Court Opinion

ID: 9444353
Source: CourtListenerOpinion
Date Created: 2023-08-03 20:57:42.237849+00
Date Added: 2024-06-11T17:29:49.861249
License: Public Domain

PHILLIPS, Chief Judge
(dissenting).
Two disconnected cases are rarely precisely alike. The instant case differs from Nicholas v. Davis, 10 Cir., 204 F.2d 200 in certain particulars. Those differences, in my opinion, on this record, are immaterial. For many years prior to 1943, Tony C. Timpte1 and his cousin were partners engaged in the business of manufacturing truck trailers, semitrailers and trailer bodies and jobbing trailer accessories. The business was established by the taxpayer’s father and his uncle in 1884. About 1917, the taxpayer and his cousin purchased the interests of their respective fathers. Thereafter, and until 1943, the taxpayer and his cousin continued the enterprise as a partnership. In the fall of 1942 the taxpayer’s cousin suffered a stroke, and upon the advice of his doctor withdrew from active participation in the business. In October, 1943, the taxpayer purchased his cousin’s interest in the business. The taxpayer became concerned with the perpetuation of the business, in the event he should become incapacitated or die. He approached several of his key employees to ascertain whether they would be interested in buying stock in a corporation to take over the business. The taxpayer, in addition to reasons of concern with respect to the future of the business, was motivated by a desire to provide for the security of his wife, in the event of his sickness or death. The employees reacted favorably to the proposal and the taxpayer decided to incorporate the business, sell stock to his key employees, and make a gift to his wife of approximately one-third of the stock in the proposed corporation. At that time, tax advantages were not in his mind. He had no thought or purpose to avoid taxes by transferring his sole ownership of the business to a corporate entity. He felt that under the existing circumstances, it would be advantageous to himself, *438his wife, and the perpetuity, of the business to change it from' sole ownership by him to a corporate ownership.
It was not until he had consulted his attorney with respect to incorporation that the question of tax advantages came into the picture. He was advised that there would be tax advantages in partnership ownership over corporate ownership. Either form of ownership would accomplish the original purposes of his plan. The change in the plan was not from sole ownership in him to partnership ownership for the purpose of avoiding taxes, but from a proposed corporate entity to a partnership entity because of the tax advantages which a partnership entity would have over a corporate entity. Later, when changes in the tax laws removed the tax advantages of, partnership ownership over corporate ownership, he incorporated the business and stock was issued to his wife and his key employees, as well as to himself, fully carrying out his original plan. .
It seems clear to me, therefore, that he was not activated by a motive of tax avoidance when he made a gift to his wife through which she originally acquired a one-third interest in the partnership and ultimately through stock ownership a one-third interest in the cor'poration.
It is true that the wife did not receive any substantial amount of the accrued partnership earnings during its existence. Neither did the taxpayer. That was because the partnership was engaged in carrying out large contracts with the Government and required large bank borrowings in order to do so. The bank imposed a condition that no profits of the partnership should be distributed until the loan was paid. After the loan was paid off, the wife received her full interest in the assets and accumulated profits of the partnership upon its dissolution, and with them purchased an interest in the new corporation.
There could be no doubt that the wife was legally entitled to her share of the partnership assets and the accumulated earnings, on dissolution. The husband did not control the distribution of profits during the continuance of the bank loan. Neither were they distributed to his personal advantage or for family expenses. Distribution was precluded by the terms of the bank loan. The' wife executed the note to the bank along with her husband and became personally liable for that debt.
. It is true that the partnership was a limited one and management was vested in the taxpayer as general partner. However, what had been accumulated by the taxpayer at the time the partnership was formed, was largely the result of the joint efforts of the taxpayer and his wife. Throughout their married life and during the existence of the partnership, he followed the custom of discussing important business matters with his wife. He testified that as the result of such discussions, she was very helpful to him in the conduct of his business. There can be no doubt that she exerted an important influence with respect to management problems and policies, both before and during the existence of the partnership.
It is my opinion that the uncontrovert.ed evidence and the inferences reasonably deductible therefrom clearly establish that the formation of the partnership was activated by a bona fide business purpose, and that the gift to the wife was not actuated by a purpose to avoid taxes.
Since such evidence was controlling, positive, and uncontradicted, was unimpeached by cross-examination or otherwise, was not inherently improbable, and no circumstance reflected in the record cast doubt on its verity, under the principles laid down in Chesapeake & Ohio Ry. Co. v. Martin, 283 U.S. 209, 215-220, 51 S.Ct. 453, 75 L.Ed. 983 and Nicholas v. Davis, 10 Cir., 204 F.2d 200, 202, it is my opinion that the trial court properly directed a verdict for the taxpayer. Accordingly, I would affirm the judgment.'

. Hereinafter called the taxpayer.