Court Opinion

ID: 4628872
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:04:13.151973+00
Date Added: 2024-06-11T07:57:17.052803
License: Public Domain

CLINTON DAVIDSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  ESTATE PLANNING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  FLORA S. DAVIDSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  CLINTON DAVIDSON, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Davidson v. CommissionerDocket Nos. 93500, 93501, 93502, 93503. 93504.United States Board of Tax Appeals43 B.T.A. 576; 1941 BTA LEXIS 1477; February 13, 1941, Promulgated *1477  Insurance commissions held on facts to have been earned by corporation's president, to whom they are taxable, and not by assignee corporation.  Albert Hubschman, Esq., Louis Goldring, Esq., and Carl Sherman, Esq., for the petitioners.  George R. Sherriff, Esq., and Richard D. Duncan, Esq., for the respondent.  OPPER*577  These proceedings were brought for a redetermination of deficiencies in petitioners' income and excess profits taxes for the years and in the amounts as follows: NameDocket No.YearIncome taxExcess profits taxClinton Davidson935031934$9,215.21Do93500193521,049.45Flora S. Davidson935021934978.47Clinton Davidson, Jr935041934773.0719343,300.00$1,200.00Estate Planning Corporation9350119351,114,76405.37By amended answer respondent increased the amount of the deficiency of Clinton Davidson for 1934 to $47,643.92 and for 1935 to $75,952.50.  The Estate Planning Corporation claims an overpayment for 1935 of $537.53 income tax and $195.47 excess profits tax.  The primary question involved is whether commissions on life insurance contracts*1478  are taxable to Clinton Davidson or to the Estate Planning Corporation; and if so, whether alleged "payments" to the Estate Planning Corporation by Clinton Davidson were deductible as ordinary and necessary business expenses.  There are also involved the questions (1) as to whether income of an alleged partnership between petitioners Clinton Davidson, Flora S. Davidson and Clinton Davidson, Jr., is taxable to Clinton Davidson; and (2) whether income from a trust is taxable to Clinton Davidson, the settlor.  An issue as to the propriety of a deduction by the Estate Planning Corporation of $647.36 as organization expenses appears to have been abandoned by petitioner, no evidence having been presented at the hearing or argument made thereon in the briefs.  Questions as to whether payments on bonds of the Estate Planning Corporation were taxable to the recipients as interest or dividends and whether the Estate Planning Corporation is entitled to a deduction as interest for such payments have been conceded by respondent.  FINDINGS OF FACT.  Clinton Davidson, hereinafter for convenience referred to as petitioner, resides at Bernardsville, New Jersey, and at all times here in question*1479  and since its organization, has been president of the Estate Planning Corporation, which during years in question had its main offices in New York City.  Flora S. Davidson is Clinton Davidson's wife, and Clinton Davidson, Jr., is their son.  The Estate Planning Corporation, hereinafter sometimes referred to as the corporation, was organized and chartered in the State of New York in 1925 by petitioner.  When first organized petitioner *578  owned all the stock and since then the stock has been owned either by him or by members of his family.  Petitioner has been a licensed life insurance agent in the State of New York since 1921.  At that time he was a man of limited education, with no wealthy friends, relatives, or social contacts.  In order to increase his sales of life insurance he instituted an idea for aiding people of great wealth to plan their estates, with particular emphasis on reduction of taxes.  He advertised the plan and it met with a high degree of success.  From an annual business of writing $250,000 worth of life insurance he developed it to where he wrote more than $2,000,000 worth in 1927 and more than $4,000,000 worth in 1928, prior to the transfer to the*1480  corporation as hereinafter related.  On December 20, 1928, petitioner addressed a letter to the corporation reading in part as follows: I hereby offer to transfer to you the business carried on by me in the City and State of New York as a financial and estate planning advisor and life insurance broker, together with such of the assets and good-will of said business and subject to such liabilities as of September 1, 1928 as are shown by the statement submitted herewith, the business carried on by me since that date to be taken as carried on for the benefit of the corporation.  The price is $600,000, and I offer to accept in payment therefor the debenture bonds of the corporation for that amount bearing interest from September 1, 1928 at the rate of 4% per annum payable quarter-annually on the first days of March, June, September and December in each year until the principal sum shall have been fully paid.  Said bonds to be due September 1, 1948 subject to the right of the corporation to redeem the same wholly or in part at par and accrued interest at its option in advance of said date and to contain such other terms and conditions as may be agreed upon between us.  On the same*1481  date the corporation, through petitioner and Flora S. Davidson, his wife, its only directors, passed a resolution stating, "the corporation having been organized for the purpose of taking over the business previously carried on by Mr. Davidson", and accepting the offer contained in the letter.  The resolution also provided: On motion duly seconded and carried it was resolved that Clinton Davidson be employed as General Manager of the Corporation for the period from September 1st, 1928 to December 31st, 1929, all commissions allowed him by Insurance Companies on initial premiums of policies written during that period to be turned over by him to the Company, but that he may retain the right to any and all renewal commissions on such policies and that he be paid no salary for the four months ending December 31st, 1928 and a salary for the year 1929 of $20,400.00 payable monthly, to be in full for his services to the corporation in every capacity.  In 1927 and 1928 petitioner was working on several cases, any one of which would have brought underwriting commissions of from $200,000 to $500,000.  In making the transfer petitioner's predominant motive was to reduce income tax liability. *1482  He also desired to *579  protect, if possible, the name "Estate Planning" and to establish and use corporate prestige.  After the transfer the volume of business remained about the same as in the years preceding it.  In the conduct of its business the corporation maintained offices, had one or more vice presidents, a secretary, a chairman of the board, as well as a bookkeeper, stenographers, and an attorney.  It also had consulting arrangements with an accounting firm.  Salaries for the above were paid by the corporation.  It was licensed to do business in the States of Missouri, Illinois, Minnesota, Washington, and Maryland.  There were representatives in various states with whom the corporation had written or oral contracts.  These representatives made contacts with prospective customers and sought to obtain confidential information from them pertaining to their financial and proposed estate matters.  If they were successful, petitioner would frequently join the agent in the discussion and conferences and reports and plans for the arrangement of the customer's estate would be prepared, which generally involved the purchase of large amounts of life insurance.  The corporation*1483  then agreed with the customer that it would accept for its services the commissions which would be derived from life insurance policies or annuities purchased by the client on his life.  In one instance an additional fee of $2,000 was indicated, but no attempt was ever made to collect this because of the large insurance commissions realized.  The corporation advertised extensively in newspapers and financial publications and used other publicity methods, including a news letter which it mailed regularly.  Advertising was published under the corporation's name prior to the transfer referred to above.  The corporation has kept separate books of account and records of its business and affairs; it maintained two bank accounts, one for operating expenses, on which petitioner or the corporation secretary could draw, and the other, a larger account, was known as the special account, on which only petitioner could draw; it filed its own income tax returns and paid Federal income taxes; and it has previously engaged in litigation with the Commissioner involving its income taxes.  The salary of $20,400 to petitioner for 1929 stated in the agreement of December 20, 1928, was not paid, nor*1484  did he ever receive a salary from the corporation.  The arrangement provided in the December 20, 1928, agreement was terminated in March 1935, and under a new contract dated April 22, 1935, Davidson was to receive the share of compensation which the corporation had formerly received on all work done by all of its representatives and he was to pay all of the expenses of the corporation plus 10 percent thereof.  *580  The Estate Planning Corporation did not have an agent's license from the Insurance Department of New York State, or an agent's contract with any life insurance company at any time.  It never had any contracts for commissions with insurance companies.  Life insurance companies do not make agency contracts with corporations and do not designate corporations as their agents to write life insurance or annuity policies.  Correspondence with reference to certain customers' insurance passed between the corporation and an insurance company, and the corporation and a general agent.  During the years in question petitioner personally had contracts with John M. Riehle, agent for the equitable Life Assurance Society of the United States, to pay petitioner commissions on life*1485  insurance and annuity policies written by him.  The contracts provided that "no assignment of this agreement or of commissions hereunder shall be valid unless authorized in advance in writing by the Society." Under the rules of the Equitable Life Assurance Society the Riehle Agency could make contracts only with individuals.  In accordance with these contracts, checks for fees or commissions were made payable to petitioner by the Riehle Agency and were endorsed by him to the order of the Estate Planning Corporation.  All of the other original commissions shown on the corporation's books for the years in question were similarly received by petitioner.  In 1934 these commissions amounted to $111,152.68 and in 1935 to $96,682.75.  In 1934 and 1935 the corporation had income from fees for its independent services of $2,500 and $3,450, respectively.  All original commissions received by petitioner from January 1, 1934, to March 1, 1935, were turned over by him to the corporation.  All such commissions from March 1 to December 31, 1935, were retained by him.  The books indicate the payment by petitioner of $29,681.87 "for services rendered to Clinton Davidson", representing cost of*1486  operating from March 1 to December 31, 1935, plus 10 percent.  This was in addition to the amount of $3,450 referred to above.  Petitioner did not, except in cases involving between 1 and 3 percent of the items resulting in the above receipts, obtain the original information from the customer.  The remaining customers were interviewed by agents with whom the corporation had contracts.  Typical of such contracts was the one between the corporation and Raymond Hartz.  Under this contract Hartz agreed "to pay to The Estate Planning Corporation, a certain share of all moneys received by him from his business of selling life insurance and annuity policies and rendering services in planning estates and insurance * * *." Cases were divided into class A and class B.  The former were where the agent obtained indicated financial and confidential information and officers of the corporation interviewed the customers, on *581  appointment made by the agent, or were consulted, or the corporation prepared a plan, in which cases the corporation received 60 percent of the first year commissions and fees, and the agent 40 percent thereof, with renewal commissions to be equally divided.  The*1487  class B cases included all other cases, and the first year commissions and fees were to be divided 10 percent to the corporation and 90 percent to the agent, with all renewals to the agent.  The contract also provided that "unless otherwise specifically agreed upon in writing" all policies in class A cases were to be written in the name of Clinton Davidson, as the agent; in class B cases the policies were written in the name of the agent; contracts for estate services were to be in the name of the corporation.  It was further provided that the agent was to pay all his own expenses, including office and advertising.  Provision was made for the allocation of expenses incurred in consulting attorneys or accountants.  In many instances after the transfer to the corporation petitioner interviewed insurance prospects and worked jointly with the other agents.  After the change in March 1935, Hartz began working with other representatives of the corporation.  The agreement then provided, inter alia, that his participation in class A cases could remain the same; that the corporation would select the insurance company; that "all life insurance policies and annuities shall be written*1488  in the joint names of Raymond C. Hartz and Clinton Davidson, equal credit to each, and the necessary adjustment shall be made, when commissions are received by either party from the insurance companies in accordance with the above mentioned division of commissions"; that the compensation for the other representatives would be governed by agreement between them and the corporation.  During the years 1934 and 1935, the corporation paid out $34,784.45 and $62,457.92, respectively, as "co-brokerage", or compensation to its agents pursuant to its contracts with them.  Some of these payments were by check on the corporation's bank account.  None of the original commissions or fees shown in the corporation's books were reported by petitioner for 1934 or 1935, but were reported by the corporation.  At the time of the transfer of petitioner's business to the corporation in December 1928, petitioner placed a value of $575,564.86 on his good will, the only producing asset turned over to the corporation.  Prior to the transfer to the corporation the only income from the business was from life insurance commissions.  The bonds ab0ve mentioned were duly issued and carried as a liability on*1489  the corporation's balance sheet up to the beginning of 1935.  In April of 1935 the capital stock was increased and the bonds were called in by the *582  company and exchanged for capital stock.  The stock remained on the balance sheet as a liability throughout 1935, but the good will disappeared from the balance sheet by the end of 1935.  On June 11, 1932, a "Memorandum of Articles of Partnership between Clinton Davidson, Flora S. Davidson and Clinton Davidson, Jr." was signed by those parties.  The agreement recites the formation of the partnership on May 7, 1932, under the name of Davidson & Co. for the purpose of carrying on the business of soliciting clients for Fiduciary Counsel, Inc., a corporation engaged in the investment counsel business; that the parties were to share profits and losses equally; that petitioner, as his contribution to the capital, had transferred his contract with Fiduciary Counsel, Inc., to solicit customers for its services, under which it was to pay him 40 percent of the receipts from customers obtained by him; that Clinton Davidson, Jr., as his contribution, had transferred to the partnership certain securities; and that Clinton Davidson, Jr. *1490  , and Flora S. Davidson were to make a joint contribution of $5,000.  The cash contribution was duly made.  The memorandum further recited that the partnership was to continue for 15 years unless terminated as provided; that any partner without the consent of the other partners could contribute additional capital or leave profits in the business, or could withdraw from the business any sums for his use; that petitioner should manage the business, his decision being conclusive and binding on all the partners; that petitioner had the exclusive right to sign negotiable instruments and agreements "pledging the credit or affecting the property of the partnership"; petitioner and any one of the other partners could modify the agreement or dissolve the partnership by giving notice in writing; on dissolution during the life of petitioner the interest in the contract with Fiduciary Counsel was to be returned to him and any remaining capital equally divided.  The partnership maintained offices in the same suite of offices as those occupied by petitioner and the Estate Planning Corporation in New York City.  Petitioner and Flora Davidson devoted some time to its affairs.  Clinton Davidson, *1491  Jr., devoted all of his time to it for a while.  In 1935 the partnership agreement was modified so that it no longer represented Fiduciary Counsel, Inc., and its capital was "operated in the market" by Clinton Davidson, Jr., who was then working with a statistical firm representing a large stock exchange.  Without petitioner or Flora Davidson giving any assistance the capital was increased from $5,000 to $15,000.  The partnership filed partnership income tax returns for 1934 and 1935 showing division equally between the three partners.  Petitioner *583  included in his returns for 1934 and 1935 one-third of the partnership income.  Flora Davidson and Clinton Davidson, Jr., attached riders to their returns for the respective years explaining that they were not reporting their shares in the partnership income because the Treasury, in prior years, had treated all partnership income as income of petitioner.  Under the terms of a trust agreement created by petitioner on April 3, 1931, as amended June 6, 1932, petitioner and his wife were cotrustees.  The trust corpus was sixty $10,000 4 percent bonds of the Estate Planning Corporation.  The trust named Flora S. Davidson and*1492  Clinton Davidson, Jr., as beneficiaries.  Petitioner in the amendment of June 6, 1932, reserved the right to revoke, alter, or amend the trust with the consent of all living adult beneficiaries.  This amendment was with the consent of Flora S. Davidson, as provided by the original instrument.  The trust filed a return signed by petitioner for the year 1934 on Form 1041 showing Flora Davidson and Clinton Davidson, Jr., each to be entitled to 50 percent of the income.  No income is shown, but there is an accompanying statement to the effect that the income was omitted because in prior years the Treasury Department had held that the net income of the Estate Planning Corporation, without any deduction for the bond interest, was taxable to Clinton Davidson, individually.  For the year 1935 the trust filed a return signed by petitioner on Form 1041, reporting as income an item of interest of $9,460 and showing Flora S. Davidson and Clinton Davidson, Jr., each to be entitled to 50 percent thereof.  For the year 1934 neither Flora Davidson nor Clinton Davidson, Jr., reported any income from the trust, but made an explanatory statement on their respective returns, stating that the income*1493  had been omitted because the Treasury Department had held it was taxable to Clinton Davidson, individually.  OPINION.  OPPER: By his notice of deficiency for 1934 respondent included in petitioner's income: * * * the net income for 1934 of Estate Planning Corporation, after disallowance of a deduction claimed for bond interest in amount of $24,000.00.  The income of Estate Planning Corporation appears to consist entirely of original commissions on life insurance policies and annuity insurance policies sold by you (and your sub-agents) under contracts in your name personally.  In view of the nature of the income involved, it is held by this office to be taxable in your hands, subject to the ordinary and necessary business expenses attaching thereto as provided by the income tax law.  * * * *584 Even before the decisions in , and , it was clear that income from personal services to be performed in the future was taxable to the earner, regardless of his anticipatory assignment, and irrespective of the validity of that assignment for general purposes apart from questions*1494  of taxation. . It is now settled that the same rule applies to compensation for services already rendered, , or to income from property. The question, then, is simplified to the point where the decisive issue here is the determination of the person who is to be treated, for tax purposes, as the earner.  We institute this inquiry as to who earned the income in question with an examination of the services for which it was paid; for it seems to us to follow that, when this has been ascertained, the one who performed the services will be disclosed as the one who earned the compensation therefor.  The income involved is insurance commissions; that is, remuneration comparable to brokerage paid by insurance companies for procuring purchasers from them of insurance policies.  It is the person who performs this service, the agent procuring the application for insurance, to whom for this service the insurance company is indebted for the commission.  *1495 ; ; ; ;  (Mich.).  The facts amply demonstrate to our mind that in the comparatively intricate plan of operation adopted by petitioner and the corporation no one but petitioner can be said to conform to that description of the earner of the insurance commissions. Not only was he the one designated by the insurance company as its agent to take the application,1 but the insurance contracts were treated as his business, 2 he was designated by the corporation and the insured as the one to whom the commissions were to be paid by the insurers and he and not the corporation received the checks representing such payments, which were made payable to him.  The services of obtaining the application for insurance for which in its *585   simplest terms the commission is paid as compensation upon acceptance were thus treated by all the parties as having been rendered by petitioner. 3 We can not say that upon this record he was not the contributor of the services for which the income was received.  Supporting this conclusion are the circumstances that petitioner and not the corporation was licensed to carry on*1496  an insurance brokerage business; that the insurance companies and their general agents, as a matter of practice, decline to appoint corporations as agents; and that it would have been illegal for the corporation to intervene in the transactions as the procurer of the insurance business.  McKinney's Consolidated Laws of New York, Annotated (1917), Bk. 27, Insurance Law, sec. 91.  That this is virtually conceded to be correct appears to us to follow from a statement of petitioner's position in the reply brief: * * * The statute was strictly complied with in that the commissions were paid by the life insurance corporation to, and each application was procured by, a licensed agent [petitioner].  * * * * * * The arrangement was exactly to the contrary.  The corporation was not to act as the life insurance agent.  Its services were in a peculiarly different field, i.e., estate planning.  It did not receive the payments as commissions from the insurance carrier.  It received the payments from Davidson on the basis of his contract with it.  *1497 To this it may be added that petitioner's receipt of the payments in question erects at the threshold a compelling inference that as recipient of the income he was taxable upon it.  ; . Not only as a matter of factual burden of proof arising generally by virtue of the prima facie correctness of respondent's determination, but as a true legal presumption to be overcome by persuasive argument, we think this casts upon petitioner the necessity of showing that the legal effect of the transaction was to preclude his ownership of the funds received by him.  In our view no satisfactory basis for such a conclusion has been established.  That he might have become the debtor of the corporation is an irrelevant consideration on this aspect of the case; for that would be no more than an offsetting deduction, a distinct contention which we shall separately consider hereafter.  As an assignment of all or part of the commissions the transaction would not only have been without legal effect under *586  petitioner's*1498  contract with the insurer 4 and under the controlling regulation of the domicile, ; , but, as we have seen, would also be ineffectual even assuming its validity, in any examination of tax incidence.  It may be recognized that activities which for present purposes we shall assume to have been those of the corporation were an essential inducement and preliminary to petitioner's success in obtaining the insurance business and receiving the compensation of which it was the root.  In this phase of the matter an expenditure ordinarily and necessarily incurred by him would, in the usual circumstance, constitute the ground for a deduction as business expense.  It may not be allowed, however, unless it is both ordinary and necessary, and compensation for services must be reasonable; and where as here it is the offshoot of an arrangement between an individual and his controlled corporation, it must survive*1499  more than the usual scrutiny for this to be established.  ; . We consider that the assignment to the corporation of the entire amount of the original commissions was not reasonable compensation to it for any contribution which it made to the earning of those commissions.  As the originator and proprietor of a business writing upward of $4,000,000 of insurance annually, it is inconceivable that petitioner would have made such an arrangement at arm's length with a stranger.  We are, accordingly, unable to determine that the payments due the corporation under the contract were the true measure of petitioner's expense and correspondingly deductible.  In the absence of any other gauge of a reasonable offset for the expense of obtaining the business, we might have been relegated to the figure which the corporation itself paid out for those purposes as the nearest approximation thereto.  To a comparable deduction, however, petitioner was held to be entitled by respondent's original determination.  The deficiency notice*1500  charged petitioner only with the net income of the corporation, with the result that petitioner's income was in turn reduced by the amount of such expenditures as were involved in the inducing operations conducted by the corporation.  It was not petitioner's burden to prove in detail the propriety of the deductions thus permitted.  Only two items of corporation expense were disallowed in this determination, of which one was interest on the corporation's bonds.  While it is true that in litigation by which respondent is presumably bound it has been decided that the corporation was *587  entitled to such a deduction, , a corresponding result does not necessarily follow as to the individual petitioner.  For the question is to what extent the payment he made to the corporation was an ordinary and necessary accompaniment of his business as an insurance agent and a fair measure of the expense incurred in obtaining insurance customers for him.  While advertising, salaries of agents, cobrokerage, fees to lawyers and accountants, and even general office rent and overhead can be seen to have*1501  some connection with the procurement of petitioner's insurance business, petitioner has not shown that payment of interest on the corporation's bonded indebtedness, which was based in the first instance on a somewhat nebulous item of good will acquired from petitioner, see , can have any such connection.  Since this item was disallowed in the original determination and petitioner carries the burden of showing its correctness, that part of the corporation's expenditures is to be excluded from the amount of petitioner's payment to it which we find to have been a reasonable disbursement by petitioner for securing the business from which his income arose.  The same applies to the comparatively small item of the corporation's organization expense.  It is true that by amended answer respondent seeks to increase the deficiency so determined by including in petitioner's income all of the corporation's gross income without offset for any disbursements.  Since, in our view, however, respondent has failed satisfactorily to prove the amount of the commissions received by petitioner, apparently the only justification for a*1502  charge against him on that theory, and since respondent has in other respects failed to sustain his burden of proving the absence of petitioner's right to deductions, we are of the opinion that the attempt to increase the deficiency can not succeed.  There are implications that not all of the insurance premiums which eventually found their way to the corporation were paid to Davidson in the first instance.  But it is clear that the great bulk were, and if this was something less than all, petitioner, on whom rested the burden, has not shown to our satisfaction the extent by which this total should be diminished.  However, he has made it clear that a small fragment of the corporation's receipts represented payment for its services, not insurance commissions.  As to these amounts petitioner's income should not be increased.  The result is that the amount originally determined, adjusted for payments which were shown to have been received by the corporation as compensation for its services and not through insurance premiums, is chargeable against petitioner as his income.  To that extent respondent's determination is approved.  *588  What has been said applies to the period prior*1503  to March 1, 1935.  As of that date petitioner entered into a different arrangement with the corporation under which he himself received and retained the commissions and paid to the corporation for its services its own expenses plus 10 percent.  We are not prepared to say that this arrangement was so apparently unreasonable as to require that it be disregarded.  The amount so paid to the corporation was, it is true, charged back to petitioner in respondent's original deficiency determination by attributing to him the entire net income of the corporation, which included the sums so paid by him, or at least that was its effect.  But if petitioner took the amount of this payment as a deduction from his own income as a business expense, a fact as to which the record is silent, respondent did not determine that it was unreasonable, since he made no attempt to disallow it as such.  The factual basis for his determination was that "the income of Estate Planning Corporation appears to consist entirely of original commissions on life insurance policies and annuity insurance policies sold by you." To the extent that petitioner has shown that a part of the corporation's income consisted of his*1504  payment to the corporation for its services, and of a small item of other compensation for services similar to that involved in 1934, he has successfully demonstrated the error of respondent's assumption of fact.  And, of course, if petitioner did not deduct his payments to the corporation from his own income, charging him with it again would be doubly unjustified.  For that part of 1935, therefore, during which petitioner was operating under the new contract, the respondent's original determination is disapproved and for reasons similar to those already expressed his request for an increased deficiency is rejected.  With respect to the corporation, its taxable income should be adjusted to reflect the payments which are being charged to the individual petitioner.  The notices of deficiency also charge petitioner with the net income of the partnership, Davidson & Co., "because its gross income was derived largely from personal services rendered by" petitioner.  This issue must be determined in favor of petitioner.  It appears that the other members of the partnership contributed both capital and services to the business of the enterprise.  In this situation we can not say that elements*1505  requiring the recognition of the partnership for tax purposes are lacking.  . Respondent's inclusion of the proportionate parts of the partnership income in those of petitioner's wife and son is sustained, as petitioners concede it must be on that result.  Under the notices of deficiency and in the condition of the pleadings the issue as to the trust income, both with respect to the attempt *589  to attribute it to petitioner under sections 22(a) and 166 and 167, raised for the first time on brief, and with respect to the inclusion of the distributive shares in the respective incomes of the beneficiaries of the trust, appears to be no more than an alternative contention.  The notice of deficiency in the case of Clinton Davidson, Jr., states respondent's position to be: The income of the trust consisted of amounts paid to it by Estate Planning Corporation, allegedly as interest on bonds.  * * * For the taxable year 1934, it is being held by this office that due to the nature of the income reported by Estate Planning Corporation, it is taxable not to the corporation but to the assignor of such income.  Pending a final decision*1506  in these matters, the amount received by you from the trust is being included as interest income to you, in order to protect the interests of the Government.  The notice of deficiency in the Flora Davidson case is similar.  Since we have determined the primary issue in respondent's favor, it is unnecessary to consider his arguments for the application to petitioner of the sections in question.  Our disposition of petitioner's liability likewise carries with it the necessity of eliminating the items of trust income in adjusting the deficiencies determined against petitioner's wife and son.  Petitioner's motion for judgment, upon which decision was reserved at the hearing, is accordingly denied and the proceedings will be disposed of in accordance with the foregoing opinion.  Decisions will be entered under Rule 50.Footnotes1. A "single policy" contract awarded to petitioner and conceded to be typical commences: ORIGINAL (For Agent) January 5th, 1935.Mr. Clinton DavidsonNew York CityDEAR SIR: It is hereby agreed to allow you the following commissions on the premiums not exceeding in amount in any one year the first year's premium as paid in cash to the Society on Policy No. 9655,006 * * *.  ↩2. For example, a memorandum to one of the insurance companies, giving detailed information about a "prospect," inclosed in a letter signed by petitioner as president of the corporation, while itself unsigned is worded throughout in the first person singular.  ↩3. The Corporation's directors resolved that "* * * all commissions allowed him [petitioner] by Insurance Companies on initial premiums of policies written during that period to be turned over by him to the Company * * *." And when petitioner terminated this arrangement with the corporation his letter to it stipulated: "2.  You are to formulate such plans in connection with my insurance business for estates of the same character that has been heretofore furnished by your corporation." ↩4. A typical "single policy" contract recites: "a.  No assignment of this agreement or of commissions hereunder shall be valid unless authorized in advance in writing by the Society [Insurer]." ↩