76 F.2d 460 | 5th Cir. | 1935
In the beginning of the year 1926 a Texas partnership called Staley & Wynne, then engaged in oil production, sold its producing properties at a large profit to Humble Oil & Refining Company. Its remaining undeveloped or unproductive properties with tools and equipment and miscellaneous assets were on April 1st passed to a new firm then formed composed of members of the old firm. The difference in the firms was that J. A. Staley, trustee, had Yzá interest in the old firm and none in the new; J. I. Staley’s x%i interest in the old was reduced to 1%4 in the new, while J. C. Wynne’s Yza interest in the old firm became %4 in the new and L. W. Fritz’s %i was raised to %4. J. E. Hall’s interest remained unchanged. The transfer of the property'was for a consideration of $70,000 as entered on the books of each firm, but its depreciated cost to the old firm was $180,000. The difference of $110,000 was claimed as a realized loss by the old firm. The Commissioner disallowed it as a partnership loss, but allowed individual deductions to J. I. Staley and J. A. Staley, trustee, in proportion to the fractional interests in the partnership relinquished by each. The Board of Tax Appeals refused to interfere. 28 B. T. A. 408. Six weeks after the decision a motion to reopen the case for further evidence was made and denied, and this consolidated petition for review by all the partners followed.
The facts above stated are unquestioned. The board thought it not proven that the passing by the old firm to the new one of its residual property was a real sale in good faith in which the consideration was actually to be collected rather than a mere reorganization of the partnership. The pleadings before the board presented the matter thus: The allegation that Staley & Wynne sold this property to Staley, Wynne & Co. at and for the sum of $70,-000 was denied, and likewise denied was the allegation that the sale was for an adequate consideration and bona fide and resulted in loss. The allegation that “Staley,
But on the agreed facts it is still contended that the transfer of partnership interests from the Staleys to Fritz and to Wynne involving the retirement of Staley, trustee, dissolved the old partnership and necessarily made the transaction a real sale from firm to firm and necessitated the collection of the $70,000 consideration. It is true that either the retirement of a partner or the sale or gift of a partner’s interest to a third person is said at common law and in Texas to dissolve the old partnership. 20 R. C. L., Partnership, § 178; Moore v. Steele, 67 Tex. 435, 3 S. W. 448; Euless v. Tomlinson (Tex. Civ. App.) 38 S. W. 534; Carroll v. Commissioner (C. C. A.) 70 F.(2d) 806. It is otherwise in some other States. Cameron v. Commissioner (C. C. A.) 56 F.(2d) 1021; Helvering v. Archbald (C. C. A.) 70 F.(2d) 720. In the common-law view of a partnership the partners are joint owners of the assets, joint debtors for its obligations, and agents for one another in the conduct of the business. There is a complicated relationship among them rather than a separate entity. Equity inclines to view the partnership as a separate business entity owning its properties and owing its debts. This latter view obtains largely in the Bankruptcy Act (11 USCA). In the Income Tax Act of 1917 a partnership made its own tax returns and paid its own taxes. Revenue Act 1917, § 1204, 40 Stat. 331. Since then it has been required to compile its own return of its gross income and deductions as before, but the partners alone owe taxes and each of them returns and pays on his proportion of the net income of the partnership. They are spoken of as “individuals carrying on business in partnership.” Manifestly, for purposes of federal taxation the rules for ascertaining the income and deductions of partnerships ought not to vary with the peculiarities of state laws, but should be uniform throughout the United States. The question whether a transfer of property by a partnership to its members or to a number of them associated in a new partnership realizes a gain or a loss to the old firm ought to be answered alike everywhere. We do not think that result necessarily follows from such a transfer even though it accompanies a technical dissolution of the partnership. Of course two partnerships having one or more common members may coexist, car