Court Opinion

ID: 8138435
Source: CourtListenerOpinion
Date Created: 2022-09-09 18:17:28.111943+00
Date Added: 2024-06-11T16:39:27.806227
License: Public Domain

Hakkon, J., dissenting: A partnership between husband and wife must be real and bona fide in every respect. An important element in the creation of a partnership between husband and wife is the contribution of capital to the partnership by the wife. Contribution of services by the wife is important, also, but here the wife contributed none. Where a husband owns all of the property in a business which he has conducted as a sole proprietorship, an alleged contribution by the wife of part of the property to a newly formed partnership, created to carry on the same business, should meet every test of reality. If the property which the wife is said to have contributed to the partnership is part of the property already in an existing business and the husband has made a purported gift of part of his property only as a step in creating a family partnership, the effect which he, a taxpayer, desires to result from the arrangement should be found to exist only if he has completely divested himself of every element of ownership and control of the property. See Francis E. Tower, 3 T. C. 396; O. William Lowry, 3 T. C. 730; Frank J. Lorenz, 3 T. C. 746; Mead v. Commissioner, 131 Fed. (2d) 323. In this case, petitioner executed a document under the terms of which he gave his wife “an undivided one-half interest in and to all money, all choses in action, and any and all other property, property rights, and/or interests in property belonging to me, both tangible and intangible, excepting only such property as” he owned in Wilcox County. Under this broad conveyance of an undivided one-half interest of all of petitioner’s property, the exception being immaterial to the issue, petitioner avers that he made a gift of one-half of all of the property in his lumber business. The document was never recorded. Creditors of the lumber business had no notice whatsoever of any change in the ownership of the assets of the lumber business. The petitioner’s manner of handling the arrangement indeed left everything wholly within his control. The partnership agreement, being silent upon the extent of the powers retained by petitioner in the management of the business, was ambiguous. At least, the door was left open for petitioner to argue, when it suited him, that he retained the right to sell, pledge, and dispose of the property in the business. I can not find a transfer to the wife of complete dominion and control over one-half of the assets of the lumber business in the two documents and under the surrounding facts, which is necessary to support a holding that the wife made a contribution of capital to the partnership. Prior to the arrangements, petitioner paid his wife’s bills. He thereby satisfied his legal obligation to support her. After the arrangement, the form was different, the wife withdrawing the funds she desired for her needs and her general personal use. The effect was the same, however. Family income was put to the same uses, but it was reallocated to fit the pattern of the partnership arrangement. There is no evidence to support a holding that the wife had unfettered control over a share of the income of the business, such as would follow from a bona fide ownership of one-half of the property in the business and of one-half of the business itself. I respectfully dissent from the holding of the majority that petitioner made a complete and bona fide gift to his wife of one-half of the assets and business of the lumber business. I would hold, on this record, that he did not; that the wife did not contribute capital to the business; and that the marital partnership should not be recognized for purposes of Federal income tax. Smith and OppeR, JJ., agree with this dissent.