Court Opinion

ID: 4499896
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:40.17582+00
Date Added: 2024-06-11T08:00:32.366527
License: Public Domain

*866OPINION.
Van Fossan:
The question presented by this appeal is whether petitioner was, during the taxable year, an association or a partnership within the meaning of the Revenue Act of 1918. Petitioner contends that it was a partnership, while respondent has asserted a deficiency on the theory that it was an association and taxable as a corporation.
*867In the case of Eeoht v. Malley, 265 U. S. 144, 157; 68 L. Ed. 949, 957, the word “ association,” as used in section 1 of the Revenue Act of 1918, is defined as follows:
The word “ association ” appears to be used in the Act in its ordinary meaning. It has been defined as a term “ used throughout the United States to signify a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution oí some common enterprise.”
Other definitions cited in the same opinion are:
A body of persons organized, for the prosecution of some purpose, without a charter, but having the general form and mode of procedure of a corporation.
An organized but unchartered body analogous to but distinguished from a corporation.
Petitioner in this case did not conduct its business upon the methods and forms used by incorporated bodies. It had no capital stock or certificates of interest in its ownership; no officers, trustees or directors; it had no charter and was not created by declaration of a trust or writing of any kind. All of the members of the petitioner actively engaged in the operation of the business and each had a voice in its management. Under such facts we fail to see such similarity between the petitioner and a corporate organization as would warrant the holding that it was an association under the Supreme Court decision above quoted.
In view of our conclusion that petitioner was not an association, it follows that it was not taxable as a corporation. This determination disposes of the principal question in the case, and except for a contention of respondent that a mining partnership does not fall within the category of partnerships as used in the law, it would be perhaps unnecessary to decide whether petitioner was a general partnership engaged in mining, as it contends, or what is technically- known as a mining partnership, as insisted by respondent. Chancellor Kent defined a partnership as “ a contract of two or more competent persons to place their money, effects, labor and skill, or some of them, in lawful commerce or business and to divide the profits and bear the loss in certain proportions.” . A “ mining partnership ” is distinguishable ’from the ordinary commercial or trading partnership chiefly in those characteristics that flow from the fact that in a mining partnership there is no delectus personae. As stated in 40 C. J. 1147:
Except as to the few peculiarities which depend upon this distinction, the law governing a mining partnership is’ not different from that applicable to an ordinary commercial partnership, and elements of the latter are common also to the former.
On the other hand, the same work states:
There is nothing in the nature of mining which forbids the creation of a partnership by an ordinary partnership contract which would draw to the *868relation of the parties all the incidents of a trading partnership, including the delectus personae.
In the present case the partners were well known to each other and some of them were related by blood ties. The selection of the partners is shown to have been made by reason of the trust and confidence of each in the other. No change was made in the membership without the assent of all. Under the facts, it might well be held the petitioner was an ordinary partnership engaged in mining, rather than a “ mining partnership.” If the. contrary conclusion were reached, however, it would not, in our judgment, be fatal to petitioner’s contention, for we can not agree with the assumption of respondent that mining partnerships are not “ partnerships ” under the revenue law.
The absence of the delectus 'personae or such other element as may distinguish a mining partnership from the ordinary trading partnership is not such a fundamental distinction as to require a holding that a mining partnership is not a “ partnership ” as that term is used in section 1 of the Revenue Act of 1918. Nor do we believe that the statement of the Supreme Court in Burk-Waggoner Oil Assn. v. Hopkins, 269 U. S. 110; 70 L. Ed. 67, that “the term ‘ partnership ’ as used in these sections obviously refers only to ordinary partnerships ” was intended to confine the term to-such an extent as necessarily to exclude a mining partnership from its scope. To' accept the opposite conclusion would lead to a situation in which an organization would be without any of the specified taxable groups. We feel that such a strained and technical construction is warranted neither by the letter nor intent of the revenue law.
We have indicated above that petitioner was not an association and thus falls outside the group taxable as corporations. It is either a partnership or merely a group of individuals engaged in a mining enterprise. In either event, the persons composing the operating entity would be taxable as individuals. Petitioner has most, if not all, of the fundamental characteristics of a partnership. No logical reason has been advanced for denying it classification as such and very persuasive reasons are presented for so doing. It is our opinion that petitioner was a partnership within the meaning of the Revenue Act of 1918, and we so hold.
Judgment will ~be entered for petitioner on 15 days’ notice, under Rule 50.