Court Opinion

ID: 8307779
Source: CourtListenerOpinion
Date Created: 2022-10-17 13:23:11.449149+00
Date Added: 2024-06-11T16:44:36.855649
License: Public Domain

*1339OPINION.
Sternhagen :
The decedent had for many years been actively engaged in two separate businesses — one, a general lumber business owned and conducted by a partnership in which he owned a % interest, and the other, the sale of patented end-matcher machines, owned and conducted by decedent individually. So long as he owned these interests, the income thereof was taxable to him; and he sought to reduce these taxes, as he had the right to do if he could. The question for decision is whether he succeeded. If so, it must be because, as shown by the evidence, the income was, when received, not even momentarily his, but, with its source, owned by others.
The respondent has determined that until his death the decedent continued to own the full five-ninths interest in the partnership and the entire end-matcher business, and that the income therefrom during his lifetime was derived by him. The petitioner seeks to prove that decedent had divested himself of three of his five-ninths of the partnership and of four-sixths of his ownership of the end-matcher ■patent and business. To this end evidence has been received in great detail of steps taken and statements made by the decedent to justify his belief that the income was not taxable to him. Having at one time practiced at the bar, he knew the nature of the evidence which would be required, and be used meticulous care to provide it. This we say only to explain that if we seem to test the evidence strictly, such a test was- apparently what the decedent, knowing the subtlety often employed in the law, expected and provided for.
We are of opinion that, adding together all of the data in the record tending to prove that the omitted income, when derived, came not to decedent but went directly to his wife and children, the evidence falls short of the desired end. Despite all the decedent did to have it appear otherwise, he continued, in our opinion, to remain a five-ninths partner in the firm and to own the end-matcher business. Whether he obligated himself to dispose of the income from these interests among his family, we are not called upon to consider. But, even if he did, such disposition would be merely the exercise of a right of ownership; and ownership, even momentary, supports the tax. Lucas v. Earl, 281 U. S. 111; Corliss v. Bowers, 281 U. S. 376; Lansill et al., 17 B. T. A. 413.
*1340The existence of a partnership relation such as is contemplated by section 218, among members of a family, is not proven by an empty use of words to accompany a distribution of income which is in all respects voluntary. While, of course, a partnership within a family frequently exists and must be recognized, it is not because they call themselves a partnership as well as a family, but because in reality they are engaged together in carrying on the business of earning the taxable income. It is, for example, uncontroverted that D. Morton Rose, the son, was a one-ninth partner. When his interest was created in 1919, it was not necessary to say very much or to prepare an instrument in the form of a trust. He came into the business, participated in its operation, shared its responsibilities, and by his conduct was recognized as well by third persons as by the partners to be a member of the firm. Nothing like this occurred in respect of the wife and daughters, and the evidence makes it plain that they neither acted as partners nor were treated as such. They continued merely to receive because of kinship; and, if, as we have said, they had legal rights to the income as against the decedent, they were not the rights of partners in the partnership or end-matcher business and property, but rights to a distribution of the income after it was received by and taxable to the decedent. We conclude that the Commissioner’s determination as stated in the notices of deficiency and as modified by claims at the hearing are sustained by the evidence. Mitchel v. Bowers, 15 Fed. (2d) 287; certiorari denied, 273 U. S. 759; Cohan v. Commissioner, 39 Fed. (2d) 540; Harris v. Commissioner, 39 Fed. (2d) 546; Leydig v. Commissioner, 43 Fed. (2d) 494; W. M. Buchanan, 20 B. T. A. 210.
Reviewed by the Board.

Judgment will Toe entered under Rule 50.