SSR 62-17. NET EARNINGS FROM SELF-EMPLOYMENT -- PARTNERSHIP -- HUSBAND AND WIFE

H filed application for old-age insurance benefits and stated that he and

his wife, W, had been partners on a 50-50 basis in the operation of a

small grocery store. W had started the store in 1935 with her own funds.

After she had operated the store individually for 6 or 7 months, H joined

her in its operation but contributed no additional capital. From that time

on, H and W worked full time in the store, and the enterprise became known

as a partnership by nearly everyone with whom they dealt. The store bank

account was in both their names as were all licenses. The lease of the

premises, however, was in H's name and accounts with two of the many

wholesalers were in his name alone. H and W engaged in all phases of the

business and had equal responsibilities with respect to it. However, they

never executed any formal articles of partnership nor entered into an

express agreement regarding the operation of the business or the division

of profits. Neither H nor W took any set amount from the business funds;

instead each was free to withdraw money as needed for personal use or for

the family. No records were kept showing capital interests or profit

distributions.

Section 211(a) of the Social Security Act provides in pertinent part, for

the inclusion in an individual's net earnings from self-employment of the

distributive share of income or loss from a trade or business carried on

by a partnership of which he is a member. In determining whether a

partnership, exists, the question is whether the parties actually intended

to join together for the purpose of carrying on the business and sharing

in the profits and losses or both

nclusion in an individual's net earnings from self-employment of the

distributive share of income or loss from a trade or business carried on

by a partnership of which he is a member. In determining whether a

partnership, exists, the question is whether the parties actually intended

to join together for the purpose of carrying on the business and sharing

in the profits and losses or both. Their intention in this respect is a

question of fact, to be determined from their agreement, their conduct,

their statements, the testimony of disinterested persons, the relationship

of the parties, their respective abilities and capital contributions, the

actual control of income and the purposes for which it is used, and any

other facts throwing light on their true intent.

In the present case, it is clear that H and W exercised a community of

power in the management and operation of the business, in the disposition

of profits, and apparently in the responsibility for losses. Viewed in the

context of all the facts, i.e., sharing of management and other functions,

holding out the business to others as a partnership, and the freedom on H

and W to use funds for business or personal purposes at the discretion of

either one of them, all of the elements necessary to find that a

partnership had been created are present.

Accordingly, it is held that H and W were partners in the

operation of the grocery store. It is reasonable to conclude in this case,

since there was not an expressed partnership agreement and adequate

records are lacking, that after more than 25 years in business each of the

parties would have equal capital interest in the partnership. They shared

equally in the rendition of services and management responsibilities and

had an equal right to use the proceeds to meet their expenses. Also, there

is no evidence that the income or loss from the business should be

allocated in any particular manner

are lacking, that after more than 25 years in business each of the

parties would have equal capital interest in the partnership. They shared

equally in the rendition of services and management responsibilities and

had an equal right to use the proceeds to meet their expenses. Also, there

is no evidence that the income or loss from the business should be

allocated in any particular manner. Consequently, it is further held that they have equal shares in such income or loss, and,

therefore, that one-half of the net income from the store is includible in

H's net earnings from self-employment.