# Petitioners Brief — Burnet v. Leininger > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0136%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Petitioners Brief - **Published:** January 1, 1932 - **Citation:** 285 U.S. 136 ## Text 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..---.------- . ’ * : . P ¢ ‘s 3 x ‘ . tn ° | ri ‘ a; ; . . . : : ‘ ; | . > bs . ad o * ‘o ° : yf i e ° m . ; : | Ie Sgreme iro ei es 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 ° . . ‘ ? \ Pe —* , : Pa) . \ . * pe “ : , °. ¥ ~ pe ee ¥ . ® “~ “8 | ARGUMENT. my atin eochsiie DISTHIRUTABLE TO A MEMBER OF A PARTNERSHIP: Is 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): : 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0136%3A03. Public record. Not legal advice.