Appendix — Fike v. Commissioner

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APPENDIX “A”

CERTIFIED FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ESTATE OF ERNEST D. SKAGGS, Deceased,

CAROLYN C. FIKE, EXECUTRIX, AND

CAROLYN C. FIKE, FORMERLY

CAROLYN C. SKAGGS,

Plaintiffs and Respondents,

vs.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appeliee

CA NO. 81-7058

TAX No. 6546-78

OPINION

COURT OF APPEALS

FOR THE NINTH CIRCUIT

APPEAL from the Decision of the United States Tax Court

Argued and submitted February 9, 1982

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Before: FARRIS, FERGUSON and NELSON, Circuit Judges

PER CURIAM:

Petitioners appeal the Tax Court’s decision that absent a

timely election under 1LR.C. § 754, the bases of the partnership

assets could not be adjusted on the death of a partner under

LR.C. § 1014 (a) and (b) (6) until the partnership was terminated.

The petitioners contest the Tax Court's ruling that the death of a

partner does not, in and of itself, serve to terminate the

|. FACTS

Ernest Skaggs, decedent, and Carolyn C. Skaggs, his

widow, conducted a farming business as equal partners in a two-

member partnership known as the Santa Rita Ranch Company.

They owned their respective capital interests in the partnership

as community property. The partnership agreement provided

that the partnership would terminate upon the death of either

partner. The agreement also provided that, in such a case, the

estate of the deceased partner could determine whether the

partnership should elect to adjust the bases of the partnership

assets under section 754 of the LR.C.

The husband died on December 31, 1973, the last day of the

partnership’s 1973 tax year. Community property, including

their respective partnership interests, became subject to

probate administration. The wife was the sole beneficiary under

the husband's will and was appointed executrix of his estate. No

Section 754 election was filed by the partnership. Subsequent to

December 21, 1973, the wife exercised full management control

over the business. The debts outstanding as of December 31,

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1973, were paid from subsequent crop income and collection of

accounts receivable during the period between January 10, 1974

and September, 1974.

In their 1974 tax returns, the wife and the estate of her

husband each reported one-half of the income and expenses

derived from the farming operation in that year. In so doing, they

assigned stepped-up basis, under § 1014 of the LR.C., to the

crops sold and depreciable assests used in the business to reflect

the fair market value of those items on the date of decedent’s

death. This had the effect of reducing the federal income tax for

1974 by $110,113 for the wife and $151,858 for the estate. The

Commissioner disallowed the adjustment and the Tax Court

affirmed.

The Tax Court's findings of fact and inferences drawn from

those facts will be upset on appeal only if clearly erroneous, the

appellant having the burden of showing such clear error. Geneva

Drive In Theatre, Inc. v. C.LR., 622 F.2d 995 (9th Cir. 1980). Due

to its special expertise, the Tax Court’s determination should

not be overruled unless some unmistakable question of law

mandates such a decision. Sibla v. C.LR., 611 F.2d 1260 (9th Cir.

1980).

The petitioners argue that the partnership was terminated

on December 31, 1973, the date of the husband’s death. In a

thorough opinion the Tax Court fully considered the petitioners

arguments. See Estate of Skaggs v. Commissioner, 75 T.C. 191

(1980). Section 708 of the Code and Treasury Regulation 1.708-1

define when a partnership is terminated for federal income tax

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purposes.' Under the regulations, a partnership does not

terminate for tax purposes until the winding up of the

partnership affairs have been completed. Further, the

regulations indicate that the death of a partner does not

necessarily terminate a partnership. Treas. Reg. § 1.708-

1(b)(1)(i) and (iia). The Tax Court found that although the

partnership was dissolved on December 31, 1973, the process of

terminating the partnership continued into 1974. Id. at 196. It

concluded that absent a timely election under .R.C. § 754, the

bases of the partnership assets could not be adjusted on

December 31, 1973.

We affirm.

'Treas. Reg. § 1.708-1, Continuation of partnership.

(a) General rule. For purposes of subchapter K, chapter 1 of the Code,

an existing partnership shall be considered as continuing if it is not

terminated.

(b) Terminatior — General rule. (i) A partnership shall terminate when the

operations of the parinership are discontinued and no part of any business,

financial operation, or venture of the partnership continues to be carried on by

any of its partners in a partnership... [WJhere partners DEF agree on April 30,

1957, to dissolve their partnership, but carry on the business through a winding

up period ending September 30, 1957, when all remaining assets, consisting

only of cash, are distributed to the partners, the partnership does not terminate

because of cessation of business until September 30, 1957.

(a) Upon the death of one partner in a 2-member partnership, the

partnership shall not be considered as terminated if the estate or other

successor in interest of the deceased partner continues to share in the profits

or losses of the partnership business.

(ii) For purposes of subchapter K, chapter 1 of the Code, a partnership

taxable year closes with respect to all partners on the date on which the

partnership terminates.

The date of termination is:

(a) For purposes of section 708(b)(1)(A), the date on which the winding up of

the partnership affairs is completed.

i. oe

-

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ESTATE OF ERNEST D. SKAGGS, Deceased,

CAROLYN C. FIKE, EXECUTRIX, AND

CAROLYN C. FIKE, FORMERLY

CAROLYN C. SKAGGS,

Petitioner-Appellant,

o

vs.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

No. 81-7058

ORDER AMENDING OPINION

AND

DENYING REHEARING

COURT OF APPEALS

FOR THE NINTH CIRCUIT

FILED

MAY 27, 1982

PHILLIP B. WINBERRY, Clerk

By

; Deputy

Before: FARRIS, FERGUSON, and NELSON, Circuit Judges.

The opinion filed in the above matter on March 24, 1982, is

amended as follows:

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At page 1265, right hand column, after “December 31,

1973,” add footnote 2:

2Our review is limited to these facts where a husband and

wife executed a formal partnership agreement. The Tax

Court decision and this decision neither deal with nor a»ply to

an ordinary community property situation not invo'ving a

formal partnership agree: ,ent.

The panel as constituted above has voted to deny the

petition for rehearing and to reject the suggestion for rehearing

en banc.

The full court has been advised of the suggestion for

rehearing en banc, and no judge of the court has requested a

vote on it. Fed. R. App. P. 35(b).

The petition for rehearing is denied and the suggestion for

rehearing en banc is rejected.

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OPINION OF THE UNITED STATES TAX COURT

ESTATE OF ERNEST D. SKAGGS, Deceased,

CAROLYN C. FIKE, EXECUTRIX, AND

CAROLYN C. FIKE, FORMERLY

CAROLYN C. SKAGGS,

vs.

COMMISSIONER OF INTERNAL REVENUE,

ited

Docket No. 6546-78. Filed October 30, 1980.

Held, unless a timely election was made under sec. 754,

LR.C. 1954, the bases of the assets of a California husband-wife

partnership were not adjusted on the death of the husband

under sec. 1014(a) and (b)(6), LR.C. 1954, even though the bases

of the interests of the respective partners were adjusted and

both the deceased husband’s interest and the surviving wife’s

interest were administered pursuant to State law under the

supervision of the local superior court. Held, further, a

purported election under sec. 754, 1 R.C. 1954, to have the bases

of the assets of tle partnership adjusted for the calendar year

1973, made in the patition filed in the instant case, is not effective.

Philip H. Wile, for the petitioners.

Henry E. O’Neill, for the respondent.

OPINION

FEATHERSTON, Judge: Respondent determined

deficiencies in petitioners’ Federal income tax for 1974 as

follows: |

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Petitioner Deficiency

Estate of Ernest D. Skaggs ...... $151,858

Carolyn C. Fike .............05- 110,113

Due to concessions by petitioners, the following issues

remain for decision:

(1) Whether certain assets held by a partnership, whose

members, Ernest D. Skaggs and his wife, Carolyn (now Carolyn

C. Fike), held their partnership interests as community

property, were acquired from or passed from a decedent upon

Ernest D. Skaggs’ d »th so that the bases of the assets of the

partnership were then adjusted under section 1014(a)' and

(b)(6).

(2) If the bases of the assets were not adjusted at Ernest D.

Skaggs’death, whether Carolyn C. Fike in the petition filed in the

instant case made a valid election under section 754 to permit an

adjustment in the bases of those assets pursuant to sections

743(b) and 755. .

When the petition was filed, Carolyn C. Fike (petitioner),

who has filed this action in her individual capacity and 1s

executrix of the Will of Ernest D. Skaggs (Ernest), was a legal

resident of Raymond, Calif. She filed 1974 Federal income tax

returns for herself and for the estate with the Director, Fresno

Service Center, Fresno, Calif.

Before his death on December 31, 1973, Ernest and

petitioner, husband and wife, conducted a farming business as

equal partners in a two-member partnership known as Santa

Rita Ranch Co. (the partnership). They owned their capital

interests in the partnership as community property. The

1All section references are to the Internal Revenue Code of 1954, as in

effect during the tax year in issue, unless otherwise noted.

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partnership maintained its records on the basis of a calendar

year.

A written memorandum of partnership agreement was

executed on April 22, 1967, and effective as of January 1, 1967.

The partnership agreement (in article 8) provided that the

partnership of Ernest and petitioner was to “terminate” on the

death of either partner. It further provided (in article 10):

In the event of the death of either partner at a time when the

partnership shall not have already made the election provided in

Section 754 of the Internal Revenue Code, as amended, to adjust the

basis of the partnership property, the estate of such deceased partner

shall be entitled ¢~ determine whether the partnership shall inake such

Prior to December 31, 1973, the partnership was engaged in

farming 1,736 acres of land in Merced County, Calif., producing

cotton, corn, sugar beets, alfalfa, and other annual crops. The

land was leased by the partnership under an oral lease from

Lillian Christiana. In July 1973, the partnership assumed control

over the operation of certain property known as the “Raymond

Ranch.” This property was used primarily as grazing land under

contractual arrangements with various cattle owners who were

permintted to graze their cattle on the property for prescribed

fees.

As of December 31, 1973, when Ernest died, the partnership

owned certain depreciable assets and certain crops. At that

time, the partnership held 435 bales of harvested but unsold

cotton, a sugar beet crop, then estimated at 11,550 tons, which

was in the ground subject to harvest in the spring of 1974, and

accounts receivable for corn and milo harvested and delivered

but not yet paid for by purchasers. The partnership was heavily

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indebted to the Bank of America for crop loans in the amount of

$158,000 to cover the cost of producing 1973 crops which had

not yet been sold or for which sales proceeds had not yet been

collected. Additional debts in the amourit of $47,687.14 were

outstanding. To realize proceeds trom the crop assets and to

repay the bank loan, it was essential that business operations

conducted by the partnership prior to December 31, 1973, be

continued for the purposes of collecting the receivables, selling

unsold crops, and harvesting and selling the beet crop.

No notice of dissolution of the partnership was published in

any newspaper. Nor was any affidavit showing the publication of

such a notice filed with the county clerk.

All of the community property owned by Ernest and

petitioner at the date of his death, including both the partnership

interest of Ernest and that of petitioner, became subject to

probate administration in the Merced County Superior Court

(hereinafter the Superior Court). Under Ernest’s will, which was

admitted to probate on February 4, 1974, petitioner was

authorized to carry on the farming business owned by the

partnership. On February 28, 1974, as executrix, she filed a

petition with the Superior Court seeking authority to continue

the farming operation, and her petition was granted on March

15, 1974. From December 31, 1973, as executrix, petitioner

and operations. She completed the sale of crops produced in

1973, collected the proceeds from the sale of those crops,

handled the production and sale of crops maturing in 1974, and

began preparations for the production of 1975 crops. The debts

outstanding as of December 31, 1973, were paid from crop

income and from collection of accounts receivable or were

otherwise discharged during the period beginning January 10,

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1974, and ended September 1974.

On November 7, 1974, Santa Rita Farms, Inc., was

incorporated, and the corporation leased the farm property

which had been leased and operated by the partnership. The

lease to the corporation preserved for “the pnur tenant” the right

to harvest crops still growing on the land on November 7, 1974.

The corporation paid Ernest’s estate $70,000 to reimburse it for

expenses paid with respect to future crops not ready for harvest

on November 8, 1974. The farming business conducted under

petitioner’s supervision was continued to complete the harvest

and sale of the crops not conveyed to the corporation and to pay

expenses incurred in the business.

On December 6, 1974, petitioner acquired 500 shares of the

capital stock of Santa Rita Farms, Inc., all of the shares issued

prior to February 27, 1975. Before February 10, 1975, all

obligations of the farming business had been discharged. On

February 27, 1975, she acquired an additional 15,000 shares in

exchange for certain equipment and additions to rented farm

labor houses, all of which was used in the farming business of the

partnership before Ernest’s death. These items were distributed

to petitioner in her individual capacity from the estate pursuant

to court order on February 26, 1975.

Federal and State income tax returns for the partnership

were filed for 1973. Pursuant to advice of counsel, no further

partnership returns were filed for the partnership and no election

under section 754 was filed on any return. No application for an

extension of time for filing either the 1973 partnership return or a

section 754 election was ever made.

The estate and petitioner filed 1974 Federal income tax

returns, each of which reported one-half of the 1974 collections

and crop income. In reporting income derived from the sale of

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crops during 1974, new bases were claimed by the estate and by

petitioner in an amount equal to the fair market value of the

crops on hand as of December 31, 1973. The claimed bases

represented a total increase of $415,936 over the bases of the

same assets in the hands of the parinership prior to December

31, 1973. No basis was claimed with respect to the accounts

receivable.? Depreciation deductions claimed by Ernest’s estate

and petitioner for the period of the continued operation of the

farming business were computed on an amount equai to the fair

market value of the depreciable assets as of December 31, 1973.

In the notices of deficiency issued to petitioner and to

Ernest’s estate, respectively, respondent made the following

determination:

The deduction of $207,968.00 claimed as basis in growing crops is

not allowed because it has not been established that you acquired such

assets from the decedent within the provisions of section 1014 of the

Internal Revenue Code of 1954. Accordingly, your taxable income is

increased by $207,968.00.

Due to this denial of the claimed adjustment in basis, respondent

also disallowed a portion of the depreciation claimed on assets

used in the farming business. In her petition filed June 16, 1978,

petitioner sought to elect under section 754 to adjust the bases of

partnership assets pursuant to section 743(b).

?The accounts receivable were “income in respect of a decedent” under

sec. 691, and under secs. 741 and 1014(c) did not receive a step-up in basis.

Quick’s Trust v. Commissioner, 444 F 2d 90, 92 (8th Cir. 1971), affg. per curiam

54 T.C. 1336 (1970). Accord, Woodhall v. Commissioner, 454 F 2d 226, 228-229

(9th Cir. 1972), affg. a Memorandum Opinion of this Court. H. Rept. 1337, to

accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 70-71 (1954).

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1. Section 1014 Basis Adjustment

The parties agree that under subsection (a) of section

1014,3 as in effect during the period in issue, the basis of property

which was acquired from or which passed from a decedent is

generally its fair market value at decedent’s death. In the case of

community property which was held by a decedent and by a

surviving spouse and at least one-half of which was includable in

the decedent’s gross estate, subsection (b)(6)* of that section

provides that the surviving spouse’s one-half share of the

community property shall be treated as property s~quired from

the decedent and its basis shall also be adjusted. See sec. 1.1014-

2(c)(2), Income Tax Regs. The parties differ, however, as to what

property of the decedent in the instant case qualifies for the basis

'SEC. 1014. BASIS OF PROPERTY ACQUIRED FROM A DECEDENT.

(a) IN GENERAL.-Except as otherwise provided in this section, the basis.

of property in the hands of a person acquiring the property from a decedent or

to whom the property passed from a decedent shall, if not solid, exchanged, or

otherwise disposed of before tne decedent’s death by such person, be the fair

market value of the property at the date of the decedent's death * * *

‘Sec. 1014(b) provides that-

the following property shall be considered to have been acquired from or to

have passed from the decedent:

* 7 - * . . * o o

(6) In the case of decedents dying after December 31, 1947, property which

represents the surviving spouse’s one-half share of community property held

by the decedent and the surviving spouse under the community property laws

of any State, Territory, or possession of the United States or any foreign

country, if at least one-half of the whole of the community interest in such

property was includible in determining the value of the decedent’s gross estate

under chapter 11 of subtitle B (section 2001 and following, relating to estate tax)

or section 811 of the Internal Revenue Code of 1939,

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adjustment.

According to respondent, the community property held by

petitioner and Ernest at his death was not the partnership assets

but rather the partnership interests. Citing section 708(a) and

(b)(1), he contends that the partnership continued after Ernest’s

death and that the assets therefore continued to be held in

tenancy in partnership. Although the partnership interests

qualified for the section 1014 basis adjustment, in respondent’s

view, a corresponding adjustment in the bases of the partnership

assets could be effected only by a partnership election under

section 754. Because that election was not timely made by the

partnership, respondent argues, the section 1014 basis

adjustment applies only to the partnership interests.

In petitioner’s view, the partnership terminated on Ernest’s

death under the terms of the partnership agreement as well as

under the principles of Federal tax and California law. Upon

termination, the community property subject to probate

administration in Ernest’s estate included, petitioner contends,

the partnership assets as well as the partnership interests.

Therefore, the argument goes, the bases of the partnership

assets are adjusted under section 1014.

We uphold respondent’s determination. While, at first

blusn, it may seem incongruous that this husband-wife

partnership continued after Ernest’s death until its affairs were

wound up, we thin! it quite clearly did.

owned their partnership interests as community property at

Ernest’s death. Those interests, as the parties agree, thus qualify

for basis adjustments under section 1014(a) and (b)(6).

Petitioner does not contend, and the record does not show, that

any of the partnership assets were distributed to Ernest before

his death, and the bases of those assets, not the partnership

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interests, are here at issue.

Under California law, Ernest’s death did not cause the

specific partnership assets, as distinguished from the

partnership interests, to pass from him or his estate to petitioner.

A partner’s interest in a partnership under California law is “his

share of the profits and surplus,” and he is “co-owner with his

partners of specific partnership property,” holding, however, as

a “tenant in the partnership.” Cal. Corp. Code secs. 15024,

15025(1), 15026(West 1977).5 Kenworthy v. Hadden, 87 Cal.

App. 3d 696, 151 Cal. Rptr. 169, 172(3d Dist. Ct. App. 1978).

Unless the partners have provided otherwise in a written

agreement which they have all signed, the death of a member

does not cause an immediate distribution of the partnership

assets but causes a firm dissolution, which is defined as “the

change in the relation of the partners caused by any partner

Ceasing to be associated in the carrying on as distinguished from

the winding up of the business.” Cal. Corp. Code secs. 15029,

15031(4) (West 1977).

Upon the dissolution of a partnership, a partner has the

right to an accounting of the value of his partnership interest, in

5Sec. 15024. Property rights

The property rights of a partner are (1) his rights in specific partnership

property, (2) his interest in the partnership, and (3) his right to participate in the

management.

Sec. 15025. Ownership of specific partnership property

(1) Co-owner; tenancy in partnership. A partner is co-owner with his

partners of specific partnership property holding as a tenant in partnership.

Sec. 15026. Interest in partnership

A partner’s interest in the partnership is his share of the profits and

surplus, and the same is personal property.

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other words, the value of his ratable share of firm profits and

surplus remaining after both satisfaction of creditors’ claims

against the partnership and an accounting between the partners.

Cal. Corp. Code secs. 15038, 15040, 15042, 15043 (West 1977).

Dissolution does not, however, vest the partners with ownership

in specific partnership assets. Comstock v. Fiorella, 67 Cal.

Rptr. 104, 105-106 (4th Dist. Ct. App. 1968). Indeed, even when a

husband-wife partnership is dissolved by the death of the

husband, partnership “assets, debts, and credits remain distinct

from those of its late members.” Electric Equipment Co. v.

Heineman, 7 Cal. App. 2d 792, 45 P.2d 830,831 (2d Dist. Ct. App.

1935).¢

The record contains no written agreement providing that

dissolution would not occur at the death of either petitioner or

Ernest. Therefore, it is clear that, under California law, Ernest's

death caused a dissolution. The dissolution did not, however,

transform the interests of Ernest and petitioner in the firm assets

into direct ownership of those assets. The liquidation of the

partnership or the winding up of its affairs remained to be

“in Electric Equipment Co. v. Heineman, 7 Cal. App. 2d. 792, 45 P.2d 830,

831 (2d Dist. Ct. App. 1935), involving a husband-wife partnership, the court

explained:

“When a partnership is dissolved by the death of one of the partners, its

assets, debts, and credits remain distinct from those of its late members. The

surviving partners should proceed to wind up the affairs of the partnership, pay

its debts out of the assets, and divide the residue, if any, among those who are

entitled thereto.”

This case arose under the State law as it stood prior to the adoption of the

California version of the uniform partnership law, but its holding is consistent

with *he law as it stood at Ernest's death.

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accomplished. Hence, it cannot be said that, by operation of

California law, the partnership assets became property acquired

from or passing from decedent, within the meaning of section

1014.

Significantly, moreover, the Inter=al Revenue Code, not

State law, determines who is a partners and what is a partnership

for Federal tax purposes. Secs. 761(a) and (b), 7701 (a2). Evans

vu. Commissioner, 447 F.2d 547, 550, 552(7th Cir. 1971), affg. 54

T.C. 40 (1970); Baker Commodities, Inc. v. Commissioner, 415

F.2d 519, 525 (9th Cir. 1969), affg. 48 T.C. 374 (1967), cert.

denied 397 U.S. 988 (1970). And it is clear that on December

31,1973, the partnership did not terminate, within the meaning of

section 708’ (the Code provision which determines whether a

partnership is considered as terminated). A partnership is

“considered” as terminated “only if,” in pertinent part, no part of

its business “continues to be carried on by any of its partners ina

partnership.” Sec. 708(b)(1)(A); sec. 1.708-1(b)(1){i), Income

Tax Regs. With respect to a two-member partnership, the

regulations expressly provide that the firm shall not be

considered as terminated upon the death of one partner if the

estate or other successor in interest of the deceased partner

"SEC. 708. CONTINUATION OF PARTNERSHIP.

(a) GENERAL RULE.-For purposes of this subchapter, an existing

partnership shail be considered as continuing if it is not terminated.

(b) TERMINATION..

(1) GENERAL RULE.-For purposes of subsection (a), a partnership

shall be considered as terminated only if-

(A) no part of any business, financial operation, or venture of the

partnership continues to be carried on by any of its partners in a partnership, or

(B) within a 12-month period there is a sale or exchange of 50 percent

or more of the total interest in partnership capital and profits.

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“continues to share in the profits or losses of the partnership

business.” Sec. 1.708-1(b)(1)(iMa), Income Tax Reys.* Haines v.

United States, an unreported opinion (D. N.J. 1976,37 AFTR 2d

76-768, 76-1 USTC par. 9222.)

When Ernest died, as stated above, the partnership owed

debts in excess of $200,000. Unless otherwise discharged after

his death, those partnership debts were paid in 1974 from crop

income and collections of accounts receivable of the farming

business. '° Payment of the partnership debts relieved the estate

*Sec. 1.708-1(b)1)(iMa), Income Tax Regs., provides as follows:

“Upon the death of one partner in a 2-member partnership, the

partnership shall not be considered as terminated if the estate or other

successor in interest of the deceased partner continues to share in the profits

or losses of the partnership business.”

%m Glassell v. Prentiss, 175 Cal. App. 2d 599, 346 P.2d 895, 901 (4th Dist.

Ct. App. 1959), the court explained:

“In settling accounts between partners after dissolution, the liabilities of

the partnership to creditors first must be paid; secondly, the liabilities owing to

partners other than for capital and profits, and thereafter the liabilities owing to

partners in respect to capital and profits. * * *

If there is not sufficient partnership property to satisfy the liabilities, each

partner must contribute his share towards such satisfaction, and any partner

who contributes more than his share may recover from a defaulting partner the

amount which was pe? in eavess «f b's liability. * * *”

See also Cal. Corp. Code sec. 15036(4) (West 1977}.

The second report of petitioner, as executrix, filed in the Superior Court,

as well as the Court's order approving her report, shows that only one

creditor's claim was filed against the estate as such-a claim by petitioner herself

in the amount of $4,182.45. The partnership’s debts thus were not treated as

debts of the estate. Nor is there any evidence in that report or any of the other

Superior Court documents in evidence indicating that the proceeds of the

partnership crops were controlled by, or even reported to, the court.

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of liability for them. Ernest’s and petitioner’s one-half shares of

the partnership interests remained in the partnership subject to

creditors’ claims after December 31, 1973."' Indeed, the 1974

return filed by the estate shows that the estate treated as its own

one-half of the collections and the crop income. Accordingly, it is

clear that Ernest’s estate continued to share in the profits of the

meaning of section 708(a) and (b)(1), did not terminate until after

Ernest’s death. Sec. 1.708-1(b)(1)(i(a), Income Tax Regs.

Ernest’s death, petitioner would distinguish cases addressing the

issue whether post-dissolution activities were sufficient to

constitute continuation of a parinership under section 708.

Baker Commodities, Inc. v. Commissioner, 415 F.2d 5:9 (9th

Cir. 1969), affg. 48 T.C. 374 (1967), cert. denied 397 U.S. 988

(1970); Foxman v. Commissioner, 41 T.C. 535 (1964), affd. 352

F.2d 466 (3d Cir. 1965); Ginsberg v. United States, 184 Ct. Cl.

444, 396 F.2d 983 (1968). While the post-December 31, 1973,

business activities in the instant case were extensive, our

for Federal tax purposes is based not on the extent of activity

conducted, but on the facts that the partnership was not wound

up at Ernest’s death and the estate continued to share in the

partnership profits or losses. Therefore, we do not discuss

petitioner

"One commentator has opined that the estate shares in partnership

profits or losses if the decedent's capital interest remains in the partnership

subject to claims of partnership creditors. W. McKee, W. Nelson & R.

Whitmire, Federal Taxation of Partnerships and Partners, par. 12.04{2], n. 34

(1977).

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petitioner's attempts to distinguish other cases to which section

1.708-1(b)(1)(iMa), Income Tax Regs., does not apply. Evans v.

Commissioner, supra; Maxcy v. Commissioner, 59 T.C. 716

(1973); Estate of Panero v. Commissioner, 48 T.C. 147 (1967).'?

Petitioner has cited no provision of the Internal Revenue

Code, and we know of none, which would characterize the

partnership assets as property qualifying for the section 1014(a)

and (b)(6) basis adjustment, i.e, property acquired from a

decedent or property in the hands of a person to whom it passed

from a decedent. To the contrary, subchapter K of chapter 1 of

the Code expressly contemplates a situation in which the basis

of a partnership interest is adjusted under section 1014 while the

bases of firm assets are unchanged. Section 743(a) provides

that:

The basis of partnership property shall not be adjusted as the

result of a transfer of an interest in a partnership * * * on the death

of a partner unless the election provided by section 754 (relating to

optional adjustment to basis of partnership property) is in effect

with respect to such partnership.

Estate of Dupree v. United States, 391 F.2d 753, 758 (5th Cir.

1968). Thus, only after filing a timely section 754 election may the

%The deemed distribution of partnership property, described in sec.

1.708- 1(b)( 1)iv), Income Tax Regs., does not apply in the instant case. Such a

deemed distribution applies “if a partnership is terminated by a sale or

exchange of an interest.” A disposition of a partnership interest by bequest or

inheritance is not a sale or exchange of an interest, within the meaning of the

regulation. Sec. 1.708-1(b)(1)(ii), Income Tax Regs.

firm adjust the bases of partnership assets under section 743(b)%

with respect to the transferee partner. Courts have recongnized

that under these Code sections, in the absence of a valid

election, the transferee of a partnership interest may have a basis

for that interest far larger than his ratable share of the adjusted

basis of partnership property. Estate of Dupree v. United States,

391 F.2d at 758; Jones v. United States, 213 Ct. Cl. 529, 532 and

n. 3,553 F.2d 667, 668 (1977).

As we understand her argument, petitioner links together

several Federal income tax and State law provisions to support

her theory that the bases of partnership assets were adjusted at

Ernest’s death. She first argues that the partnership was

terminated on December 31, 1973. We have pointed out that

Ernest’s estate continued to share in the profits of the

partnership and that it did not, therefore, terminate for Federal

"SEC. 743. OPTIONAL ADJUSTMENT TO BASIS OF PARTNERSHIP

PROPERTY.

(b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY .- In the

case of a transfer of an interest in a partnership by sale or exchange or upon the

death of a partner, a partnership with respect to which the election provided in

section 754 is in effect shall-

(1) increase the adjusted basis of the partnership property by the excess

of the basis to the transferee partner of his interest in the partnership over his

proportionate share of the adjusted basis of the partnership property, or

(2) Decrease the adjusted basis of the partnership property by the

excess of the transferee partner's proportionate st.are of the adjusted basis

of the partnership property over the basis of his interest in the partnership.

Under regulations prescribed by the Secretary or his delegate, such increase or

decrease shall constitute an adjustment to the basis of partnership property

with respect to the transferee partner only. * * *

A-22

tax purposes. Citing article 8 of the partnership agreement,

which provided that “the partnership shall terminate upon the

death of either partner,” however, petitioner argues that the

partnership terminated at Ernest’s death. Yet article 10 of the

agreernent, set out above, provides that the estate of a deceased

partner is entitled to determine whether the partnership will, if it

has not already done so, elect under section 754 to adjust the

bases of partnership property. Implicit in this provision is an

assumption that the partnership would continue for some period

of time after the death of one of the two partners.

As we.construe the agreement as a whole, the word

“terminate” as used in article 8 denotes not an immediate

termination within the meaning of either California partnership

law or subchapter K but rather a dissolution to be followed in due

course by a winding up of partnership affairs. A dissolution is not

synonymous with a termination. Rather a dissolved partnership

“continues until the winding up of partnership affairs is

completed.” Cal. Corp. Code secs. 15030, 15031(4) (West

1977)."* Yahr-Donen Corp. v. Crocker, 80C2a' Aop. 2d 788, 182

P.2d 209, 211 (2d Dist. Ct. App. 1947). Winding up involves

payment of partnership liabilities and settling of accounts

15041 (West 1977); Comstock v. Fiorello, 260 Cal. App. 2d 262,

“Sec. 15030. Effect of dissolution

On dissolution the partnership is not terminated, but continues until the

winding up of partnership affairs is completed.

Sec. 15031. Causes of dissolution

Dissolution is caused:

(4) By the death of any partner unless otherwise provided in * agreement

in writing signed by all the partners before such death;

A-23

67 Cal. Rptr. 104, 106 (4th Dist. Ct. App. 1968); Glassell v.

Prentiss, 175 Cal. App. 2d 599, 346 P.2d 895, geo Ct.

App. 1959). ‘

As stated above. thc partnership had on hand accounts

receivabie, harvested crops, and growing crops as well as other

assets and had large amounts of indebtness outstanding on

December 31, 1973, when Ernest died. The crops were not all

sold for several months, and the liabilities were not fully

discharged until September 1974. Hence, the partnership was

dissolved but was not terminated at Ernest’s death.

Since the winding up of the partnership was not completed

at Ernest’s death, the partnership did not then terminate even if,

as petitioner contends, her conduct of the farming business after

December 31, 1973, exceeded the authority of a surviving

partner to wind up partnership affairs. As petitioner

acknowledges, the partnership is bound even on transactions

undertaken by a surviving partner in excess of the authority

conferred by Cal. Corp. Code secs. 15033 and 15035(1) (West

1977) if the other party to the tansaction knew of the partnership

prior to dissolution, had no knowledge or notice of the

dissolution, and, in the case of one who was not prior partnership

creditor, the fact of dissolution had not been advertised in a

newspaper in accordance with Cal. Corp. Code secs.

15035(1)(b)(I]) and 15035.5 (West 1977).

The record does not reveal (i.e., petitioner has not carried

the burden of proving) who are the other parties to those

transactions which petitioner describes as outside the scope of

winding up the partnership, whether those parties knew of the

partnership prior to dissolution, or whether they had notice or

knowledge of dissolution. However, the parties have stipulated

A-24

that no notice of dissolution was published. In fact, as the parties

have stipulated, the name “Santa Rita Ranch Co.” was used in

continuing the business “in a conscious effort to create an

impression of continuity with third parties.” All bank accounts

maintained by the partnership before December 31, 1973, were

kept in the name of Santa Rita Ranch Co. Checks on those

accounts bore no notation that the accounts had become those

of Ernest’s estate. We cannot, therefore, conclude that the

partnership was not bound by these transactions under

California law.

Petitioner further cites Cal. Prob. Code sec. 202 (West

1956),'5 and Cal. Civ. Code sec. 5125 (West 1970),'* which, as in

effect in 1973, subjected both the husband's and the wife’s shares

of community personal property, including partnership

interests, to probate administration upon the husband’s death.

Petitioner states that she applied fur and was granted permission

by the Superior Court to continue the farming business in her

capacity as executrix of the estate. The Superior Court, she

argues, treated the partnership as terminated and its assets as

community property administered in the estate. On this theory,

petitioner concludes that the farming business became part of

Cal. Prob. Code sec. 202(West 1956) provided in part that:

“Community property passing from the control of the husband * * * by

reason of his death * * * is subject * * * to administration and disposal under the

provisions of Division 3 [Administration of Estates of Decedents] of this code *

se

Cal. Civ. Code sec. 5125 (West 1970) provided in part that:

“the husband has the management and control of the community personal

property ** * *

A-25

the estate and was carried on in Ernest’s estate and by his

executrix rather than in the partnership and by a partner for

State law purposes. Noting that Federal income tax law

determines the existence and termination of a partnership but

that local law governs in determining the legal relationships of

partners and their interests in partnership assets (sec. 301.7701-

l(c), Proced. & Admin. Regs.), she maintains that the

partnership is, therefore, considered as terminated under

section 708(b)(1)(A), quoted in note 7 supra, for Federal tax

purposes as well.

We agree with petitioner that both her and Emest’s

partnership interests were subject to probate administration in

Ernest’s estate. By stating that the executrix controls the assets

in the estate subject to court jurisdiction, however, she

misconstrues both Cal. Prob. Code sec. 300 (West 1956), and

the cases on which she relies. Under these authorities, the

executrix, as an officer of the court, merely has possession; the

Superior Court controls the assets. In re Estate of Cole, 240 Cal.

App. 2d 324, 49 Cal. Rptr. 419, 423 (1st Dist. Ct. App. 1966); In re

Algee’s Estate, 158 Cal. App. 2d 691, 323 P.2d 221, 226 (2d Dist.

Ct. App. 1958). Though administered in the probate court,

petitioner’s half interest in the partnership never became a part

cf Ernest’s estate.'? Subjecting the partnership interests to

"In Bishop v. Commissioner, 152 F.2d 389, 391 (9th Cir. 1945), revg. and

remanding 4 T.C. 588 (1945), the court explained:

“Tle Tax Court appears to have assumed that, upon decedent’s death,

petitioner’s half of the community property ceased to he hers and became a

part of decedent's estate. The assumption is incorrect. Petitioner’s half, like

decedent's half, was subject to adminis*zation, but, unlike his half, her half

never became a part of his estate. [Fn. refs. omitted. |

A-26

probate administration, moreover, did not effectuate a

liqvidation of the partnership and the winding up of its affairs.

That remained to be done.

We do not agree with petitioner’s further argument that she

is taxable on one-half the income from the farming business not

“aS a partner in a continuing partnership” but as the surviving

spouse whose one-half the interest in the community property

was subject to probate administration in Ernest’s estate. Bishop

v. Commissioner, 152 F.2d 389, 390 (9th Cir. 1945), revg. and

remanding 4 T.C. 588 (1945), cited by petitioner, does not

support that position. Construing California law, the Bishop

court held that the taxpayer’s one-half share of community

property, although subject to probate administration in her

husband’s estate, belonged to her after, as well as before, her

husband’s death. Therefore, income attributable to that share

was taxable to her. Bishop v. Commissioner, supra at 390-391.

Our conclusions that petitioner remained the owner of her

partnership interest until the affairs of the partnership were

wound up and that the partnership continued after December

31, 1973, for State law as well as Federal tax purposes are

Moreover, the fact that petitioner applied for and was

granted authority from the Superior Court to operate the

farming business does not, as she maintains, mean that she had

no authority under California law to operate the partnership as

surviving partner. As our discussion above indicates, she was

able to bind the partnership on the transactions she undertook

after December 31, 1973. California partnership law expressly

provides (Cal. Corp. Code sec. 15045 (West 1977):

A-27

The rights and duties of surviving partners, the leg:l

representatives of deceased partners, the creditors of such partners,

and the creditors of the partnership * * * shall be given full force and

effect notwithstanding any provision inconsistent therewith in the

Probate Code * * *

Therefore, we cannot, as petitioner would have us, conclude

that, under State law, the farming business was operated in the

estate by the executrix rather than in a partnership by a partner.

It is true, as petitioner observes, that the Superior Court

stated in its order dated March 15, 1974, that the partnership

terminated upon Ernest’s death, and that the partnership assets,

as community property of decedent and petitioner, became

subject to the jurisdiction of that court as a part of the

community property estate. However, the Superior Court made

that statement not in adjudicating whether the partnership

terminated under State ‘sw or whether the bases of its assets

were adjusted for Federal tax purposes but rather in the course

of administering Ernest’s estate. There is nothing in the record to

Superior Court’s statement is to be weighed in the light of the

facts that, as of December 31, 1973, the affairs of the partnership

had not been wound up, that its debts were paid during 1974

from its farm crop proceeds, and that the estate and petitioner

individually were thereby relieved of debts which would

otherwise have fallen on the estate and petitioner. Sec. 1.708-

1(b)(1)(i(a), Income Tax Regs. And, indeed, the partnership

debts were not treated by that court as debts of the estate but

rather were handled apart from the estate. The Superior Court’s

statement thus is not dispositive of the issue before us.

A-28

2. Section 754 Election

If the bases of the partnership assets were not adjusted at

Ernest’s death under section 1014, petitioner acknowledges that

the bases reported in the 1974 returns filed by her and by the

estate were correct only if an election under section 754 was

made. Although filed in neither the time period nor the manner

prescribed by section 1.754-1, Income Tax Regs., a valid election

was, in her view, filed in the petition in this case. Respondent, on

the other hand, maintains that the purported election, which was

neither timely nor made by the partnership, fails two

requirements of the regulation. We hold that the purported

election was not valid because it was not filed by the partnership

in a timely partnership return as required by section 1.754-

1(b)(1), Income Tax Regs.

In the case of a transfer of a partnership interest, the basis of

partnership property is adjusted with respect to the transferee if

the partnership files an election “in accordance with regulations

prescribed by the Secretary.” Sec. 754.'* In the instant case, the

"SEC. 754. MANNER OF ELECTING OPTIONAL ADJUSTMENT TO

BASIS OF PARTNERSHIP PROPERTY.

If a partnership files an election, in accordance with regulations prescribed

by the Secretary or his delegate, the basis of partnership property shall be

adjusted, in the case of a distribution of property, in the manner provided in

section 734 and, in the case of a transfer of a partnership interest, in the manner

provided in section 743. Such an election shall apply with respect to all

distributions of property by the partnership and to all transfers of interests in

the partnership during the taxable year with respect to which such election was

filed and all subsequent taxable years. Such election may be revoked by the

partnership, subject to such limitations as may be provided by regulation

prescribed by the Secretary or his delegate.

A-29

partnership did not file an election. Moreover, under the

regulations, such an election “shall be made in a written

statement filed with the partnership return for tive taxable year

during which the * * * transfer occurs.” Sec. 1.754-1(b)(1),

Income Tax Regs.'?

This regulation has been upheld as not unreasonable or

plainly inconistent with the revenue statutes. Jones uv. United

States, 213 Ct. Cl. 529, 537, 553 F.2d 667, 671, (1977). In that

opinion, the Court of Claims noted that a proposed version of

section 743 contained the requirement that the election be filed

with the partnership return for the year of the transfer, the same

requirement embodied in the regulation under section 754 (213

Ct. Cl. at 536, 553 F.2d at 671). Construing the regulation, the

court held that the election must be timely made with the original

return for the year of the transfer or in an amended return filed

within the statutory period for filing the original return. Jones v.

United States, 213 Ct. Cl. at 539, 553 F.2d at 672. Accord, Estate

of Dupree v. United States, 391 F.2d 753, 759 (Sth Cir. 1968)

(without reaching issue whether election must be filed only with

return for the year of the transfer, the court cited same time

Sec. 1.754-1 Time and manner of making election to adjust basis of

{(b) Time and method of making election. (1) An election under section 754

and this section to adjusi the basis of partnership property under section 734(b)

and 743(b), with respect to a distribution of property to a partner or a transfer of

an interest in a partnership, shall be made in a written statement filed with the

partnership return for the taxable year during which the distribution or transfer

occurs. For the election to be valid, the return must be filed not later than the

time prescribed by paragraph (e) of sec. 1.6031-1 (including extensions thereof)

for filing the return for such taxable year (or before August 23, 1956, whichever

is later). eee

c

A-30

period with respect to return with which purported election was

filed). A similar regulation has been upheld under another Code

Section. National Western Life Insurance Co. v. Commissioner,

54 T.C. 33, 40 (1970) (sec. 1.818-4(e), Income Tax Regs.).

Here, the tansfer occurred at Ernest’s death. No election

was filed with the partnership return for 1973. The purported

election was filed as part of the petition in this proceeding on

June 16, 1978, more than 4 years after the period for filing the

1973 partnership return and thus even later than the purported

election in Jones.

Petitioner does not, as did the taxpayer in the Jones case,

contend that the time period prescribed by the regulation

allowed insufficient time to decide whether to elect under section

754. The Court of Claims rebutted the argument in that case, in

part, by noting that no extension of time to file the partnership

return or the election was ever requested. Similarly, neither the

partnership nor petitioner in the instant case ever requested an

extension of time to file the return or the election.

According to petitioner, a line of installment method

election cases (Mamula v. Commissioner, 346 F.2d 1016 (9th

Cir. 1965), revg. and remanding 41 T.C. 572 (1964); Scales v.

Commissioner, 211, F.2d 133 (6th Cir. 1954), revg. and

remanding 18 T.C. 1263 (1952); Bayley v. Commissioner,

35,T.C. 288 (1960); Estate of Broadhead v. Commissioner, T.C.

Memo. 1972-195), holds that a late election is valid if the taxpayer

reasonably relied on a characterization of the transaction which

would not entail an election and if the election later became

necessary for the first time after determination of deficiencies.

Returning to her arguments with respect to the first issue in this

case, petitioner characterizes the failure to elect as reasonable

A-31

and maintains that the election became necessary only when

respondent determined that the bases of partnership assets

were not adjusted at Ernest’s death.

We do not agree that these case~ stand for the foregoing

broad proposition. They are all distinguishable from the case

before us. The taxpayer in Mamula originally reported gain on

the sale of real estate on the basis of an accounting method not

allowed by the regulations under section 453(b). Permitting the

taxpayer to belatedly elect the installment method, the Ninth

Circuit stated that a late election could be made if the original

election was invalid. Furthermore, it deemed the regulation

under section 453 inapplicable to the case before it. Here the

initial failure to elect under section 754 was not invalid as the

basis adjustment is optional.

In Bayley and Estate of Broadhead, this Court relied in part

on the Commissioner’s published position in Rev. Rul. 56-396,

1956-2 C.B. 298, and Rev. Rul. 65-297, 1965-2 C.B. 152,

respectively, that a taxpayer could elect installment method

treatment even if he failed to comply with section 1.453-8(b)(1),

Income Tax Regs. No such concession applies to the instant

case. In Scales, the Sixth Circuit cited its opinion in United

States v. Eversman, 133 F .2d 261, 266 (6th Cir. 1943), which held

that section 44(b) and (d), the relevant Code provision,

contained no requirement that an express election be made in

the tax return. As this Court has observed, neither did the

regulations applicable in Scales and Eversman require an

election in the income tax return. Reaver v. Commissioner, 42

T.C. 72, 78-80 (1964). In contrast, the regulations under section

754 contain such a requirement.

adjustment only if the “partnership files an election” and only if

the election is filed “in accordance with regulations prescribed

by the Secretary or his delegate.” The partnership did not file an

election in this case. The only purported election was that filed

by petitioner on June 16, 1978, in the petition herein. By that

time, indeed by not later than February 26, 1975, the partnership

partnership had ceased to exist: its assets had been sold or

transferred to Santa Rita Farms, Inc.; its debts had been paid;

and the assets of Ernest’s estate had been distributed.

Moreover, the election was not made in a written statement filed

with a timely return for the partnership for the taxable year

during which the distribution or transfer occurred as required by

the regulation. We are compelled, therefore, to hold that a valid

basis adjustment election was not made pursuant to section

754.

To reflect the foregoing,

Decision will be entered for the respondent.

My ABA

Internal Revenue Code Sections:

Sec. 708. Continuation of Partnership

(a) GENERAL RULE. For purposes of this subchapter, an

existing partnership shall be considered as continuing if it is not

terminated.

(b) TERMINATION.

(1)GENERAL RULE. For purposes of subsection (a),

a partnership shall be considered as terminated only if--

(A) no part of any business, financial

operation, or venture of the partnership continues to be

carried on by any of its partners in a partnership, or

(B) within a 12-month period there is a sale or

exchange of 50 percent or more of the total interest in

partnership capital and profits.

(2) SPECIAL RULES.

(A) MERGER OR CONSOLIDATION. In the

case of the merger or consolidation of two or more

partnerships, the resulting partnership shall, for purposes of

this section, be considered the continuation of any merging

or consolidating partnership whose members own an

interest of more than 50 percent in the capital and profits of

the resulting partnership.

(B) — DIVISION OF A PARTNERSHIP. In the

case of a division of a partnership into two or more

partnerships, the resulting partnerships (other than any

resulting partnership the members of which had an interest

of 50 percent or less in capital and profits of the prior

partnership) shall, for the purposes of this section, be

considered a continuation of the prior partnership.

Sec. 743. Optional Adjustment to Basis of Partnership

Property.

(a) GENERAL RULE. The basis of partnership property

shall not be adjustd as the result of a transfer of an interest in a

partnership by sale or exchange or on the death of a partner

unless the election provided by section 754 (relating to optional

adjustment to basis of partnership property) is in effect with

respect to such partnership.

(b) ADJUSTMENT TO BASIS OF PARTNERSHIP

PROPERTY. In the case of a transfer of an interest in a

partnership by sale or exchange or upon the death of a partner, a

partnership with respect to which the election provided in

section 754 is in effect shall--

(1) increase the adjusted basis of the partnership

property by the excess of the basis to the transferee partner

of his interest in the partnership over his proportionate

share of the adjusted basis of the partnership property, or

(2) decrease the adjusted basis of the partnership

property by the excess of the transferee partner's

proportionate share of the adjusted basis of the partnership

property over the basis of his interest in the partnership.

Under regulations prescribed by the Secretary, such increase or

decrease shall constitute an adjustment to the basis of

partnership property with respect to the transferee partner only.

A partner’s proportionate share of the adjusted basis of

partnership property shall be determined in accordance with his

interest in partnership capital and, in the case of an agreement

described in section 704 (c) (2) (relating to effect of partnership

agreement on contributed property), such share shall be

determined by taking such agreement into account. In the case

of an adjustment under this subsection to the basis of

partnership property subject to depletion, any depletion

allowable shall be determined separately for the transferee

partner with respect to his interest in such property.

Sec. 754. Manner of Electing Optional Adjustment to Basis

of Partnership Property.

If a partnership files an election, in accordance with

regulations prescribed by the Secretary, the basis of

partnership property shall be adjusted, in the case of a

distribution of property, in the manner provided in section 734.

and, in the case of a transfer of a partnership interest, in the

manner provided in section 743. Such an election shall apply with

respect to all distributions of property by the partnership and to

all transfers of interest in the partnership during the taxable year

with respect to which such election was filed and all subsequent

taxable years. Such election may be revoked by the partnership,

subject to such limitations as may be provided by regulations

prescribed by the Secretary.

Treasury Regulations on Income Taxes:

§1.708-1(a) to 1.708-1(b) (I) (i) (a) CONTINUATION OF

PARTNERSHIP.

(a) GENERAL RULE. For the purposes of subchapter K,

chapter 1 of the Code, an existing partnership shall be

considered as continuing if it is not terminated.

(b) TERMINATION (1) GENERAL RULE. (i) A partnership

shall terminate when the operations of the partnership are

discontinued and no part of any business, financial operation, or

venture of the partnership continues to be carried on by any of

its partners in a partnership. For example, on November 20,

1956, A and B, each of whom is a 20-percent partner in

partnership ABC, sell their interests to C, who is a 60-percent

partner. Since the business is no longer carried on by any of its

partners in a partnership, the ABC partnership is terminated as

of November 20, 1956. However, where partners DEF agree on

April 30, 1957, to dissolve their partnership, but carry on the

business through a winding up period ending September 30,

1957, when all remaining assets, consisting only of cash, are

distributed to the partners, the partnership does not terminate

because of ceasing of business until September 30, 1957.

(a) | Upon the death of one partner in a 2-member

partnership, the partnership shall not be considered as

terminated if the estate or other successor in interest of the

deceased partner continues to share in the profits or losses

of the partnership business.