Pharos-Reporter Publishing Co. v. Commissioner

1 B.T.A. 879, 1925 BTA LEXIS 2762

Opinion

OPINION.

Sternhagen :

The taxpayer, relying entirely upon the agreement of sale to it by the copartnership of Louthain & Barnes, contends that the intangibles of the copartnership were transferred one-half by Barnes for cash and one-half by Louthain for stock, while the Commissioner contends that all the copartnership assets, both tangible and intangible, were paid in to the taxpayer for the aggregate of cash and stock, and that the cash should properly be allocated to the tangibles and the stock to the remaining tangibles and intangibles. In essence, the taxpayer argues that each of the two partners was the owner of a half interest in all the property of the partnership; therefore what Barnes conveyed was his half interest in the intangibles as well as the tangibles; that the payment by the taxpayer was by express agreement one of cash to Barnes for his interest in all assets, and hence that his interest in the intangibles was specifically bought for cash, — a subtle argument which we think is unsound.

It is true in the absence of an agreement of the partners inter sese to the contrary that Barnes owned an undivided interest in all the copartnership assets, both tangible and intangible, and it is also true that the taxpayer agreed to pay to Barnes $15,000 cash. But these facts do not support the conclusion that the cash was paid for any particular assets or of Barnes’ share in any particular assets. The corporation bought nothing directly from Barnes individually. Its purchase was from the copartnership of Louthain & Barnes, from which it bought all the assets enumerated, including the good will and list of subscribers and business of the firm. For these assets it agreed to pay, and did pay, $15,000 cash and $15,000 stock. By the agreement with its vendor, the copartnership, the cash went to Barnes and the stock to Louthain. Whether this was in proportion to the interests of these individuals in the copartnership does not appear, and the corporation had no reason to care. 'All it was concerned with was its total payment for the business and its assets. It might, to be sure, have accomplished this end by making a separate purchase from each individual partner of his interest — one for cash and the other for stock — but it wisely chose to acquire the whole business from its owner, the partnership. We say wisely because the law regards the ownership of the partnership not as an aggregate of separate ownerships but as one undivided whole, in which each partner has an undivided interest, and hence the purchase from the partnership was clear and complete and did not involve the purchaser in any subsequent question of the proper apportionment between the partners themselves or the extent of the interest conveyed. But whatever its reason, it did not buy from either individual, and it may not be taxed as if it did.

The Commissioner has computed the tax in harmony with the following: Cash was paid in to the amount of $23,700. This was applied to the purchase of tangibles, of which there were admittedly $26,025 acquired from the copartnership and from the Sutton family owning the “Reporter.” The stock issued was applied to the remaining tangibles and the intangibles. The tangibles were included in invested capital at their full value. The intangibles were included subject to the limitation of 20 per cent of the capital stock outstanding March 3, 1917, as prescribed in section 207 of the Revenue Act of 1917. We regard this computation as proper in this case. The only alternative would be the application of section 210, and that we are not asked to consider.