Court Opinion

ID: 4601103
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:55.331205+00
Date Added: 2024-06-11T07:52:25.558954
License: Public Domain

Estate of Meyer Goldberg, Deceased, Abraham Goldberg and Solomon Goldberg, Executors, Petitioners, v. Commissioner of Internal Revenue, RespondentGoldberg v. CommissionerDocket No. 21599United States Tax Court15 T.C. 10; 1950 U.S. Tax Ct. LEXIS 129; July 12, 1950, Promulgated 1950 U.S. Tax Ct. LEXIS 129">*129 Decision will be entered for the respondent.  Decedent, at the time of his death in August 1945, was a member of a partnership which was in the furniture business and used the installment basis in returning its income from installment obligations.  The decedent's 30 per cent share in the unrealized gross profits on the installment obligations owing to the partnership at the time of decedent's death was $ 30,168.42.  Held, that the $ 30,168.42 in question is includible in decedent's income for the period ending with his death under section 44 (d) of the Internal Revenue Code, no bond having been filed as provided in the concluding part of that subsection.  F. E. Waddell et al., Executors, 37 B. T. A. 565, affd., 102 Fed. (2d) 503, followed.  Benjamin E. Shove, Esq., for the petitioners.Michael Waris, Jr., Esq., for the respondent.  Black, Judge.  BLACK 15 T.C. 10">*11  The Commissioner has determined a deficiency in the income tax of the estate of Meyer Goldberg, deceased, of $ 22,320.89 for the period January 1, 1945 to August 31, 1945.  The deficiency is due to the following adjustment to the net income as disclosed by the return: "(a) Unrealized profit on installment obligations $ 30,168.42." This adjustment is explained in the deficiency notice as follows:(a) Unrealized profit on installment obligations, of $ 30,168.42 is included in the taxable income of the decedent for the year of his death, due to the failure to file a bond guaranteeing its return as income by those receiving it the same as the decedent would have reported it.The estate of Meyer Goldberg, deceased, contests the foregoing adjustment by an appropriate assignment of error.FINDINGS OF FACT.The facts which1950 U.S. Tax Ct. LEXIS 129">*131  are stipulated are adopted as a part of these findings and are incorporated herein by reference.Meyer Goldberg, the decedent, died on August 11, 1945, a resident of the City of Syracuse, New York.  The returns of Meyer Goldberg were filed for a calendar year on a cash basis.  For the year in which Meyer Goldberg died a return was filed for the period January 1, 1945 to August 11, 1945, the date of his death.  This return showed a net income of $ 39,946.87 and was filed with the collector of internal revenue for the 21st district of New York.Meyer Goldberg, at the date of his death, was, with his two sons Barney Goldberg and Moses Goldberg, one of the partners in the partnership known as M. Goldberg & Sons, Syracuse, New York, under a partnership agreement dated December 4, 1941.  The entire partnership agreement is incorporated in the stipulation of facts.  The following portions of this partnership agreement are deemed pertinent to the issue which we have here to decide:AGREEMENT OF PARTNERSHIP made this 4th day of December, 1941, at Syracuse, New York, between BARNEY GOLDBERG, party of the first part, MOSES GOLDBERG, party of the second part, and MEYER GOLDBERG, party of the 1950 U.S. Tax Ct. LEXIS 129">*132  third part, all of the City of Syracuse, New York, WITNESSETH:* * * *1. The partnership shall be for the carrying on of the business heretofore described, and shall continue until the 31st day of December, 1951.2. The partnership shall be conducted and carried on under the partnership name, style and firm of M. GOLDBERG & SONS, although the partnership may use the name HUB FURNITURE COMPANY in the operation of a store or stores.* * * *12. In case the party of the third part should die during the continuance of the partnership, then the parties of the first and second parts shall be entitled to 15 T.C. 10">*12  continue the business as before without the interference of the legal representatives of the deceased party of the third part, and shall be entitled to the firm name and all of the books, papers and good will of the business.  The surviving parties of the first and second part shall, however, purchase the partnership interest of the deceased party of the third part at a price and upon terms fixed in accordance with the following provisions:The price shall be the net worth of the partnership interest of the deceased party of the third part according to the balance sheet of the partnership1950 U.S. Tax Ct. LEXIS 129">*133  business prepared for the last day of the month in which the death of said partner occurs, on the following basis:Here follows the basis agreed upon by the partners but it is believed to be unnecessary to set it forth in detail.  No dispute concerning the basis of the purchase of the deceased partner's interest is involved herein.  The partnership agreement then continues:13. In the event of the death of the party of the third part during the continuance of the partnership, as provided for in clause number "12" of this agreement, the surviving parties of the first and second parts shall pay the said purchase price to the estate of the deceased party of the third part as follows (it being understood that the partnership will make the payments in the first instance, and that the amount of each payment will be charged to the accounts of the parties of the first and second parts in equal shares on the first books):* * * *(c) Commencing one week after the date of the death of the party of the third part, the estate of the party of the third part shall be paid the sum of One Hundred Fifty Dollars ($ 150.00) per week, to apply upon the purchase price aforesaid, for a period of seven 1950 U.S. Tax Ct. LEXIS 129">*134  and one-half years, or until such time as the entire balance of the purchase price aforesaid is sooner paid.  The proper share of the net collections on accounts receivable deemed not good as hereinbefore defined shall also be paid to the estate of the deceased partner by the firm at least semi-annually during the five years after the last day of the month in which the death of the deceased partner occurs.  At the expiration of seven and one-half years after the death of the party of the third part, the entire balance of the purchase price unpaid, if any, shall then become due and payable forthwith.  The parties of the first and second parts shall have the right to pay a larger portion or portions, or the entire balance of the purchase price at any earlier times that they may deem it advisable to do so.(d) The estate of the party of the third part shall not share in the profits or losses of the partnership after the last day of the month in which the death of the party of the third part occurs.  Instead, the surviving parties of the first and second parts shall pay to the estate of the party of the third part interest on all unpaid balances of said purchase price at the rate of four1950 U.S. Tax Ct. LEXIS 129">*135  per cent (4%) per annum payable semi-annually after the last day of the month in which the death of the party of the third part occurs.Before any of the aforesaid payments shall become due, the legal representatives of the deceased partner shall execute good and sufficient bills of sale, deeds and other conveyances or instruments as may be necessary or proper to convey to the purchasers or their nominees the partnership interest so sold, and deliver the same to or for the benefit of the purchasers or their nominees; and the parties of the first and second parts shall execute and deliver to the estate of the party of the third part their promissory notes or other obligations or engagements for the payment of the balance of the purchase price aforesaid; or in lieu thereof, the legal representatives of the party of the third part, and 15 T.C. 10">*13  the parties of the first and second parts shall enter into such agreement or agreements as may be necessary or proper to effectuate the transfer as aforesaid.* * * *The partnership of M. Goldberg & Sons was engaged in the business of buying, selling and dealing in furniture, household goods and other articles of merchandise.The partnership 1950 U.S. Tax Ct. LEXIS 129">*136  used the installment basis in computing its net income and returned its income on the installment basis is provided in section 44 (a) of the Internal Revenue Code.  The decedent's share in the net profits of the partnership of M. Goldberg & Sons was 30 per cent.  The decedent's 30 per cent share in the unrealized gross profits on the installment obligations owing to the partnership of M. Goldberg & Sons was on August 11, 1945 (the date of death), $ 30,168.42.  No bond such as is referred to in subdivision (d) of section 44 of the Internal Revenue Code was filed with the Commissioner of Internal Revenue.Meyer Goldberg left a last will and testament which was admitted to probate in the Surrogate's Court of Onondaga County, New York, on October 29, 1945.  Letters testamentary thereon were issued by the Surrogate's Court of Onondaga County, New York, on October 29, 1945, to Abraham Goldberg, and Solomon Goldberg.  Abraham Goldberg and Solomon Goldberg are the executors of the above-named estate of Meyer Goldberg.OPINION.We have but one issue to decide in this proceeding and that is whether or not the death of Meyer Goldberg, who was a member of the partnership of M. Goldberg & Sons, 1950 U.S. Tax Ct. LEXIS 129">*137  which partnership owned installment obligations at the date of his death, caused a transmission or disposition of those obligations or any interest therein within the meaning of section 44 (d) of the Internal Revenue Code, resulting in taxable income to the decedent or to his estate, no bond having been filed under the provisions of the statute.  Section 44 (d) is printed in the margin.  1 Petitioners concede that no bond such 15 T.C. 10">*14  as is mentioned in the concluding part of section 44 (d) was filed but they strongly contend that no such bond was required because no installment obligations were transmitted by Meyer Goldberg to anyone upon his death.  They contend that section 44 (d) has no application under the facts of the instant case.  In arguing the meaning of section 44 (d), petitioners state in their brief as follows:It is clear from the wording of this subdivision that the gain or loss which it makes recognizable arises only if there is a satisfaction at other than face value, or a distribution, transmission, sale or other disposition of the installment obligation.  The first inquiry, therefore, must be: Has there been a satisfaction at other than face value, or a distribution, 1950 U.S. Tax Ct. LEXIS 129">*138  transmission, sale or other disposition of installment obligations?  If none of the specified events has occurred, the subdivision has no application and does not become operative.1950 U.S. Tax Ct. LEXIS 129">*139  Petitioners then argue that the death of Meyer Goldberg did not bring about or result in any transmission of installment obligations because: (1) The only installment obligations in this case were the installment obligations owing to the partnership of M. Goldberg & Sons and such installment obligations were the property of the partnership and the decedent Meyer Goldberg did not own them or any interest in them, and (2) according to the provisions of the partnership agreement the partnership was not terminated by the death of Meyer Goldberg and the installment obligations owing to the partnership were not satisfied, sold, disposed of, distributed or transmitted at the death of Meyer Goldberg but continued to be firm assets owned by the partnership.Respondent on his part contends that the decedent's death did cause such a transmission or disposition.  That contention is based upon the well-recognized principle that the death of a partner results in the automatic dissolution of the old partnership, and that the surviving partners and the decedent's estate thereupon immediately become entitled to their respective proportions of the net assets of the partnership as liquidating distributions. 1950 U.S. Tax Ct. LEXIS 129">*140  In other words, it is the respondent's contention that the death of the decedent had the effect of transmitting to his estate his proportionate interest in the installment obligations which, prior to his death and the dissolution of the partnership, the partnership had owned.  "That amounted" says respondent, "to a transmission or disposition of the installment obligations within the meaning of Section 44 (d)."Respondent strongly relies in support of the foregoing contention upon the case of F. E. Waddell et al., Executors, 37 B. T. A. 565, affd., 102 Fed. (2d) 503. We think the Waddell case supports respondent's contention and is controlling here.  In the Waddell case the decedent owned a two-thirds interest in a cattle raising partnership known as 15 T.C. 10">*15  W. N. Waddell & Co., and E. K. Bowman and F. E. Waddell each owned a one-sixth interest therein.  At the date of the formation of the partnership the partners owned a fee simple title in certain lands in Texas.  An oil company subsequently purchased an interest in those lands and the consideration for the purchase was the principal sum of $ 100,000, to be paid1950 U.S. Tax Ct. LEXIS 129">*141  to the partnership. Of that amount, $ 80,000 was represented by four promissory notes for $ 20,000 each.  The first two notes were paid to the partnership prior to the decedent's death on September 14, 1932.  Subsequent to the decedent's death the remaining two notes were paid to the executors of the decedent's estate and the surviving partners. The partnership of W. N. Waddell & Co., filed a partnership return for the period January 1 to September 14, 1932, reporting partnership net income distributable to the decedent, E. K. Bowman and F. E. Waddell.  For the period September 15 to December 31, 1932, a partnership return of income was filed for W. N. Waddell & Co. by the representatives of the decedent's estate and the surviving partners reporting partnership net income distributable to the decedent's estate and the surviving partners. On the last mentioned return the date of organization of the partnership was stated as September 15, 1932.  Neither of the aforementioned partnership returns included any portion of the notes due and unpaid at the date of the decedent's death.  Upon the death of the decedent, new accounts were set up for W. N. Waddell & Co. in which the estate 1950 U.S. Tax Ct. LEXIS 129">*142  of the decedent was shown as a partner in place of the decedent. On these facts we held that decedent Waddell's interest in the installment notes was transmitted to his estate at the time of his death and that section 44 (d) was applicable and that the estate was taxable on its part of the income represented by these unpaid installment notes, no bond having been filed as permitted in said subsection.  Our decision was affirmed by the Fifth Circuit, the court stating in its opinion as follows:* * * we agree with the Commissioner and the Board that Waddell's death effecting an immediate dissolution of the partnership, caused an immediate vesting in his estate, subject to the rights and duties incident to the partnership liquidation, of a 2/3 interest in each and every piece and parcel of the partnership property, and subject alone to the liquidation, transmitted to his estate the 2/3 interest in the instalment obligations which, before his death and the dissolution of the partnership, the partnership upon this assumption, had owned.  Cf.  Carroll v. Com'r, 5 Cir., 70 F.2d 806.It will not do, we think, to argue as petitioners do, that Waddell's death1950 U.S. Tax Ct. LEXIS 129">*143  resulted in the transmission, not of an interest in the notes, but merely of an interest in the partnership, and that his estate stood, as to his interest in the partnership, in the same case that he stood in before his death, for his death operated not only to transmit an interest, but to change the character and condition of the 15 T.C. 10">*16  interest transmitted, from an interest in a going partnership to an interest in the property of a dissolved one.While we are firmly of the opinion that this is the natural, indeed, the only reasonable construction to be placed on the words of the statute, as applied to the facts of this case, and that resort to interpretation to carry out its intent is not necessary, we agree with the Commissioner also that this is a required construction if the intent and purpose of the Act is to be carried out, and that the Act easily yields such a construction.Petitioners contend that the Waddell case, supra, is distinguishable because it is a well-settled rule of law in New York, where the partnership of M. Goldberg & Sons was located, that the joint effects of a partnership belong to the firm and not the partners and that a partner has no individual1950 U.S. Tax Ct. LEXIS 129">*144  property in any specific assets of the firm; instead, the interest of each partner in the partnership property is his share in the surplus after the partnership debts are paid and after the partnership accounts are settled.  In support of this proposition petitioners cite, among other cases: Allan S. Lehman, 7 T.C. 1088, affd., 165 Fed. (2d) 383, certiorari denied, 334 U.S. 819">334 U.S. 819, and Robert E. Ford, 6 T.C. 499.Petitioners argue that under the doctrine of the above cases, although the partnership of M. Goldberg & Sons was dissolved upon decedent's death, the partnership was not terminated but continued to exist until its termination date in 1951 and that, therefore, there was no transmission of the partnership installment obligations to anyone but that they continued to remain the exclusive property of the partnership.The cases relied upon by petitioners which attach much significance to the continuation of the partnership business pursuant to the provisions of partnership agreements do not involve the application of section 44 (d).  They are not concerned with the1950 U.S. Tax Ct. LEXIS 129">*145  problem as to whether there was a transfer or transmission of installment obligations within the meaning of that section.  On the contrary, each of those cases involved the question as to the length of period during which the partnership had continued to exist for capital gains and other purposes.  These cases, we think, are not controlling in the instant case.We are unable to see where there is any distinction in principle between the facts of the instant case and those which were present in the Waddell case, supra.  Therefore, following that case, we decide the issue involved in favor of the respondent.Decision will be entered for the respondent.  Footnotes1. SEC. 44. INSTALLMENT BASIS.* * * *(d) Gain or Loss upon Disposition of Installment Obligations.  -- If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and (1) in the case of satisfaction at other than face value or a sale or exchange -- the amount realized, or (2) in case of a distribution, transmission, or disposition otherwise than by sale or exchange -- the fair market value of the obligation at the time of such distribution, transmission, or disposition.  * * * This subsection shall not apply to the transmission at death of installment obligations if there is filed with the Commissioner, at such time as he may by regulation prescribe, a bond in such amount and with such sureties as he may deem necessary, conditioned upon the return as income, by the person receiving any payment on such obligations, of the same proportion of such payment as would be returnable as income by the decedent if he had lived and had received such payment.  * * *↩