The opinion
Hill, J., dissenting: In my view the majority opinion is based upon the inherently erroneous premise that the law firm here involved was the identical partnership before the addition of petitioner thereto as it was after that event.
The Uniform Partnership Act permits an existing partnership to merge into a new partnership relation without the necessity of liquidating its assets or disrupting its business operations, but that act does not change the characteristics of a partnership. Relative to this subject matter the majority opinion'cites and relies on Callahan v. War Contracts Price Adjustment Board, 13 T. C. 355,359 , and sections 29 and 31 of the Uniform Partnership Act. On this point, the Callahan ca.se cites Helvering v. Archbald, 70 Fed. (2d) 720 (CCA-2), and quotes the following- excerpt therefrom: “Whatever was the rule at common law, the entrance of a new partner with the consent of all the old partners is not now a cause of dissolution under the- Partnership Law of New York.” This quotation appeared to suffice for the purposes there at hand. However, immediately following the excerpt above quoted, the opinion of the Circuit Court proceeded as follows: “Of course it is true that de facto a new firm is.inevitably formed when a new partner is taken in, even though, as here, that event is provided for in the original articles and the agreement admitting him declares that the old articles shall continue in effect.”
The foregoing quoted statement of the Circuit Court clearly shows that the Uniform Partnership Act does not change the age old concept of the inherent characteristics of a partnership. It is still fundamental that “a partnership has no legal existence aside from the members who compose it” and that “for tax purposes it does not exist separate and apart from the partners.” Such statements would seem to be axiomatic, but to further fortify their correctness I cite Alpin J. Cameron, 8 B. T. A. 120, 125, in which is quoted with approval the following language from the opinion of the United States District Court in United States v. Coulby, 251 Fed. 1000 (affirmed percuriam, CCA-2).
* * * the law loots through the fiction of a partnership and treats its profits and its earnings as those of the individual taxpayer. Unlike a corporation, a partnership has no legal existence aside from the members who compose it. The Congress, consequently, it would seem, ignored, for taxing purposes, a partnership’s existence, and placed the individual partner’s share in its gains and profits on the same footing as if his income had been received directly by him without the intervention of a partnership name.
The purpose of section 107 (a) is to lighten the tax burden of an individual in respect of compensation received all or largely in one tax year for personal services rendered over a prescribed minimum period of time. The services must be rendered either by the individual taxpayer or by a partnership of which he is a member. In the instant case the services in question were not rendered by petitioner, but were rendered in part by a partnership of which petitioner was not a member and in part by a partnership of which he was a member. The partnership services rendered prior to January 1, 1941, are in no degree attributable to petitioner or available to him for the application of section 107 (a), for he was not a member of the partnership which rendered such services. From and after January 1, 1941, petitioner was a member of a partnership which continued to render personal services in respect of the same specific matters here relevant which had engaged the services of the partnership existing prior to that date.
It is my view that for the purpose of section 107 (a) petitioner can avail himself only of the personal services rendered by the partnership as it existed from and after he became a member of it on January 1, 1941. The partnership of which petitioner was a member existed only from and after January 1, 1941. This pronouncement is not in conflict with the Uniform Partnership Act, cited and relied on in the majority opinion.
Only as a member of the partnership was petitioner entitled to a share of the net profits thereof. His participation in such profits was based on his services as a member of the partnership and was his only compensation for such services. Obviously, under the agreement by which petitioner became a member of the partnership, the compensation which he was to receive as a partner was for services which he was to render to the partnership within the period of his membership therein.
It is true that under the partnership agreement petitioner participated as a partner in the net profits of the partnership on the basis of certain fixed percentages thereof, including fees which the law firm received after petitioner became a partner, in full compensation for legal services which began at a time long antedating January 1,1941. However, this can not mean that the share of profits which petitioner received was in part compensation to him for services rendered by a partnership of which he was not a member and in which he as a partner rendered no services. The fact that he as a member of the partnership participated in the net profits, including all legal fees received during such membership, does not mean that he participated in the fees as such for partnership services rendered before he became a member. The compensation he received was for his services within the period of such membership, although measured, in part, by an amount equal to a percentage of fees for legal services begun prior to his membership in the firm.
It follows that, in considering whether the provisions of section 107 (a) are applicable to any item or items includible in the gross income of petitioner for the respective tax years involved, the period over which income is ratably allocable can not, for its beginning, antedate January 1,1941.
Leech and Apjnold, JJ., agree with this dissent.