Court Opinion

ID: 4483223
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:58.212517+00
Date Added: 2024-06-11T15:03:40.362379
License: Public Domain

Tannenwald, J., concurring: Respondent’s regulations provide that "In the absence of any provision regarding the sharing of profits, the interest in profits of the partners will be determined in the same manner as their distributive shares of partnership taxable income.” (Emphasis added.) Sec. 1.401-10(d), Income Tax Regs. I think it entirely appropriate to interpret the italicized language as meaning that the provision in the partnership agreement must be one in which the sharing of profits is specified in terms of fixed percentages or, at the very least, contains a formula which, on its face, enables the percentage share of any partner in the profits to be readily determined. Any view based upon the literal wording would permit the vaguest language in the partnership agreement to make the provision of the regulation inoperative. Certainly a provision for the division of profits as determined by two of several partners, in their discretion, should not qualify. Even under a formula such as involved herein, there is a broad area of discretionary determination as to who gets credit for business brought in or how much work a person did on a particular matter. Nor do I see any basis for concluding that it is inappropriate to look at the facts at the end of the year because such an approach might cause a firm not to know in advance of that time whether its plan qualified. The determination of taxability based upon what happens during the taxable year, i.e., looking back at the end of the year, is not unknown to the Internal Revenue Code. One example which readily comes to mind is an election of subchapter S status which becomes invalid because, at the end of the taxable year, it appears that the corporation’s receipts do not meet the necessary requirement as to the distribution among types of receipts. See Temple N. Joyce, 42 T.C. 628 (1964). A further example is contained in the situation where it is not known whether a corporation is a personal holding company until the amount and character of gross income for the taxable year have been determined. Audrey Realty, Inc., 50 T.C. 583 (1968). Irwin and Wilbur, JJ., agree with this concurring opinion.