Court Opinion

ID: 4492199
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:16.89423+00
Date Added: 2024-06-11T15:03:57.757828
License: Public Domain

Murdock,
dissenting: The prevailing opinion holds that the Pomeroy estate is liable for tax on some income, but it does not disclose whether it holds that that income represents Pomeroy’s distributive share of the income of a partnership, or his share of the income of a joint venture. The opinion permits the amount of taxable income for each year to be fixed retroactively by an agreement of the parties. This agreement was not intended to settle the rights of the parties to income as of the end of each year in question, but was a complete adjustment of their rights in the business. In my judgment, Pomeroy’s tax liability for each year should be determined on the basis of and is fixed by his rights at the end of that year, and does not depend upon any subsequent agreement of the parties. The parties may give up certain rights under a subsequent agreement, but they can not retroactively change their tax liability.
Marquette, Smith, and SterNhageN agree with this dissent.
Matthews,
dissenting: The partners shared equally in the partnership profits, notwithstanding the fact that Dives’ interest in the business was greater than Pomeroy’s. In 1903, Dives’ interest was $522,046.94 and Pomeroy’s interest $444,552.99. At the death of Dives, his interest (net worth) in the business, as reflected on the books, was $2,697,499.47, while Pomeroy’s interest (net worth) was $2,176,511.07, a difference of more than $500,000. These figures are taken from the exhibits which were attached to the stipulation and made a part of the findings of fact by reference.
Dives’ interest passed to his estate on his death, and from that date until the settlement on June 30, 1923, the estate was entitled at least to the same proportion of profits of the business as Dives would have been entitled to had he lived, namely, one-half of the income arising from the business. The fact that the executors did not withdraw one-half of the profits or that one-half was not actually distributed to such executors, does not alter the situation. The earnings of the estate’s share were constructively received by the executors. *497Pomeroy had also constructively received his share, although we do not know whether he drew it out of the business or not. That Pom-eroy and the Dives estate were each entitled to one-half the profits in the business is evidenced by the fact that Pomeroy so treated the income in partnership returns filed for the periods involved between the death of Dives and the settlement of the estate. I do not think it necessary to determine the legal term to apply to the relation between Pomeroy and the Dives estate during the period subsequent to Dives’ death. Neither is it necessary to determine whether Pom-eroy was required to file a return of the income of the business on a partnership form or on a fiduciary form in order to determine the issue in this case, which is, how much of the earnings of the business subsequent to Dives’ death and prior to the transfer of the business to the corporation are taxable to Pomeroy. The earnings of the business during this period belonged to the.owners, Pomeroy and the Dives estate, and I think that a division of the earnings in the same proportion that they were distributed prior to the death of Dives is all that the executors of Dives could have demanded, notwithstanding the fact that Dives’ interest was greater than Pom-eroy’s. Pomeroy could certainly have demanded no more than one-half the earnings.
At the time of the settlement effected on July 2, 1923, the Dives estate had the right to a certain portion of the assets and also a claim for the profits earned on that interest subsequent to Dives’ death. The claim of the estate for the profits accrued on the estate’s interest was settled for $176,250, an amount of money equal to 6 per cent of $3,750,000 from the date of death of Dives to the date of settlement, and this amount of money was excluded from the assets of the partnership wliich both the Dives estate and Pomeroy joined in conveying to the corporation. I see nothing in the fact that the estate’s claim for its share of the profits earned between the date of death of Dives and the date of settlement was, under the circumstances, settled for a less amount than one-half the actual earnings of the period, to justify the conclusion that at the time the income accrued the Dives estate had no claim to more than the amount subsequently agreed upon in settlement. The very language used in the agreement of settlement justifies the inference that the Dives estate had a claim for more than the amount agreed upon in settlement of the claim — “ which said amount shall be paid to the executors in full settlement of any claim they may have for profits accrued on the partnership business from the date of death of Josiah Dives.”
In my opinion, therefore, Pomeroy should not be taxed on more than one-half the earnings of the business during the period involved.