Court Opinion

ID: 4478139
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:54.17448+00
Date Added: 2024-06-11T14:53:55.518210
License: Public Domain

Biack, J., dissenting: The general facts in these proceedings do not appear to be in dispute. Based on the general findings of fact which the majority has made, I would find as ultimate facts at the conclusion of these general findings as follows: Petitioner Frank J. Lorenz in January of 1940 made a gift of a 50 per cent interest in the business which he was at that time conducting as a sole proprietorship under the name of Lorenz Equipment Co. to his wife, Isabel M. Lorenz. On January 10, 1940, the petitioner formed a valid, legal partnership with his wife, Isabel M. Lorenz, to carry on the business of “The Lorenz Equipment Company’’ as a partnership. Petitioner contributed, as his one-half share of the capital of the partnership, the one-half interest which he had retained and Isabel M. Lorenz contributed, as her share of the partnership capital, the one-half interest which had been given to her by her husband. The earnings of the partnership thereafter allocable to the respective partners under the terms of the partnership agreement were the income of the respective partners to whom allocable. This being my construction of what the facts show, it of course follows that I do not agree with the conclusions reached in the majority opinion, which are typified by the concluding part of the opinion, reading in part as follows: It Is concluded that petitioner did not make a bona fide gift of a one-half interest in the business of the Lorenz Equipment Company because of his failure to divest himself of all of the economic incidents of ownership thereof. Francis 3. Tower, 3 T. C. 396. Under all of the facts, the various bookkeeping entries are not controlling. Sitterding v. Commissioner, 80 Fed. (2d) 939. It follows that petitioner’s wife did not make any actual contribution to the capital of the partnership. There is a well settled line of cases holding that a husband engaged in a mercantile or manufacturing business can make his wife a partner in the business by making a bona fide gift to his wife of an interest in the business and then entering into a partnership agreement with the wife, she giving as her contribution to the capital of the partnership the interest given to her by her husband. Some of these cases are Richard H. Oakley, 24 B. T. A. 1082; Kell v. Commissioner, 88 Fed. (2d) 453; Rose v. Commissioner, 65 Fed. (2d) 616; Jasper Sipes, 31 B. T. A. 709; Walter W. Moyer. 35 B. T. A. 1155. In the Moyer case we said: * * * The question to be determined, therefore, is whether the petitioner actually made a gift to his wife of an interest in the business in the ninuunt of $100,000. If he did make a gift to his wife, she made a contribution to the business and hence had an interest in the partnership. * * * As I have already stated, I think (he evidence shows that in tire instant case the petitioner did make a bona fide gift to his wife of an interest in the business and a legal, valid partnership was formed. Therefore. I think the line of cases which I have cited above controls. Clearly the instant proceeding is distinguishable from that line of cases holding that a husband whose earuings are from personal services such as fees from medical practice, attorney fees, accounting fees, insurance commissions, or engineering fees may not make his wife a partner and have his personal service earnings taxed as partnership income. Among such cases are Mead v. Commissioner, 131 Fed. (2d) 323; Schroder v. Commissioner, 134 Fed. (2d) 346, Earf v. Jones, 131 Fed. (2d) 292; Tinkoff v. Commissioner, 120 Fed. (2d) 564, affirming Board of Tax Appeals memorandum opinion; Thomas M. McIntyre, 37 B. T. A. 812; Harry C. Fisher, 29 B. T. A. 1041; affd., per curiam, 74 Fed. (2d) 1014. The earnings of the “Lorenz Equipment Company,” a partnership, during the taxable year here involved were not personal service earnings. That fact appears from the following findings in the majority opinion: “During 1940 the gross profit of the business was $55,059.10, which was derived as follows: Profit on sales $37,322.80; commission on direct sales, $3,480.50; rental machinery income, $13,647.09; shop income, $608.71.” Therefore, in the instant proceeding I think the decision should be for the petitioner as to this issue and I dissent from the view that the entire partnership earnings are taxable to petitioner. Arundell, Leech, and Disnev, JJagree with this dissent.