Court Opinion

ID: 4481356
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:51.140438+00
Date Added: 2024-06-11T15:04:03.311609
License: Public Domain

Scott, J., dissenting: In my view it is not necessary to determine in this case whether the provision of section 1.48-3 (a), Income Tax Regs., that “property used by a partnership shall be considered as used by each partner” is invalid. In this case, Edward A. Moradian, the husband of petitioner who acquired the property, Georgia Moradian, owned an undivided one-half interest in the land on which the partnership operated its business of raising and selling grapes. The property to which the grapevines were attached was never owned by the partnership and the record does not show the agreement, if any, which the partners had with the partnership respecting the use of the land. Certainly the persons who owned the land owned the vines attached thereto absent any agreement to the contrary. In my view Edward A. Moradian, the owner of the land, used the property by allowing the partnership in which he owned a 50-percent interest to use the property in the operation of its business. This was a use by him and his wife, Georgia, of the property within the meaning of section 48 (c) (1), I.R.C. 1954, which includes as a user of the property a person who bears the relationship described in section 179 (d) (2) (A) to the person who used the property. Section 179 (d) (2) (A) refers to section 267 for a definition of relationship and section 267 (c) (4) specifically mentions a spouse. Therefore, this case should be considered in the same light as if Edward, himself, had acquired his former partner’s undivided interest in the land. Even though a partnership is considered a person under the definition contained in section 7701(a) (1), a partnership is not a taxable entity and therefore it is not uncommon for a partnership to use property belonging to the partners without any formal agreement. Section 704 deals with the treatment of property contributed to a partnership by the partners, and in recognition of the common practice of use by a partnership of property, title to which is retained by the partners, section 1.704(c) (1), Income Tax Regs., states that “These rules do not apply to property only the use of which is permitted the partnership by the'partner.” Since a partnership is not a taxable entity there is no impelling reason for two partners who own an equal undivided interest in property to contribute the property to the partnership. In fact if they do contribute the property to the partnership, absent a provision to the contrary in the partnership agreement, it is treated under section 707 (c)1 as if it had not been contributed. Likewise, where the two partners own equal undivided interests in property there is no necessity for a lease by them of the property to the partnership. If an owner of property leases his property to another, the use by the owner of the property is easily recognizable. Edward A. Moradian used the property which he owned jointly with his partner by permitting its use by the partnership. Since Edward A. Moradian had an undivided one-half interest in the property, he used some portion of all the property and not any specific portion of the property. I would, therefore, decide that the property which Georgia Moradian acquired was used by her husband prior to the time she acquired it and would not reach the question of the validity of section 1.48-3 (a), Income Tax Kegs. TietjeNS, agrees with this dissent.   Sec. 704(c) Contributed Property.— (1) Generad rule. — In determining a partner’s distributive share of items described in section 70.2(a)., depreciation, depletion, or gain lor loss with respect to property contributed to the partnership by a partner shall, except to the extent otherwise provided in paragraph (2) or (3), be allocated among the partners in the same manner as if such property had been purchased by the partnership. (2) Effect of partnership agreement. — If the partnership agreement so provides, depreciation, depletion, or gain or loss with respect to property contributed to the partnership by a partner shall, under regulations prescribed by the Secretary or Ms delegate, be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. (3) undivided interests. — If the partnership agreement does not provide otherwise, depreciation, depletion, or gain or loss with respect to undivided interests in property contributed to a partnership shall be determined as though such undivided interests had not been contributed to the partnership. This paragraph shall apply only if all the partners had undivided interests in such property prior to contribution and their interests in the capital and profits of the partnership correspond with such undivided interests.