Petitioners Brief — Burnet v. Leininger

ba

we

- Question presented

- Statutes and regulations involved

Specification of error to be urged

- Summary of argument As close ersten ese SS alas P

Argument:

I. Income distributable to a member of a partnership is

taxable to him whether or not he is the beneficial

owner of the income

II. Respondent's wife did not wens a member of ‘the

partnership.

- Conclusion _.

Appendix A (Federal Statutes and icsemiiea.

‘Appendix B (Ohio Statutes)

‘ :

aAannne

CITATIONS

. . Cases:

Bank v. Carrollton Railroad, 11 Wall. 624

Battleson v. ‘Commissioner, 22 B. T. A. 455

Bedell v. Commissioner, 30 F. (2d) 622

. Belcher v. Lucas, 39 F. (2d) 74

Benedict v. Collector, 38 F. (2d) 309

Bing v. Bowers, 22 F. (2d) 450, affirmed, 26 F. (2d) 1017. 19, 21,42

Bishop v. Commissioner (C. C. A. 7th), No. 4517, décided

' December Q 1931 ;

‘Burk-Waggoner Assn. v. Hopkins, 269 U. 8. 110

Burnet v. Houston, 283 U. 8S. 223--.---- ee ae nie

“Case v. Beauregard, 99 U. S: 119

Cohan v. Commissioner, 11 B. T. A. 743;/39 F. (2d) 540- -- 13, |

14, 22, 24, 25

‘Colbert v. Ciidienianiniaie 12 B. T. A. 565-

Coleman v. LaBounty Amusement Co., 21 Ohio App. '44--- -

_ Commissioner v. Barnes’ Estate, 30 F. (2d) 289

Commissioner v. Field, 42 F. (2d) 820

Copland v. Commissioner, 41 F. (2d) 501

Corliss v. Bowers, 281 U. 8. 376

Daughetty v. Commissioner, No. 41905, B. 7: in decided .

Octoher 29, 1931__

. Dickinson v. Commissioner, 23 B..T. A. 1211

Hall vy. Burnet, App. D. C., decided November 16, 1931 .- -

94448—82——1 (I) °

a a

Case#—Continued. ; ° Page

. Harris v, Commissioner, 11 B. T. A. 871; 39 F. (2d) 546... 9,

; igeteaen . 12, 14,21; 27, 28°

‘Hayes v. State, 14 Ohio Cir. Ct. (n. 8.) 497, affirmed, 83 Ohio

State ” “ig RRA TT

Heinickle v. Commissioner, 20 B. T. A. ,

Hellman v. United States, 70 C. Cls. 49M ---------------- . 14

‘His Commissioner, 10 B. T. A. 399; B.T.A.572;38F.

(2d) 165, certiorari denied, 281 U. 8. 761-------------- 13, 14

Hinshaw v. Commissioner, 16 B. T. A. 1286..------------ 16

* Houston Bros. v. Commissioner, 22 B. T. A. 51----------- 14

Kaufman v. Commissioner, 44 F. (2d) 144. -------------- . 2

Kier v. Commissioner, 15 B. T. A. 1114---------- eccane 16

King v. Commissioner, 10 B°T. A. 698....-------------- 14

Knapp v. Commissioner, 5 B. T. A. 762-------------+--- 14

Kneeland, Appeal of, 1 B. T. A. 160...----------------- 14

Larsen v. Burnet, 14 B. T. A. {60; 50 F. (2d) 308... 12, 14, 15, 19

‘Levering v. Commissioner, 5 B. T. A. 616..-------------- 414

Leydig v. Commissioner, 15 B. T. A. 124, affirmed, 43 F. |

& (2d) 494. .---------- a2wosdanaseseoee” aes seseee-™ 20, 22

Lucas v. Structural Steel Co., 281 U. S. 264.-------------- 24

tmcas v. Bart, 201 U. &. I=. ----2------2-------2-- 6, 17, 21

Luce v. Commissioner, 18 B: T. A. 928- ee ueksnadewoinint 14, 18

McCauley v. Commissioner, 44 F. (2d) 919--------------- 22

McKee v. Collector, 48 F. (2d) 838------------- Cae ee 21

Meehan v. Valentine, 145 U. 8. 611-------------- aides ime 26

Mitchel, Appeal of, 1 B. T. A. ee err eer - 4

Mitchel: v. Bowers, 15 F. (24) 287, certiorari denied, 273

U. 8. 18W.00cacocee---tn-eeneeeennn2--- oe 11, 21, 22. 26, 28

Nizon v. Nash, 12 Ohio St. Rep. 647..------------------ 7

0’ Malley-Keyes v. Collector, 24 F. (2d) 436...------------ ‘21

Pagel. v. Creasy, 6 Ohio App. 199. -- .------- ROR a Oe 24

Parshall v. Commissioner, 7 B. T: A.318---------------- 15, 16

Phillips, Collector, v. Dime Trust. & Safe Deposit Co., No. 18,

October Term, 1931, décided November 19, 23

Poe v. Seaborn, 282 U. 8. 101. ------------------77 7-77" 18

> _ Pope. Commissioner, 39 F. (2d) 420---------- patella tial 13

"Porter v. United States (C. Cls.); decided November +2,

ee Ee ca Steemonnooet ~epeapentasecon " -20

Rosenwald v. Commissioner, 33 F. (2d). 423, certiorari de-

_ nied, 280 U. 8. 590%. -------------- L opaceneumasreoese 20, 21

- Service Co. v. Pub. Util, Comm., 115 Ohio St. 405. ------- 25, 26

Stack v. Commissioner, 22 B. T. A. 107 . .---.------------ 18

Staebler v..Commissioner, 17 B. T, A. 1006:...-.--------- 14

United Stdtes v.. Mitchell, 271 U. B. 9... 222-22 2 eo so -2 > 24

|. Van Brunt v. Commissioner, 11.B. T. A. 406.------------ 18

Williams, Petition of, 297 Fed. 696, certiorari denied sub nom.

Wolff vy. Williams, 265 U. 8. 608.....:9..---.-------< 26

Wing v. Commissioner, 17 B. T. A. Be eepente oe

Young v. Collector, 28 F. (2d) 789-------- shee sii sical 21

*

Statutes:

Revenue Act of we 3, 1917, c. 63, 8eC. 201, 40 Stat.

Revenue Act of 1918, c. 18, 40 Btat. 1087, 1026, 1064, 1065,

_ 1070, 1070:.

Section 210_.....____- aes ae wade

EERSTE SRR PEA IEN SR ae Wee enemy

SN idwccmncnnccscuniaaiien SERIA G EDO ee

Section 213 Yon eapnn ca cu cacecsnswcoccesccqeconcces

Section. 218... saeco Sic ale ste eelabencirataie eee As .

cremate ae eels Lia ek ee coe

‘Revenue Act of 1921, ¢. 136, 42 Stat. 227:

CN ee a =e

SI SSO Reena nee ee ay SPR Ser Oe .

Section 212. .-....-.-.. inp cae neneounemieuetinie

Ohio General Code, Page’s Anno. secs. 8099, 8102, 8104___

‘Miscellaneous:

Douglas, Vicarious Liability, ‘Part II; 38 Yale Law Journal

Parsons on Partnership (4th Ed.), Section 178_---- eelihide

Rowley’s Modern Law of Partnership: .

Tl suisai decade eanadebbeankendudedacen

RECESS ae etree cen Speen meer wasiaraienahe

Treasury Regulations 45 (1920 Ba. }3

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Treasury Regulations 62: '

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Qotonzs Tema, 1931 —

| 3 “No, 426. |. |

Davip Burwer, CoMMissIONER OF Lntraieicat. Rey-

ome, Petitioner”

ae v. ea

CHARim. P.. Lepevaer

ON WRIT OF CURTIORAKI TO THE UNITED ST. ATES: CIRCUIT ~

_ LOURT OF APPEALB FOR FEB SIXTH CIROUIT | ‘

‘BRIEF FOR THE cb PETTEIONER

ete OPINIONS BELOW,

The opinion of the United States Roane. of eat

Appeals (R. 17) is reported in. 19 B.:T. A. 621.

-, The opinion of thé Circuit Court of Appeals for.

the Sixth Oireuit ~ hill is Singin in 51 F..

(2d) 7,

‘JURISDICTION _

| The lita of the Circuit. Court of Appeals

' Was entered J une 30, 1931 (R. 24). The petition

for certiorari was filed September 30, 1931, -and

granted November 2, 1931." Jurisdiction is con-

“(1 -

it ee ae 2.

ia

‘ferred upon this ‘Gods by Section 240 (a) of the

Judicial Code as amended by the Act of February

; 18, 1925. |

; QUESTION PRESENTED.

ie, Whether under the income-tax provisions of the

i “Revenue Acts of 1918 and 1921, respondent may. be

- taxed on such income, distributed to him as a mem-.

ber of a partnership, as he was under‘a duty. to pay

to his wife pursuant to an agreement between them

by which he made her an equal partner with’ him

in his interest in the partner ship.

STATUTES AND REGULATIONS INVOLVED

rae appear in ee A, PP. 29-31, infra.

STATEMENT _

On petitions for redetermination of deficiencies

_in income taxes of respondent for the years 1920,

1921, 1922, and 1923, the Board of Tax Appeals

madé findings cf fact (R. 16-17 ) of which the fol-.

‘lowing is a summary :

_ ~-Respondent has owned a one-half inter est in the |

Eagle Laundry Company, a * partnership, ‘since. -

i ee 1898. In 1920, he and his wife confirmed, in writ-

ing, ‘an existing oral agreement which acknowl-

.» edged her as an equal partner with him in his in-

% terest in the partnership, entitled to share equally

‘in the -profits and obligated to bear equally the

losses. The contract was to be effective from Janu-

ary 1, 1920. The fact of the transfer was communi-"

3 - ;

: cated to the representative of the owners of the

other one-half interest in the Company, but it does

not appear whether or not the representative or his

principals acquiesced i in the. arrangement.

Respondent’s wife took no part in the manage-

ment of the business cf the Company and made

-no contribution to its capital: It does not appear _

. ‘that she ever acquired or attempted to exercise any

authority to act as its agent. Respondent’s one-

half interest continued to stand in his name-on the —

Company’s books; and its ‘income tax returns for

the years 1921, 1922, and 1923; ‘sworn to by respond-

ent, stated that he and M. T. Monaghan were the

members of the partnership and that one-half of

the incoine was distributable toeach. (R.16,17,18.).

~ .,

Checks : representing respondent’ s one-half inter-

est in the profits of the partnership were drawn to ta

his order. “He deposited them in a joint bank ac-

count, maintained by him and his wife before and

during the period in question, on which either -

could draw unrestrictedly.. The wife also had a

personal account during the period in question, in

which: she deposited earriings from her personal

investments. Respondent anf his wife never had

-a formal ‘accounting. The £ontract between - Te

spondent and his*wife was ‘never filed with any

public official or in any -place of public record.

(R. 17.)

_

i

The petitions and answers filed with scar Board

. disclose the following facts: 4

, In 1920, respondent returned for i income tax pur-

poses two-thirds of the profits he received on his™

one-half interest in the partnership, and his wife

- returned the rest. Jn 1921, 1922, and 1923 each re-

turned one-half of the sums which respondent re-

ceived on his one-half interest in the-partnership.

(R. 6, 9, 15, 17.) The Commissioner of. Internal

Revenue determined deficiencies for the years 1920

to 1923 ‘on the ground that all the profits payable

on respondent’s one-half inteedst: 5 in the partner-

ship were taxxble to him. (R. 3, 6, 7.) —

These determinations were approved by the

Board of Tax Appeals, which held, in-effect, that

the wife was not a partner in the Company, and

-that if she were a sub-partner or in partnership

with respondent alone, the income received by re-

‘ spondent on his one-half interest in the Company

was income to him, taxable as such before its divi- .

sion with her. (R. 17-18.) ,

| Respondent filed a petition for review in the Cir-

cuit Court of. Appeals for the Sixth Circuit, which

reversed the order of the Board (R. 24), holding

that; regardless of whether the wife becaine a part-

_ ner in the Company, half the profits received by

respondent were taxable tu her as equitable owner

of .half the sums paid him = the — (ae

25-26). | -

' The evidence is not reported in the record, and

the findings of the Board are‘not challenged.

ry | | |

| ry income reeeived by him frém the partner- .

one. =? the payments due her under their agreement.

SUMMARY OF ARGUMENT

i acer! eis

oe ,

The Revenue Acts of 71918 and 1921 levied taxes

_ upon the “net income of every individual” and

provided that gross income should include ‘‘gains.

or profits and, income derived from any source i

___-whatever.”’ They also provided that individuals |

-earrying on business in partnership should be liable

_ for income tax only in their individual capacity

and that there should “‘be included in computing

the net income of each partner his distributive

_ share, whether distributed or not, of the net income

___ of the partnership for the taxable year.”’

It ‘seems clear that if Congress had wished it

could have taxed partnerships as entities. Al-

though it treated partnership income in aécor dance

~ with the doctrine of the common law, nothing in the‘

statutes indicates that it intended to permit a fur- °

ther reduction of the amount of tax by partial as-

signments of what a partner might withdraw. We

submit that no agreement or assignment i In respect

of the income or the partnership can relieve a part- |

ner from a tax on any of his share of the partner-

sail tite ‘

.

°

Ai RASA DESK OE RPT He 4 ae ad a ee ai Rese, ee Teeny

ad .

6 = s ‘

ship income unless what he has done has resulted in

constituting the aise a member of the partner-

ship.

Practically all the decisions of thé lower Federal

courts are in. accord with this contention. »

The taxation of partnership income to the part-- _

“ners without regard to whether or not they are its

—~ ultimate beneficial owners is not anomolous. There

-are three analagous situations where one who is not

"+ the ultimate beneficial owner of income is taxed

upon it—(1) where income produced by the per-

sonal services’ of the’ taxpayer is assigned, as in —

Lucas: v.: Earl, 281 U. S. 111; (2) where income

eartied by property or capital is assigned without

assignment of the property or. capital producing

_ the income, as in a number of cases decided. by SeV- -

eral of the Circuit Courts of Appeals; and. (3)

where control.over the source of the income is re-

tained, although title to the producing COrpUuUs as

well as to the income is assigned, as in Corliss y..

Bowers, 281 U. S. 376. } | yy

IT

Respondent's wife did not become a meniber of |

the partnership. It does not appear that the

agreement purported to constitute her a member

of the partnership. In order to establish that she

had become a partner, it was necessary to prove

that the other partners consented to such an ar-

rangement. There is no finding that such consent

existed, and all fair ‘inferences are to the contrary. ~

Moreover, she did not possess other powers which

ss

io

' ordinarily or necessarily inhere in a partner. The

_-tnefe right to share in the profits of a partnership

does not make one a partner. The wife’s. agree-

nent to bear.a share of her husband’s partnership

losses does not alter the situation, since her prem-

ise in that respect ran to him. alone and not,$o the

firm or the other partner. ute.

. If this Court should hold that taxability of in--

come always: follows the ownership of the income-

producing corpus, the respondent still must fail,

_ Since the ownership of the physical and intangible °

assets of a partnership follows the status of a part-

ner. “Moreover, in Ohio, as elsewhere, a partner —

_ does not own a direct interest in tlie partnership: |

- property, but has only a right to his share of. the

profits, and, uporPdissolution, to his share, if any,

' of the assets of the firm remaining after: the pay-

ment of debts and adjustment of the rights of the

partners inter sese. If a partner attempts to con- _

vey an interest in the assets of the firm, the partner-.

ship is dissolved: forthwith. Here there was no such

dissolution, and it does not appear that the wife

asserted any claim to ownership of partnership as-

sets. It seems clear that all the agreement, was

' intended to accomplish was to give her the right

to one-half of the. profits paid respondent and pos-

sibly the right to -one-half of the assets, if any,

distributed to him upon the dissolution of the firm.

These were merely rights against the respondent

‘on the contract with him, and not, like his rights,

, against the partnership in-rem. oo

7 °

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“8

| ARGUMENT.

my atin

eochsiie DISTHIRUTABLE TO A MEMBER OF A PARTNERSHIP:

Is< TAXABLE TO HIM WHETHER OR NOT HE 1S THE

’ BENEFICIAL, OWNER OF THE INCOME

: Sections 210 and 211 of the Revenue Acts of 1918

and 1921 (pp. 29, 30, infra) levy taxes upon “the

‘net income of every individual,”’ and Section 213

provides that gross income shall include ‘‘gains or |

profits and income derived from any source what-

ever.” We submit that this language operates to”

impose the tax upon the entire amount of: partner-

ship income distributed to a partner even though

he has agreed to pay it-to,another. See Lucas V.

Earl, 281,U. 8. 111. But any doubt left by these

- gections as to the intention thus to tax partnership

‘income should be removed by Section 218 (a)‘of

each of these Acts. (pp. 29-30, infra), which ,

provides : | | |

That individuals carryipg on business in

partnership ‘shall be liable for income tax.

only in their individual capacity, There

- ghall be included in computing the net in-'

come of each partner his distributive share,

whether distributed or. not, of the net —

income ‘of the partnership for the on

year * *. 7

- It seems clear: that if Congress saa wished, it

. could’ have treated partnerships as entities for

‘income tax purposes, see.Burk-Waggoner Assn. v.

* Hopkins, 269 U, 8. 110, as it had for the excess

profits tax. Section 201, Act of October-3, 1917, 40

: ast ¢

ee ae ; rg be eae

‘9. .

°

‘Stat. 303, infra p. 30. Congress has, however, —

chosen to apply the common law rule that a part-—

‘ nership is to be regarded as an association of indi-

viduals rather than as an entity, and has provided

. for the taxation of partnership income to the part? _

ners to whom it is distributable.’ But, asthe Cir-

' euit Court of Appeals for the Second Circuit said - ;

* in Harris v. Commissioner, 39 F. (2d) 546,547: . _/ i

Section 218 (a) did indeed continue to

treat the firm income in accordance with the

doctrine.of the common law, in so far as it

did. not tax it as a whole; it. allowed each

partner to return oly his own share, with .

the result that'the'surn of the individual taxes ~

was less than if the firm had been taxed as an

~ ‘entity. It seems to us, however, that to per-

mit a further reduction by partial assign-

ments of so much as a partner may withdraw

during the year, disregards the plan of part- -

nership taxation, which is apparent in -

_ thé section. In the first place the tax would

in that case depend upon the accident of

how much the partner chooses togwithdraw

_ in given year; so offering opportunity for

manipulation. Inf the second, the tax is im-

_ posed. anyway upon the profits before distri-

bution, and all profits must be so declared

before they can be withdrawn, though in -

practice declaration and withdrawal may be

simultaneous. : | oat

‘We submit that the effect of the provisions “of

the statute quoted above is to tax the income of a’

‘partnership to the persons who are partners at the

_ ime when the income’is earned, and that, no agree- -

- ment.” an outsider -in respect of the income or

» the: signees can: slike ite shift the diligetion.

to pay the tax unless he becomes ‘a ‘member of the |

Roast partnership. . The agreement in the instant case.

did not have this result. (See pp. 23-26, infra.)

eer the present ease, respondent’s wife took n0

part .in. the: management of the ‘business, and we

_ may assume that the respondent was actively en--

gaged in its management. Probably the formhula-—

’ tion’ of the business ‘policies. of the company de-

. volved largel ppon him. Ifo, he determined ‘to »

‘a considerabie extent’ the amount of nét income.

‘Sy which. his wife would receive, since the creation of

. groge income lay partly within his power, and still"

more its expenditure and thus the determination of

the deductions to be made from gross income.: For

exainple, her'right to receive any specific amount -

of net income could exist only after.he had deter-

. mained. whether to spend the gross. ineome in the -

.. purchase of a capital asset, or in repairs of existing

’ property, or in payments to” employees for services -

_ or bonuses,-or to_retain “it a8 a reserve for the -

» - future. Apparently; under the theory advanced _

- by the court below, the wife could not be taxed on ~

‘income not distributed to her husband. Since such 7

~ {nconie is expressly taxed to the partners. by Sec-

" . tion 218 (a),.respondent would be subject to the -

entire tax due.on jit. Tf this be the rule, then

ae areas ty Se sotionietip Jn we rote ond

~ not distributed until the next. would all be taxed’ to oe

. the hneband under Section 218 (a), but'if distrib- es

_ ted inthe yoar when eared would be tazed one ;

\ half to the husband s and one-half is the wife under %

the. decision of the court below. :

=.” hese: corisidérations illustrate the inconsisten-

_ cies and difficulties which would be encountered i |

_ applyirig the fest adopted by ; the court below, i. e.,

whether the agreement bétween the respondent and

- his wife was.effective, as between them, to make her

_ the equitable and ultimate beneficial owner of

one-half of the in¢ome distributed to the respond-

‘ent. We submit that nd such test as this is indi- .

_ £ cated by the. statute, and that the application . of

such a test would open the door to wholesale eva-

' - sion of the scheme of partnership taxation created

by — ae per. |

, ; ge seats 2

Préctically 1 all the decisions of the lower Federal

' tribunals are in accord with our contention.

In Mitchel v. Bowers, 15 F. (2d) 287 (C. CO. A.

2nd), the. plaintiff sued to recover income taxes |

, paid on his share of the. profits of a partnership of- -

, Which he. “was a. member. He agserted that he

° should have been taxed on only half of His share

_ . becaise of an agreément with his wife by which she

- ' was “entitled to one-half of the profits which shall.

conte to”’ the plaintiff ‘from said firm’ and was

_ “Tiable'to pay’’ him “‘one-half of the losses which — 7

_,” he may sustain by reason of his 3 partnership. oe. ioc:

. court assumed that: the agreement did not make the —.

wife a member of the partnership, and affirmed a

judgment for the defendant Collector. -: This Court

denied certiorat, .273 U. 8.759. 2 oe

ww

. es

, 12 |

“The court slow 2 in the _— ease (R. 25) and

— ~respondent in-his“brief-in- -opposition-to-the-peti-_——

tion for certiorari (p. 5) seek to distinguish the

. Mitchel case on the ground that the court there

rested -its decision on a provision of the contract -

between the husband and wife which permitted

either party to terminate it at any time. The Cir-

.. euit Court of Appeals for the Seeond Circuit has

indicated in a ‘subsequent ease that the broader

ground of decisior stated in the quotation supra

p. 9, was one of two grounds for the decision in the

; Mitchel ease. See Harris v. Commissioner, supra,

39 F. (2d) 546, 547. :

In Larsen v. Burnet, 50 F. (24) 308 (0 App.

D. C.), the taxpayer became a member of a partner-

ship. His wife had a half interest in the funds he

> contributed to the partnership, and they understood

that she would remain the owner of stich interest.

_* He and the wife each returned for income tax pur-

as poses‘half of his income from the partnership. The *

Commissioner took the view that -all the income

should have been returned by him and assessed the

tax on that basis. The Board of Tax Appeals up-

held the Commissioner: ‘In the Court of Appeals

the taxpayer made the same contention as was

made by respondent in this case,. that he became a

trustee for his wife 4s to one-half of his investment

in the partnership and also one-half of the profits

accruing from tle investment. In. affirming tlie

order of the Board, ~~ — of ‘= said

-(p. 309),: |

~ 13

. We think this argument is untenable.

+ 4 Be 3 ey eae

* lant was accountable to his wife under the -

_eircumstances for the investment which he .

* was managing for her. Nevertheless appel- -

lant’s wife was not an actual partner in the ~

e*

A ©

firm, for the copartnership consisted of ap-

pellant and Forcia alone; and the applicable

statute requires that the distributive share | .

_ of each partner, of the net 3 income of a part- -

nership shall be included in ‘the individual

return of the partner for the taxable year. -

In Hill v. Commissioner, 38 F:; (2d) 165 (C. C. A.

1st), the members of a partnership agreed that if

_ any of the partners died, the. surviving partners ;

would pay the estate of the deceased partner for

three years following his death “‘sums equal to the

full amount of his net profits’’ for each of those

years. One of the partners, Soule, died. The firm 7

was reorganized, and provision. was made for the

-. payment of the sums due Soule’s estate from the

| profits of the new. firm. The Commissioner. as- :

_ sessed the sums paid to the estate against the sur-

viving partners as income distributable to them.

- The Board of Tax. Appeals and the Circuit Court

of Appeals upheld the - assessment. This ‘Court

- denied certiorari. ‘281 U.S. 761.

- The Hill case was followed in Pope v. Commis- . .

stoner, 39 F. (2d) 420, 424 (C. C. A. 1st). See also:

Cohan v. Commissioner, 39. F. (2d) 540 (0. C. A.

2d); Benedict v. Collector, 38 F. (2d) 309, 313-314

94448—382—___-8

14

(BE. D.N. Y.). oo Hellinan v. U nited States,

70 Ct. Cls. 498, 512-513. _

The Board of Tax Appeals has taken the same |

view of the statute. Appeal of M itchel, 1 B. T. A.

143, 148; Appeal of Kneeland, 1B. T. A. 150; Lev- .

ering v. Commissioner, 5.B. T..A. 616; Knapp v.

Commissioner, 5 B. T. A. 762, 766; Hill v. Com-

wmastoner, 10 B. T.. A. 399; King v. Commissioner,

10 ‘B. T. A. 698; 703; Cohan v. Commissioner, 11

B. T. A. 743, 157-758 ; H arris v. Commissioner, 11

B.- T. A. 871; 875; Colbert v. Commissioner, 12

B. T. A; 565, 567-568 ; Earsen. v. Commissioner, 14 -

B.T. A. 160; Hill v. Commissioner, 14 B. T. A. 572;

_ Staebdler v. Commissioner, 17 B: T. A. 10866; Luce

¥. Commissioner, 18 B. T. A. 923, 926-927 Lein-, ~

— tnger v. Commissioner, 19 B. T. A. 621 (the present

case) ; Heinickle v. Commissioner, 20 B. T. A. 155,

_ 160-161; Houston Bros. v. Commissioner, 22 B. T.

‘A. 53, 68-64; Battleson v, Commissioner, 22 B. T. A.

The court: below cited Commissioner v. Barnes’

|. Estate, 30 F. (2d) 289 (C. ©.-A. 3rd), as support-

img its holding. The Barnes case has been cited .

. twiee by other courts. The Circuit Court of Ap-

peals for the Second Circuit said, in Harris v. Com-

? ‘missioner, supra, 39 F. (2d) 546, 547:

Just what wer'e the grounds of dn ie

siow of the Third Circuit in Commissioner

of Internat: Revenue v. Barnes, 30 F. (2d)

- 289, the short opinion does not very clearly. |

8

15

disclose. So far as we-can wins it did not

involve the point now under diseussion.

The Court of Appeals of the District of Columbia

said, in Larsen v. Commissioner, supra, 50 F. (2d)

308, 309:

| This dnetuteas 4 is - touched upon by tiie

missioner of Internal Revenue v. Barnes’

Estate, 30 F. (2d) 289, for in the latter

case the wife was entitled directly to receive

a share in the profits of a partnership by

virtue of an assignment executed in accord-

ance with the Uniform Partnership Act of

ae (Act. of March 26, 1916), pt. 5,

See. 27. (1), 59 P. S., Sec. 74. See Barnes’

Estate, 7 B. T-A; -924- A

See also, as to the effeet of the Pennsylvania

statutes, Parshall v. Commissioner, 7 B. T. A; 318.

' In Heinickle v. Commissioner, 20 B.'T. A. 155, 161,

the Board of Tax Appeals said: ;

* * © in our opinion, the decision 1 in-that

Pe: case [Commissioner vy. Barnes] is contrary —

to the weight of authority.

J Several decisions of the Board of Tax Appeals

_ are relied upon by respondent. Wing v. Com-

_ missioner, 17 B. T. A. 1028, cited in his brief in

‘Opposition (p. 7), is clearly distinguishable from

‘the present case. There the wife eontributed to the

capital of the partnership; took charge of the firm’s .

bogkkeeping ; ; Was a signatory of the partnership

agreement, in which she was named as a partner ;

and was directly paid ie wai in the parineship

16

earnings. Partnerships in fact also existed in’

Hinshaw v. Commissioner, 16 B. T. A. 1236, and

_ Dickinson v. Commissioner, 23 B. T. A. 1211, cited ~

in respondent’s brief in opposition at page 8. The ~

question in the Wisig and Dickinson cases was what

effect should be given to the law of Michigan for-

bidding partnerships between husband and wife.

- Sée 22 B. T. A. 1211, 1217-1218. Parshall v. Com-

missioner, 7 B. T. A. 318, dealt with a Pennsylvania ~

statute. See stipra, p. 15. In Kier v. Commis-—

_ sioner, 15 B..T. A. 1114, the wives supplied the cap-

é

ital, and were signatories of an agreement by

which, the Board found, it was the intention of all

the parties to make the wives partners. Thus none

of these cases are in point.

i The other. decisions of the Board cited in the a |

brief in opposition are: probably distinguishable on .

their facts. If not, they are contrary to the over-

. whelming weight of authority, including some of

the decisions of the Board to. which we have re-

_ ferred.

The taxation of partnership i income to the int

ners without regard to whether or not they are its

ultimate beneficial owners is not anomalous. There

are three analogous situations where one who is”

not the ultimate beneficial owner of income is taxed_

upon it. Those situations are as follows: (1)

. Where ‘income produced by the personal services

of the taxpayer is assigned; (2) where income

earned by property or capital. is assigned without |

- assignment. of - property or capital cirin

the income; and: (3) where control over the source

_ of the income is retained although title to the pro-

ducing corpus as well as to the income sa se

We shall discuss these separately

(1) InLu ucas-¥Harl, 281 U.S. 111, the taxpayer

\and: his ° wife agreed—

\ that any property saline of us now has or

may hereafter acquire * * * in any

way, either by earnings. * *- * or other-

wise * * * -is declared to be received

* * * and owned by us as —_ ten-

ae * * *.. 7

The question was whether the whole of the salary

and attorney’s fees earned by the taxpayer should

be taxed to him, or only half. In holding the for-

mer, this Court said (pp. 114-115):

A very forcible argument is presented to

the effect that the statute seeks to tax only

income beneficially received, and that tak-

ing ‘the question more technically the salary

and fees became the joint property of Earl

- and his wife on the very first instant on

which they were received. We well might

hesitate upon the latter proposition, because

however the matter might stand between

husband and wife he was the only part to

-~. the contracts by which: the salary’ and fees

-were earned, and it is somewhat hard-to say

_ that the last step in the performance of those

_eontracts could be taken.by anyone but him-

self alone. . But this case is not to be decided

by attenuated subtleties: . It turns on the im-’

‘port and reasonable construction of the tax-

fae.

' 18

ing act. There-is no doubt that the statute

could tax salaries to those who earnéd them

_ and provide that the tax could not be escaped.

by antieipatory arrangements and contracts

however skilfully devised to prevent the

salary when paid from vésting even for a

second in- the.man who earned it. That

_ seems to us the import of the statute before

us * #1 -

Other cases ° faliing in this group are: Van

Brunt v. Commissioner, 11 B. T. A. 406; Luce v.

_ Commissioner, 18 B. T. A. ‘923, 926-927; Stack v.

Commissioner, 22 B. T. A. 707,712; Daugherty v. :

Commissioner, No. 41905, decided by the Board of

Tax Appeals on October 29, 1931, and repprted

in Prentice-Hall Federal Tax Service . (1931),. p

2300.131; see also Belcher. v. Lucas, 39 F. (2d) 14

| (0. C. A. 9th). Compare Commissioner v. Field,

42 F. (2d) 820, 822 (C. C. A. 2d).

- The Earl case and the other personal service cases

ce cited are analogous to the present case if, as we as-

sume, respondent.was an active partner in the Eagle ©

Laundry Company, devoting his personal services

to the management of its business. The record does

not reveal to what extent, if any, the payments on

his half interest in the company were payments for

the use of: capital. The payments may have been |

made exclusively in ref for respondent’s per-

1 The court below thought that the Zarl case had been quali-

fied by this-Court-in Poe v. Seaborn, 282 U. S. 101 (which

dealt With community property), but we do not understand

| that the latter case » had that effect.

.19

* sonal arvices. Respondent’s wife took no _— in

_the management ofthe business. . (R. 17.). There-

fore, even if we assume that she became the owner

of one-fourth of the physical assets of the ‘partner-

_ ship by virtue of the agreement with her husband,’

' the Commissioner is entitled to prevail because of

respondent’s failure to establish the extent to which

- the income paid on his half interest in-the | company

represented payments for the use of capital. Lar-

sen v. Commissioner, 14 B. T. A. 160,165. The bur-. -

den rested on respondent to establish every fact

necessary to his case. Phitlips, Collector v. Dime

Trust & Safe Deposit Co., 284 U. 8. —, No. 18 .

October Term, 1931, decided November 23, 1931,

(2)'In Bing v. Bowers, 22 F. (2d) 450 (S. D:

N. Y.), the taxpayer had assigned to his mother, by

__ deed, an annuity ‘‘out of my share of the rents, in-

come, and profits from my interest in all the prop-

erty, real ‘and personal”’ in the hands of a named

company. The annuity was made a charge on his

interest in the property, and the company was di-

rected to pay the annuity to the mother." The court __

held that the deed did not earry an interest.in ‘the

properties mentioned, but only in the net income or

_ profits from them, and that therefore the income

_ Was taxable to the assignor. It'said (p. 454):

7 To permit the assignor of future income

| from his own property ‘to escape taxation

| _ thereonby a gift grant in advance of the re- .

>The Government contends that she did not become such

an owner. — p. 26-28.

oO

i 20

ceipt by him of such income would by indi-

rection enlarge the bimited class of deduc-

tions established by statute. As long as he

-yemains the owner of the property, the in-

come*therefrom should be taxable to him as

fully, wher he grants it as a gift inf advance

of its receipt, as it clearly is despite a gift

thereof immediately after its receipt.

The decision of the District Court was affirmed by

the Circuit Court of Appeals for the Second Cir-

cuit, on the opinion of the trial judge. 26 F. (2d)

1017. ae . :

Other cases in this group are Rosenwald v. Com-

. missioner, 33 F. (2d) 423.(C. C. A. 7th), certiorari

denied, 280 U. S. 699; Leydig v. Commissioner,

‘15 B. T. A. 124, sien’: 43 F. (2d). 494 (C. C. A.

" 10th) ; Porter v. United States, No. L-69, decided

by the Court of Claims on November 2, 1931, and re-

ported in Prentice-Hall Federal Tax Service -

(1931), p. 2300.150; Bishop v. Commissioner, No.

4517, decided by the Circuit Court of Appeals for

the Seventh Circuit on December 9, 1931, reported

in Prentice-Hall Federal Tax Service. (1932), p

388..

a ee ' ‘

The cases in this group are analogous to the pres-

ent case because, even if we assume -that respond-

- . ent’s share of the partnership profits was paid to

. him wholly or partly for the use of capital,’ never-

theless the record does not support the contention

*As we have indicated, supra, pp. 18-19, respondent has .

- failed to show the extent, ‘if any, to.which the payments were

for the use of cage.

\ =

A

Y

that the agreement between respondent and his

wife conferred upon her any interest in the partner-

‘ ship assets: See Point II, infra, pp. 26-28. ase

The following cases, where it was. held that the -

income was taxable to the assignee and not to the»

assignor, may be distinguished on. the ground that

in them it appeared that the assignor had divested

himself not only of the beneficial intérest in the .

income but also of the ownership of the property

or capital producing it: Hall v. Burnet, Nos. 5173,

_ 174, decided November 16, 1931, by the Court of

eAppeals of thé District of Columbia, reported in

‘Prentice-Hall Federal Tax Service. (1931), p. 2300.

179; Copland v. Commissioner, 41 F. (2d) 501, 504

(C. C. A. 7th, distinguishing Bing v, Bowers and

Rosenwald v. Commissioner, supra) ; Commissioner

v. Field 42 F. (2A) 820, 822 (C. C. A. 2nd, dis-

. tinguishing Lucas v. Earl, Mitchel v. Bowers, and

Harris v. Commissioner, all supra); Kaufman v.

Commissioner, 44 F. (2d) 144 (C. ©. A. 3rd);

- O’Malley-Keyes v. Collector, 24 F. (2d) 436 (D.

Conn., distinguishing Mitchel v. Bowers, supra) ;

Young v. Collector, 28 F. (2d) 789 (D. N. J.);

McKee v. Collector, 48 F. (2d) 838 (W. D: Okla.).

(3) In Corliss v. Bowers, 281 U.S. 376, the tax-

pra had transferred property, to trustees to pay”

. the income to his wife for life with a remainder

- over to their children. He reserved the power to.

revoke or change the-trust at- his will. The Rev-

_ eriue: Kama provided that. under such circumstances

*

- ‘

&

. ®

eee . Le iae 22

“the settlor should. be facile ‘ on . ‘ines from

“the trust.. The: taxpayer’ 8 argumént was thatthe

. __ uot income frm the trust had been paid to his wife;

. thatthe ineome ‘never was his; that the legal title .

soda din ths trustees'and the equitable ditle in ‘his

wife: “This Court. held the income from ‘the. trust.”

* taxable to the settlor, saying (p: 878): : <a

8 5f a man disposes. of a fund-in.

Phas “gifeh. a way. that another is allowed to enjoy

«the income which it is.in the power of the

Ps first: to appropriate’ ‘it’ does not matter

ei ‘whether the permission is given by assent or _ we

by failure to ‘express dissent. The .intome .

‘ ... that is subject to a man’s unfettered ‘com-: .

a mand. and that he is free to enjoy at his own

' option may be taxed to him as his income,’

whether he ‘sees fit to.enjoy it or not. |

’ Other eases falling: i in this group are: McCauley

¥. Commissioner, 44 F. (24) 919 (0. ©. A. 5th) ;°

see also ‘Mitchel v. Bowérs;eupra, 15 F, (2d) 287,

on 289 first ground of the decision) ; Cohan'v. Com-

f missionén, supra, 39 F. (2d) 540, 549-545, Bishop

_. ‘vy, Commissioner, supra, Prentice-Hall Federal Tax

= Service (1982) 388, 391; Leydig, v. Commissioner, |

ne Bee supra, B38, 43 FON Y 44 VEE.

cases in this group are analogous.to the pres-

a sn caf Ge roar stated by tear in Bing

; Bowers, supra, 22 F. (2d) 450, 454: 3

-“4In MeCauley v. Commissioner, 14 F. (24) 919 (0: ©. A. ©

Sih), tle court ssid that this provision of the Revenue Act ;

ei Se : ads

“4 ar * aap

eee «

* # ® the power over the creation of ey

_thjs gross: income and bver the ‘expenditure ~

- therefrom that determined the net remained.

~ in the grantor, not as.a trustee of the prop: :

a) . erty itself, subject to the cestui que trust’s:

- right to appeal to a court of equity,.but as

- his personal right uncontrolled. The gross“

- income, like the principal, the property it- -

self, was his: The it to determine the

deductions thereftom ‘was his; only when

. this power had been exercised, did ‘the net -—

+ * fund, or he as its: owner, ‘ become

. with the duty to perfect. the gift by payment

to. the grantee, or in arty case by not pre-

venting the grantee from . receiving. there-

from the amount granted to her. . -Not until

-. “the net was agcertained ‘could the gggi

3 , Tight attach to-any.specifie fund. Before. -

that the grantor had received the rents as

his i income from the property... |

_ The situation in the. instant case e was sill,

‘See supra, Dp. 10.

II .

RESPONDENT'S WIFE DID NOT BECOME A MEMBER OF THE

PARTNERSHIP - - “i

| - The burden real ed upon respondent to prove ‘all es

_. the facts necessary to establish the 1 a of the .

_ Commissioner’s determination. ’ Phillips, Collector .

v. Dime’ Trust d& Safe Deposit Company, 284 U. -

8. —,No. 18, October Term, 1931, decided Novem-

‘ber 28 1931; ; Burnet ¥. Houston, 283 U, 8. 228, 227; a

@

Lucas v. Structural Steel Company, 281 U, S. 264,

‘271; United States v. Mitchell, 272 U.S. 9,12. It

-was therefore essential for him ta show that his.

> wife had become a. member of the partnership.

Point I, supra. . If we are in error in our belief

that under the statutes only partners may return

partnership income, it was at-least necessary for

respondent to show that his wife owned a share of

- the income-producing corpus of the partnership.

- The egreement between respondent: and his wife -

e did not, we submit, make her a partner inthe Eagle _

Laundry Company. The text of the agreement .

- does not appear, and the findings state only.that —

the agreement ‘‘acknowledged that petitioner’s _

[respondent’s | wife had been and was a full equal

‘ partner with him in the interest in the Eagle.

. Laundry Company, entitled to share equally®n the

profits and obligated to bear equally any losses.”’

(RB. 17.) . (Italies ours.) oo “ ,

.Moreover, the law and the facts indicate siniiy

that the wife was not a partmer in the Company.

In order to establish that she had become a part- ._-

_ nér, it was necessary to prove that the other part-

* ners had consented to- such | an arrangement. Sée

Pagel v- Creasy, 6 Ohio App. 199, 207-208 ; Cohan

| y. Commissioner, supra, 39 F. (2d) 540, 542. There.

is no fiiding that such consent existed and all fair,

_ inferences are to the contrary. The partnership

_ ~income-tax returns, sworn to by respondent (R.

_ 18), stated that he and another each held a half

interest. in the partnership, “Compare: Bedell. v.

Commissioner, 30 F. (2d) 622, 625: (C; ©.'A. 2nd).

The name of respondent? s wife did; not appear on -

the books of the Company. Checks covering prof- — -

its payable on the half interest standing in respond: '. |

enit’s name weré made out to him. (R. 17.) Tt .

-does not appear that there ever. was any accounting

between her and the other.members of the. part-

nership. An Ohio statute (infra, p. 32) requires

partnerships doing business. under titles: not -reveal-

ing the names of the partners to file certificates stat--

ing the names of the: ‘partners with the clerk of the 3

court of common pleas. It does not. appear that the

name ‘of respondent’s wife was.on any certif- .

icate filed by the Eagle Laundry. Company. The .

contract between respondent and his wife was

: never filed in any place of public record. .«(R. 17.)

; Furthermore, she did not possess other powers

* which ordinarily, or necessarily inhere in a partner.

She took no part in the management of the business.

' See Coleman v. La Bounty Amusement Co., 21 Ohio

App. 44, 49-50 ; Cohan vy. Commissioner, supra, 39

F’. (2d) 540, 542. She made no contribution to its

capital (R. 17) and it does not appear that she con-

tributed any services. See Cohan v. Commissioner,

11 B. T. A. 743, 757. Tt does not’ appear that she

_ ever acquired or assumed to exercise any authority

-toact as agent for the Company. See Service Go. v.

Public Utilities Commission, 115 Ohio St. 405, 413-

bigs?

26 eu

414; Petition of Williams, 297 Fé. 696, 702-704

(GC. G..A. Ist), certiorari denied, sub nom. Wolff v.

Wiliams, 265 U.S. 593. :

The'mere right to share in the — of a part-

“nership does not make one a partner, even where

- the right is directly against ‘the partnership and.

_ not, as here, by virtue of an independent agreement

'. . with one of the partners.. Service Co. v. Public

- Utilities. Commission, 115 Ohio St. 405, supra; —

Hayes v. State, 14: Ohio Cir. -Ct. (N. 8.) 497, 505,

affirmed, 83 Ohio St. 490; Meehan v. Valentine, 145

‘U. 8. 611: . The wife’s siiceemnetit to bear a share

_of the losses does not alter the situation, since her

promise in that respect ran to her husband alone

and not to the firm or the other partner.’ |

. If this Court should hold that taxability of

the partnership income always follows the own

i el shi of the income-producing corpus,. the 1 i oni

s ee must fail. For here thet: vere me consisted

9! ie Mecie, plea Company as

ad Ag the Circuit Court of Appeals for

irenit ‘said in Mitchel v. Bowers, supra,

: a “appeesbip follows the status” 2

* os

yEee PRL Gg EMME

as ‘aot the A POETS NED sient

i@ias, Vicarious Liability, Part II, 38 Yile Law

27

‘ekeodens argues in his brief in sieaniblicn to -

the petition for certiorari (p. 5) that by the agree-

' ment with him his-wife became a legal or equitable —~

: owner in the assets of the company.—But in Ohio,

. a8 @isewhere, a partner does not own a direct inter-

est! ‘inthe partnership property. He has-only a ~

right to his share of the profits and, upon dissolu-

tion, to his share, if any, of the assets of the firm

- remaining after payment of debts and adjustment

of the rights of the partners inter’ sese. Bank v.

Carrollton R. R., 11 Wall. 624, 628-629; Case v.

_ Beauregard, 99 U. S..119, 124; Nizon v. Nash, 13°

Ohio Bt, 647, 650; Parsons on Partnership (4th _

ed.), See. 178; Rowley, oe a of Partner- .

ship, Secs. 291, 292;- -

If a partner attempts to rey an interest in the

" assets of the firm, the partnership is dissolved forth-

‘with. Bank v. Carrollton R. R., supra, 11 Wall.

. 624, 628; Harris v. Commissioner, supra, 39 F. (2d)

- 646-547. The assignee obtains only the right to the

a assignor’ s share, if any, of the assets of the firm

remaining after liquidation. Bank v. Carroliton,

. supra, 11 Wall. 624, 629; ef. Nizon v. Nash, supra,

' 12 Ohio St. 647, 650.. It certainly was not the

' intention of respondent, by the agreement with

. hig: wife, to dissolve the partnership. ‘The busi-

“Ness of the Laundry Company continued there-

- after as it’ had before. The wife asserted no

claim to ownership of any of the partnegship

‘assets. She did not demand dissolution and an

accounting. It seems/clear that all the agreement

_ did, or was intended to do, was to give the wife the. _

right to one-half the profits paid respondent, and

possibly the right to one-half of the assets, if any,

_ distributed to him upon the dissolution of the firm: .

| Harris v. Commissioner, supra, 39 F. (2d) 546, 547;

Harris v. Commissioner,.11 B. T. A. 871, 874-875.

These were very different rights from snicienaiemak ~

right as a partner. They were rights against re-

spondent on the contract with him, and not, like his

rights, against the partnership in rem. Mitchel v.

Bowers, supra, 15 F. (2d) 287, 289; Harris v. Com-

missioner, 11 B. T. A. 871, 875. We submit that re-

spondent has failed to show that his wife acquired

any ‘interest, legal or equitable, in the income-

producing corpus of. the Eagle Laundry Company.

CONCLUSION -

. The judgment of the coyrt below was erroneous.

- It should therefore be reversed.

eae submitted.

Tomas D. THACHER,

i Solicitor General.

@. A Younaquist,

Aasistant Attorney General,

CiaupE R. BRancH,

‘Sewaan Key,

| Joun H. ‘McEvers,

+ Special Assistants tothe Attorney General. :

Wusvur H. FRIEDMAN,

| - Attorney.

JANUARY, 1932.

7 APPENDIX A Sa

FEDERAL STATUTES AND REGULATIONS INVOLVED

Revenue Act of 1918, ¢, 18, 40 Stat. 1057, 1062,

1064, 1065, 1070, 1074:

‘Sec. 210. That * *.* there siiall be.

levied, collected, and paid for each taxable

year upon the net income of every individual _

anormaltax * * *, | ae

_ SEo. 211. (a) That * i. *- ih eddi-

_. tion to the normal tax imposed ‘by section

| 210-of this “Act; ‘there shall 'be levied, col-

lected, and paid for each taxable year upon

the ‘net income of every individual, a sur-

_— * SS, thd gee canny g ieee

- Sec. 212. (a) That in the case of an indi-

vidual the term ‘‘net income’’ means the

gross Income as defined in section 213, less

_ the deductions allowed by section 214.

Sec. 213. That for the purposes ‘of: this

title * * * the term ‘‘gross income’’— .

_ (a) Includes gains, profits, and income

derived from salaries, wages, or eompensa-

- tion for personal service -* * * of what-

ever kind and in whatever form paid, or

from professions, vocations, trades, busi-

nesses, commerce, or sales *- * *; also

from .* * * gains or profits and income

derived from any source whatever. * * *.

Sec. 218, (a) That individuals carrying on

busigess-in partnership shall be liable for

income tax only in their individual capacity.

There shall be included in computing the net

income of each partner his distributive share,

ee | ae

%

cc:

whether distributed or not, of. the net in-

come: of ‘the partnership for the taxable

yo UFC.

7 » > * *

___ (d) The net income of the partnership

shall be computed in the same manner and

on the same basis as provided in section 212

. * *. * [exception not material here].

PARTNERSHIP RETURNS”

- Src. 224. That every partnership shall

make a return for‘each taxable year, statin

specifically the items of its gross income and —

the deductions allowed by this title, and shall

‘include in the-return the names and ad-

dresses of the individuals who would be en-

titled to share in the net. income if. distrib-

uted and the amount of the distributive share

of each individual. The return, shall be -

sworn to by any one of the partners.

The.corresponding sections of the Revenue Act:

of 1921, c. 136, 42 Stat. 227, 233, 237-238, 245, con-

vain provisions identical with those of the 1918 Act

above quoted, except that Sec. 218(d), supra, ap-

pears in the 1921 Act as Sec. 218(c). i,

Revenue Act of October 3, 1917, c. 63, 40 Stat.

300, 303: et

| * Sec. 201. That * * *. there shall be-

levied, assessed, collected, and paid for each

- taxable year upon the income of every

* * * partnership * * * atax * * *,

Treasury Department Regulations. 45, promul-

gated under the Revenue Act-of 1918: |

Arr, 321. Partnerships.—Partnerships as:

such are not subject to taxation under the

statute, but are required to make returns of

income. - See ‘section 224 of the statute and.

: feiss » \31

articles 411 and 412. Individuals carrying

on business in partnership are, however, |

taxable upon their distributive shares of the

net income of such partnerships, whether

‘distribuéed or not, and are required to in-

clude such distributive shares in their re-_—

turns.” The net income ‘ofa -partnership °

shall be computed in the sate manner and

on the same basis as the net income of an

individual * * * [exception not mate-

rial here]. TO cia a

Akt. 322. Distributive shares of part-

ners.—The distributive share of the net in-

come of a partnership which a partner is re- ©

quired to include in his return is his propor-

tionate share of the net income of the part-

re, RS ee a eae

' Arr. 54, Examples of: constructive. re-

ceipt.—; * *. * The distributive share of

the profits of a partner in a partnership

*

* * is regarded as received by him, al- | ce

though not distributed. ' See section 212 of

the statute and articles 321-335. * * *

Articles 53, 331, and 382 of Treasury Regulations

62, promulgated under the Reveaue Act of 1921,

are substantially the same as Articles 04, 321, and

322 of Regulations 45. Zz

- APPENDIX B.

: OHIO STATUTES

_ Page’s Annotated’ Ohio General Code, Secs. 8099,

* 8102, 8104; / . : a

Sxo/ 8099. Certain partnerships ‘required —

to file certificate.—Except as otherwise pro- . .

vided in the next ‘following section, every - |

partnership transacting. business in this’ |

state under a fictitious name, or a designa: —

tion not showing the.names of ‘the persons

interested as partners therein, must file with .

, the clerk. of the common pleas court of |

the county in which its-princip@l office or. -’

place of business is situated, a certificate to.’ 3

be indexed by ‘him, stating the names in full

of all the members’of-the partnership and. 4

‘fheir'places‘of residence. a

SEG. 8102: New certificate on change in |

membership * *-**—On every change of “

the members of a partnership transacting <”

business 1n this state under a fictitious name °%

or designation which does not show ‘the |

_ . ‘ames of the persons interested as partners . 7

‘In the business, except in the cases men- ¢.4

tioned in section eighty-one hundred,'a new @

certificate must be filed with the clerk of the =

- ‘common pleas court as required by section : 3

eighty-hundred and ‘ninety-nine, on the’ 3

formation of such partnership. * * * ° © 4

Seo. 8104.. Partnership certificate—Any ~

_ persons doing business as partners contrary, |

to the provigions’of the next; five preceding |

- sections, shall not commence or maintain an 7

action on or on account. of any contracts 4

made, or transactions had.in their partner- ~

‘ship name'in any court of this state, until. 4

they first file the certificate therein required. }

s é ; ; ' a

(382) —

U.S. GOVERNMENT PRINTING OFFICE: 1932 a