Court Opinion

ID: 9691157
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:14:11.481305+00
Date Added: 2024-06-11T18:19:11.652684
License: Public Domain

FAULKNER, Justice
(dissenting).
I must respectfully dissent.
Section 701 of the Internal Revenue Code of 1954 provides that a partnership as such shall not be subject to income tax. Persons carrying on a business as partners shall be liable for income tax only in their separate or individual capacities. However, while partnerships are not subject to income taxes they are nevertheless required to render an annual return on Form 1065, Internal Revenue Service. This is in the nature of an information return. The return must be signed by one of the partners and must include the gross income and deductions allowed the partnership, and also the names and addresses of the individual partners. Furthermore, partnership remuneration is not wages subject to income tax withholding. Revenue Ruling 69-184, 1969-1, p. 256.
From the facts in this case it appears that no partnership returns were ever filed; that Waters was paid a salary. He filed withholding tax forms. There was withheld income and social security taxes from his salary. And, his salary was a deduction on Schedule C (Income from Business and Profession) of Cochran’s individual 1040 return. When a deduction taken on Cochran’s individual return for business losses is added to the above facts, the result appears to be that Cochran did not consider himself a partner of Waters.
I further find from the facts that Cochran acted on the advice of a C.P.A. on his tax matters. There may be exceptions, but generally a C.P.A. is presumed to know which tax returns must be filed for his client. It is therefore logical to assume that if a valid partnership existed between Cochran and Waters, he would have filed the proper returns for the partnership. And, it can be further assumed that no C. P.A. would have reported gross income or *628loss from a partnership on Schedule C of an individual return, Form 1040.
There do not appear to be any books of original entry setting up the alleged partnership; no balance sheets; no profit and loss statements for the years of the partnership. There doesn’t appear any statement or entry showing what the net worth • — -beginning and ending — of each partner was. These are gross omissions of evidence to hold that a valid partnership existed.
I assume that under the majority opinion as to both parties, any sum paid by Waters to Cochran should be a deduction for state and federal tax purposes to him, and should be ordinary income to Cochran.
I would hold that no valid partnership ever existed and therefore pretermit discussion of the other issues of this case.