Knapp v. Commissioner

5 B.T.A. 762, 1926 BTA LEXIS 2785

• Court: United States Board of Tax Appeals
• Decided: December 10, 1926
• Docket: Docket Nos. 6143, 10794.
• Status: Published

Opinion

OPINION.

Smith:

Petitioner was appointed natural tutor to his two minor children upon the death of their mother June 29, 1921. As such tutor he was required by the statutes of Louisiana to administer the property of his wards for their benefit. Included among such property was an undivided one-fourth interest in the partnership of Knapp & East of a value of $10,094.25. The petitioner chose to leave this money invested in the partnership and indicated to his partner and others that it was his wish and desire that his share of the profits of the partnership should thereafter be divided equally between himself and his two minor children. In his income-tax returns for the years involved in this proceeding the petitioner accounted for one-half of his 50 per cent share of the profits of the partnership and filed returns as fiduciary accounting for the balance of his share of the profits. It is the petitioner’s contention that he is not liable to income tax with respect to the share of the profits of the partnership which he desired should go to his children.

The petitioner does not contend that his minor children became members of the partnership of Knapp & East. It is his contention, however, that, by virtue of the statutes of Louisiana and of his alleged renunciation of his right of usufruct in the property of his children, he is not liable to income tax in respect of one-half of the profits of the partnership credited to him upon the partnership’s books.

The right of usufruct from property of a deceased wife accrues to the husband immediately upon the death of the wife. (Louisiana Laws, Act of March 25, 1844.) The usufructuary may at any time renounce his usufruct. Succession of Dougart, 30 La. 268. Article 555 of the Revised Civil Code of Louisiana (Merrick, 3d ed.) provides:

Alienation of Usufructuary Rights. The usufructuary may enjoy by himself or lease to another, or even sell or give away his right; but all the contracts or agreements which he makes in this respect, whatever duration he may have intended to give them, cease of right at the expiration of the usufruct.

Article 624 provides:

Benunciation Sy Usufructuary; His Creditors’ Opposition to. The creditors of the usufructuary can cause to be annulled any renunciation which he may have made of his right to their prejudice, ^whether it be accompanied with fraud or not, and they are permitted to exercise all the rights of their debtor in this respect.

In all cases the renunciation of the usufructuary can not be inferred from circumstances; it must be express.

In the case of Judice v. Provost, 18 La. Ann. 601, it was held that a usufructuary could not abandon part of the usufruct without abandoning all of it. It was there stated that:

If the usufructuary desires to be relieved from the repairs and charges imposed on him as usufructuary, he must renounce the usufruct as a whole and not in part of the property subject to right of usufruct.

The evidence of renunciation of the petitioner’s right to usufruct with respect to the property belonging to his minor children is not conclusive. Although the minor children inherited other property than the one-fourth interest in the partnership assets, there is no evidence that the petitioner renounced or intended to renounce his right of usufruct with respect to the other property. As tutor he had the administration of the entire property. So far as the evidence shows the partnership carried on business after the death of the petitioner’s wife the same as it had done before. The books of account do not reflect any part of the profits of the partnership as being accumulated or belonging to the minor children.

The petitioner apparently did not comply with the provisions of law of the State of Louisiana with respect to the administration of the property of his wards. Article 347 R. C. 0. provides:

The tutor shall be bound to invest in the name of the minor, the revenues which exceed the expenses of his ward, whenever they amount to five hundred dollars. In default thereof, he shall be bound to pay on such excess the rate of interest allowed by law.

Article 348 R. C. C. provides in part:

The investment of the funds of the minor must be made by public act and secured by mortgage, unless such investment be made in the bonds of the United States of America, or in bonds of the State of Louisiana, or in bonds for the payment of which the faith of the State of Louisiana stands pledged; and this investment in bonds shall only be made under a decree of the court having jurisdiction over the tutorship, nor shall such investment be changed or the bonds alienated, except by a decree of the same court.

The petitioner made no accounting to the court as tutor of his minor children.

In his brief, counsel for the petitioner states:

It is immaterial whether a segregation of income due the children is set up on the books showing their individual or collective interests, because they do not receive such income as persons, but as income through a fiduciary, who is the taxpayer, and as a matter of convenience accounts have not been opened to show any change in division of profits.

In our opinion the evidence does not warrant a conclusion that the petitioner received a portion of his partnership profits as a fiduciary. He had both the legal and the equitable title to those profits. The taxing statute provides:

That individuals carrying on business 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, whether distributed or not, of the net income of the partnership for the taxable year. * * * (Section 218(a), Revenue Act of 1921.)

It is immaterial what the petitioner did with his share of the partnership profits after they had been received by him. Appeal of Ormsby McKnight Mitchel, 1 B. T. A. 143; Ormsby McKnight Mitchel v. Bowers, 15 Fed. (2d), 287.

Judgment will be entered for the Commissioner on 15 days’ notice, under Rule 50.

GReen not participating.