and each had an equal voice in the management of partnership affairs.  Although Bardwell did not devote his entire time to the business, as did the other partners, he was usually consulted in matters of importance, especially those involving large purchases of feed, grain, etc.  By agreement among the partners Bardwell drew a salary of $25 per month and each of the other partners drew a salary of $75 per month.  Profits were credited periodically in equal amounts to each partner and by agreement were retained for use in the business.  The original partnership agreement between Bardwell and Pritchard, as well as the agreements incident to the admission of Eddington and*2150  Sayle to the partnership, were entirely oral.  It was understood from the beginning that partnership changes could be made only with the agreement of all the partners and all changes have been made according to this agreement.  The credit of the concern was always entirely dependent upon the personal credit of Bardwell, who was the only partner of substantial financial worth.  Bank loans, etc., while made upon joint notes of all the partners, were granted upon the credit of Bardwell, and wholesalers dealing with the firm also looked to him for security for payment of their accounts.  In 1922 Bardwell, Pritchard and Sayle became dissatisfied with Eddington as a partner.  Bardwell felt that he no longer desired to continue the then existing partnership and assume responsibility for its financial commitments and liabilities.  The partners therefore decided to organize a corporation and transfer the partnership business *352  to it.  An attorney was employed to file the necessary application for incorporation.  In May or June, 1923, a charter was secured under the name of Bardwell, Pritchard & Co., upon an application signed by Bardwell, Pritchard, Eddington, and Sayle, as incorporators, *2151  and with an authorized capital stock in the amount of $10,000.  The incorporators held a formal organization meeting in order to file a necessary report with the secretary of state.  At about this time Eddington agreed to retire from the partnership.  Bardwell then bought his interest and transferred it to a brother-in-law, Benton Neely, who, with the consent of Pritchard and Sayle, thereby became a partner holding a one-fourth interest in the business.  After the retirement of Eddington, Bardwell had no objection to continuing the business as a partnership and it was so continued.  Sometime in 1923 Sayle sold his interest to the other partners and retired from the partnership.  Sayle withdrew in order that he might devote himself to his timbering business.  In 1926, Mrs. George Haley, who had been bookkeeper for the partnership practically since its organization, purchased a one-fourth interest in the business.  Since 1926 the business has been conducted as a partnership by Bardwell, Pritchard, Neely, and Mrs. Haley, all being equal partners.  The corporation known as Bardwell, Pritchard & Co. never engaged in business of any kind.  It never acquired any assets nor contracted*2152  to acquire any, it never issued any stock, borrowed any money, maintained any books of account or minute books, secured any credit, incurred any liabilities, nor in any way represented itself as a corporation engaged in business.  Neither the partnership of Bardwell, Pritchard & Co., nor any of the members thereof have ever represented to anyone that the partnership business was or had been incorporated or that it had been succeeded or taken over by the corporation of the same name.  Mercantile credits and bank loans secured by the partnership of Bardwell, Pritchard & Co. since the organization of a corporation bearing the same title, have always been granted to the firm as a partnership, the grantors continuing to look to Bardwell for payment.  The books of account of the partnership of Bardwell, Pritchard & Co. have always been maintained as partnership books, profits being credited directly to the individual partners.  The partners do not now have, and never have had, any written agreement of partnership nor other written evidence of the form of their organization, nor the extent of their interests in it.  The partners have never operated under a trust agreement nor had a trustee*2153  or trustees operate for them.  Operation of the business has never been delegated to any *353  person or persons and no board of directors of the partnership has ever existed.  In 1927 the corporation known as Bardwell, Pritchard & Co. was dissolved on petition of its incorporators.  Tax returns filed by the partnership of Bardwell, Pritchard & Co. and the individual returns of the partners forming that company have always been made on the basis of a partnership business.  The deficiencies in controversy have been assessed by the respondent, under section 279(a) of the Revenue Act of 1926, upon income of the partnership of Bardwell, Pritchard & Co.  OPINION.  LOVE: While the substantive effects of the respondent's determinations respecting the two taxable years involved in these proceedings are the same, it appears from the deficiency letters that these effects may have been arrived at upon different bases and accordingly we desire to point out these differences before discussing the merits of the controversies.  The deficiency letter referring to the year 1923, as set out in appeal, Docket No. 36771, states: This office holds that your organization is an association*2154  for income-tax purposes, and, therefore, is taxable as a corporation.  The deficiency letter referring to the year 1924, as set out in appeal, Docket No. 41521, purports to assert a liability of the petitioner as a corporation.  As is mentioned above, the substantive effect of these determinations is the same, i.e., in each instance petitioner is held liable to tax as a corporation.  We think the facts set forth in our findings need no amplification or discussion to demonstrate that petitioner has never been a corporation.  The distinction between the partnership of Bardwell, Pritchard & Co. and the corporation of the same name is as great as can exist between any two similarly termed entities.  The respondent's determination that for the year 1923 the petitioner was an association taxable as a corporation is, we believe, as equally unfounded as is his determination that for the subsequent year the petitioner was a corporation.  In Hecht v. Malley,265 U.S. 144">265 U.S. 144, it is said: The word "association" appears to be used in the Act in its ordinary meaning.  It has been defined as a term "used throughout the United States to signify a body of persons united without*2155  a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise." 1 Abb. Law Dict. 101 (1879); 1 Bouv. Law Dict. (Rawle's 3rd Rev.) 269; 3 Am. & Eng. Enc. Law (2d Ed.) 162; and Allen v. Stevens (33 App.Div. 485) *354 54 N.Y.S. 8">54 N.Y.S. 8, 23, in which this definition was cited with approval as being in accord with the common understanding.  Other definitions are: "In the United States, as distinguished from a corporation, a body of persons organized, for the prosecution of some purpose, without a charter, but having the general form and mode of procedure of a corporation." Webst. New Internat. Dict. "(U.S.) An organized but unchartered body analogous to but distinguished from a corporation." Pract. Stand. Dict.  Beyond being a body of persons organized for a common purpose, the petitioner in this proceeding exhibits none of the attributes of an association as above set forth.  In our opinion it has been demonstrated that petitioner has always been a common-law partnership and nothing more.  As such it is not a taxable entity under the Revenue Act of 1921.  See *2156 Burk-Waggoner Oil Association v. Hopkins,269 U.S. 110">269 U.S. 110; Utica Motor Car Co.,10 B.T.A. 878">10 B.T.A. 878; Myers, Long & Co.,14 B.T.A. 460">14 B.T.A. 460; Wilson Syndicate Trust,14 B.T.A. 508">14 B.T.A. 508; affd., Blair v. Wilson Syndicate Trust, 39 Fed.(2d) 43; Extension Oil Co.,16 B.T.A. 1028">16 B.T.A. 1028. Judgment will be entered for the petitioner.