Commissioner of Internal Revenue v. Smith

Fifth Circuit

Commissioner of Internal Revenue v. Smith

173 F.2d 470, 37 A.F.T.R. (P-H) 1143, 1949 U.S. App. LEXIS 4409

CourtCourt of Appeals for the Fifth Circuit

DecidedMarch 24, 1949

Docket12489

StatusPublished

Cited by29 cases

This text of 173 F.2d 470 (Commissioner of Internal Revenue v. Smith) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Commissioner of Internal Revenue v. Smith, 173 F.2d 470, 37 A.F.T.R. (P-H) 1143, 1949 U.S. App. LEXIS 4409 (5th Cir. 1949).

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Opinion

HOLMES, Circuit Judge.

The taxpayer owned a 65% interest in the partnership business of Hyman Supply Company, a retailer of oil-field supplies in Alice, Texas. On December 31, 1942, he sold his undivided interest in the business to one of the remaining partners and two new persons. The sole question for decision is: Was this sale of the taxpayer’s undivided interest the sale of a capital asset?

It is well settled in Texas that a partner has no separate or exclusive right to any part or portion of the partnership assets, but has a common interest in all of the assets. The ownership of one partner in the property of the -firm is not only subject to the rights of creditors, but is subject to the ownership of all the other partners. Warren v. Wallis, Landes & Co., 38 Tex. 225. A partner’s only interest in the property of the firm is in a proper proportion of the surplus of the whole after payment of debts, including the amounts due the other partners. Sherk v. First National Bank of Hereford, Tex.Com.App., 206 S.W. 507.

The taxpayer here sold an intangible asset or chose in action, not his interest in the specific assets of the firm; and, since it had been held by him for more than six months, only 50 per centum of the gain was taxable under Section 117 of the Internal Revenue Code, 26 U.S.C.A. § 117; Commissioner of Internal Revenue v. Shapiro, 6 Cir., 125 F.2d 532, 144 A.L.R. 349; Thornley v. Commissioner, 3 Cir., 147 F.2d 416; United States v. Landreth, 5 Cir., 164 F.2d 340; Commissioner of Internal Revenue v. Lehman, 2 Cir., 165 F.2d 383, certiorari denied, 334 U.S. 819, 68 S.Ct. 1085. Distinguishable: Williams v. McGowan, 2 Cir., 152 F.2d 570, 162 A.L.R. 1036. Contra: City Bank Farmers Trust Co. v. United States, 47 F.Supp. 98, 97 Ct. Cl. 296.

The judgment appealed from is affirmed.

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HOLMES, Circuit Judge.

The taxpayer owned a 65% interest in the partnership business of Hyman Supply Company, a retailer of oil-field supplies in Alice, Texas. On December 31, 1942, he sold his undivided interest in the business to one of the remaining partners and two new persons. The sole question for decision is: Was this sale of the taxpayer’s undivided interest the sale of a capital asset?

It is well settled in Texas that a partner has no separate or exclusive right to any part or portion of the partnership assets, but has a common interest in all of the assets. The ownership of one partner in the property of the -firm is not only subject to the rights of creditors, but is subject to the ownership of all the other partners. Warren v. Wallis, Landes & Co., 38 Tex. 225. A partner’s only interest in the property of the firm is in a proper proportion of the surplus of the whole after payment of debts, including the amounts due the other partners. Sherk v. First National Bank of Hereford, Tex.Com.App., 206 S.W. 507.

The taxpayer here sold an intangible asset or chose in action, not his interest in the specific assets of the firm; and, since it had been held by him for more than six months, only 50 per centum of the gain was taxable under Section 117 of the Internal Revenue Code, 26 U.S.C.A. § 117; Commissioner of Internal Revenue v. Shapiro, 6 Cir., 125 F.2d 532, 144 A.L.R. 349; Thornley v. Commissioner, 3 Cir., 147 F.2d 416; United States v. Landreth, 5 Cir., 164 F.2d 340; Commissioner of Internal Revenue v. Lehman, 2 Cir., 165 F.2d 383, certiorari denied, 334 U.S. 819, 68 S.Ct. 1085. Distinguishable: Williams v. McGowan, 2 Cir., 152 F.2d 570, 162 A.L.R. 1036. Contra: City Bank Farmers Trust Co. v. United States, 47 F.Supp. 98, 97 Ct. Cl. 296.

The judgment appealed from is affirmed.

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173 F.2d 470, 37 A.F.T.R. (P-H) 1143, 1949 U.S. App. LEXIS 4409, Counsel Stack Legal Research, https://law.counselstack.com/opinion/commissioner-of-internal-revenue-v-smith-ca5-1949.

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