Goodman v. Commissioner

6 T.C. 987, 1946 U.S. Tax Ct. LEXIS 198

Opinions

OPINION.

Smith, Judge-.

In the recent case of Commissioner v. Tower, 327 U. S. 280, the Supreme Court said:

There can be no question that a wife and husband may, under certain circum stances, become partners for tax, as for other, purposes. If she either invests capital originating with her or substantially contributes to the control and management of the business, or otherwise performs vital additional services, or does all of these things she may be a partner as contemplated by 26 U. S. C. §§ 181, 182. The Tax Court has recognized that under such circumstances the income belongs to the wife. * * *

The evidence in this case, we think, shows ample support for a business partnership between petitioner and his wife, under the tests laid down by the Supreme Court in the Tower case and in Lusthaus v. Commissioner, 327 U. S. 293. See also Felix Zukaitis, 3 T. C. 814; H. D. Webster, 4 T. C. 1169; and Francis A. Parker, 6 T. C. 974.

The wife here contributed regular and valuable services which were a material factor in the production of the income. This was not a business where the income was attributable primarily to the employment of capital or to the personal services of the petitioner. Cf. William G. Harvey, 6 T. C. 653. We assume that the capital used in the business was all furnished by the petitioner, at least it all originated with him. Commissioner v. Tower, supra. The wife’s status as a partner does not depend upon petitioner’s alleged gift to her of the one-fourth interest in the business, but rather upon the personal services which she contributed. Her share of the profits of the business is therefore not limited to the amount to which she would be equitably entitled as a return on that portion of the capital. See William F. Fischer, 5 T. C. 507. It can not be said either that all or any more than one-half of the profits are taxable to petitioner as his personal earnings under the rule of Lucas v. Earl, 281 U. S. 111. We have determined that the wife’s personal services were ample to support the partnership agreement, and under that agreement she was entitled to receive and did receive one-half of the profits of the business. Petitioner is therefore taxable on only his one-half of such profits.

Reviewed by the Court.

Decision will he entered under Rule 50.