Court Opinion

ID: 4627040
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:00:29.808461+00
Date Added: 2024-06-11T08:30:13.092851
License: Public Domain

CORNET & ZEIBIG TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Cornet & Zeibig Trust v. CommissionerDocket No. 19610.United States Board of Tax Appeals21 B.T.A. 1352; 1931 BTA LEXIS 2208; January 23, 1931, Promulgated *2208  PARTNERSHIP OR TRUST. - The petitioner was a partnership during years in question, and not a trust or association taxable as a corporation.  Marion C. Early, Esq., and B. B. Pettus, Esq., for the petitioner.  Harold Allen, Esq., for the respondent.  TRUSSELL *1352  In this proceeding the petitioner contends that the respondent, in determining deficiencies in the amounts of $11,220.36 and $10,801.12 in income taxes for the calendar years 1922 and 1923, respectively, erred in holding that during those years petitioner was a trust or an association, taxable as a corporation, instead of a partnership.  FINDINGS OF FACT.  In the year 1888, Henry L. Cornet and Fred G. Zeibig became associated as partners in a general real estate business conducted in St. Louis, Mo., under the firm name of Cornet & Zeibig.  Each of the parties had a half interest in the business and at the end of each month, after the payment of all expenses, the profits, consisting of commissions from sales of real estate, rentals, etc., were divided equally and withdrawn.  No capital was ever invested in the business and the firm owned no property other than office furniture. *2209  The partnership business was carried on in that manner continuously by oral agreement until June 30, 1921.  Several years prior to 1921 the partners brought their respective sons, Henry L. Cornet, Jr., and Charles H. Zeibig, into the business, but they continued to divide the profits 50 per cent each, and they in turn each gave their sons 10 per cent of their respective shares.  All four of them devoted their entire time to that business.  Many years prior to 1921 Henry L. Cornet and Fred G. Zeibig organized a corporation entitled "Standard Realty Company," which took title to any real property which they purchased for investment and resale.  Each owned 50 per cent of the stock and the business and accounts of the corporation were kept separate from the partnership's general real estate business and accounts.  That corporation and its business had been continued up to the present time (the date of the hearing) and the sons have never had any interest in the company or its earnings.  *1353  On or about June 30, 1921, Henry L. Cornet, Fred G. Zeibig, Henry L. Cornet, Jr., and Charles H. Zeibig, executed an instrument, called a declaration of trust, which states that whereas*2210  by instrument of even date, Henry L. Cornet and Fred G. Zeibig, copartners, have assigned, transferred and delivered to themselves and their said sons all the partnership assets and property, such property "is to be held, used and managed by them upon the trusts herein declared" and for the benefit of the cestuis que trusts. The declaration of trust empowers the trustees, pending conversion of the property into cash and the distribution of the net proceeds, to control, manage, invest, and reinvest the property and assets; to establish and carry on a general real estate business and collect the commissions on the sale and rental of real estate and collect rents for other persons; to buy, hold and sell real estate, mortgages, stocks, bonds, etc.; to secure loans for others; to write insurance; to accumulate property and surplus funds; to declare dividends and distribute the same to the holders of shares evidencing the beneficial interests.  The trust instrument further provides that the capital of the trust, consisting of the copartnership's assets transferred to the four trustees, be represented by 500 shares, without par value, to be issued 200 shares to Henry L. Cornet, 200 shares*2211  to Fred G. Zeibig, 50 shares to Henry L. Cornet, Jr., and 50 shares to Charles H. Zeibig; that the shares be transferable; that the death of a cestui que trust or a trustee shall not terminate the trust; that a trustee must be a shareholder; that the trustees receive a salary of $5 per month but no more as compensation for their services; that the remaining trustees may appoint another shareholder to fill any vacancy in the office of trustee; that the trustees may, if it be desired, elect officers; that the name of the trust shall be "Cornet and Zeibig Trust"; that the instrument is not intended to create any relation of partnership or agency between the trustees or between the trustees and the cestuis que trusts or between the cestuis que trusts; that the trustees are not personally liable; that the trustees may not bind the cestuis que trusts personally; and that the trust instrument may be modified or amended in any respect by affirmative vote of not less than two-thirds of the outstanding shares.  The trust instrument was duly acknowledged and publicly recorded.  After the execution of the trust instrument the only change made was to add the word "trust" after*2212  the old firm name of Cornet & Zeibig on the office window and stationery.  No other act was done to carry out the trust agreement.  No other instrument or deed or assignment affecting the partnership property was ever executed; *1354  no property was bought or sold in the name of the trust; no shares were issued; no dividends were declared; no advertising was done in the name of the trust; and the trust as such never conducted any business.  The four individuals continued to conduct their real estate business in the same manner as it had always been conducted.  They devoted their entire time to earning commissions on real estate transactions, kept their books in the same manner in which they had been kept for years, and each month withdrew the profits which were divided 40 per cent to each of the fathers and 10 per cent to each of the sons.  The four individuals conducted their business on a partnership basis and considered themselves as partners and liable as such.  The trust instrument was pigeonholed and forgotten until a revenue agent dug it up and advised them that, in view of such instrument, they might be classed as an association, taxable as a corporation.  Thereupon, *2213  at or about the year 1926, the trust instrument was canceled and terminated and such cancellation was publicly recorded.  Again there was no transfer of property and no change in the manner of conducting the business.  For the years 1922 and 1923 partnership income returns were made and filed, showing the total net commissions received in each year and how such totals were divided between the four individuals designated as partners, each of whom filed his individual returns reporting such amounts for each of said years.  OPINION.  TRUSSELL: As we view this case the issue presented is one purely of fact.  We see no need for any discussion or review of the facts, for they clearly establish but one conclusion, namely, that the trust agreement was never carried out, there was no trust or taxable entity created which carried on any business or earned any income, and that the business was a partnership business, the income of which was produced by the personal services rendered by the four partners, Henry L. Cornet, Fred G. Zeibig, Henry L. Cornet, Jr., and Charles H. Zeibig.  The respondent erred in determining that Cornet & Zeibig Trust was an association taxable as a corporation*2214  for the years 1922 and 1923.  Cf. Bardwell, pritchard & . Judgment will be entered for the petitioner.