*1 foregoing, of the In consideration HAND, Before AUGUSTUS N. appellant judgment is reversed dis- CHASE, Judges. Circuit charged. (cid:127) CHASE, Judge.
In his income tax return for the calendar re- ported gross only income portion of the net income of a business Company. known as Bernard He did so on the that his interest in the INTERNAL COMMISSIONER LEVIN v. OF that of a business with REVENUE. and a Richard. 14, Docket 22300. The Commissioner determined a deficien- States Court United cy year by including for each net entire Second Circuit. profit gross the business in income of Argued Oct. petitioner. The Tax redeter- 12, 1952. by excluding pro mined the deficiencies rata share income of the upheld the Commis- taxing sioner’s the share which the latter had attributed to his son. doing, pe- In so the court found that the titioner had formed a bona fide that there been no intent include the son as a undisputed The evidence was Bernard Company *2 693 which, corporation the peti- impractical to be and the found corporation in by owned a liquidated of 1943. at the end the was wife, were tioner, daughter and son his by owned shares stockholders. The sole to been decided Meanwhile, it had them given to the wife and son the the of crease by the owned by petitioner, and those the was to petitioner $12,500. of which the by her her given to daughter had been the others and $2500. contribute $5000. received mother out of the shares she loaned daughter had $300. each. The husband, a time before all at from her of which corporation son and the $400. any thought the formation of 17, there was of April repaid On he had been $100. partnership. evident a It later became 1943, paid loans and corporation these that, corporation had no base invested daughter and the son each period, cor- profit taxes would make excess partnership. The re- in payments their porate operation costly March too and on which each contrib- mainder of the $2500. 29, petitioner their partnership came from uted to the daughter with an accountant and an met corporation share of the assets of attorney partner- plans consider a liquidated. was The entire $2500. ship. present, being The then son was by contributed the wife came from such college, partnership agree- in before a September assets. In ment was drawn he was consulted several college during and taxable went by by telephone.. attorney During times years here worked in the business involved a partnership agreement was only during vacations. For that she was by drawn and signed petitioner was paid provided but not that salary and the above mentioned members paid agreement since she was family April 1, as of only for she worked. the time It was then contemplated peti- that the Applying ap the standards decision tioner and his wife and daughter were to proved in Commissioner Internal Rev perform services for the partnership but Culbertson, enue v. 337 U.S. 69 S.Ct. that the son was not until his education 1210, by 93 L.Ed. it was found '-e completed.. was petitioner The to re- petitioner Tax Court and his wife ceive annually the wife $6000. $1560. daughter, “acting good in faith and in return for their $2080. purpose” part with a business formed a services before any distribution nership April 1, they on 1943and held that profits. They were to receive partners carried on the during pro rata share of such amounts in years taxable and 1945. year in profits which the It. was also found that “no such intent were insufficient pay them in full and part existed as to either on Richard any deficit up to be prof- out of parties.” on the other And it years in succeeding they as and when was held “that Richard was not a should become available. The remainder operation in the business for the any profits were to be distributed 40% calendar 1944 and 1945.” The rea- each to the 20% making son for this daughter. son and Losses were to be though as shared in the proportion. same peti- capital contributors to the partnership they tioner was made managing partner footing, were the same is found his business bound .decisions them all. It following excerpt opinion. from the “A provided originally that the just contribution of is one of all should be to be contribut- $3000. factors looked at to determine the in- by ed $1200. each $600. parties tent of the and is insufficient in it- by the others. This was it was when find valid self to There is planned to have the business conducted in no which indicates an par- active evidence part by corporation part by and in the ticipation in the business Richard. On partnership, arrangement contrary was soon the the evidence seems to show a
69á passive acquiescence petitioner’s (the think left free to the trier should be impelled donor’s) fairly appears that his new he will.” Thus it feels it of law that evidence without their was held as a matter admonition as to direc- *3 partnership tion investment trend. support finding was insufficient
tent that the son should all concerned partner
be a unless it was also shown
the son actively participated in conduct business. This seems be the sole on which partnership of the wife status ESTATE v. JOSEPH E. SEA KERRIGAN'S of the son. SONS, Inc. al. et GRAM & But the require Culbertson case does not 10750. active participation person to make a partner Court purposes. for tax United States On the con- Third Circuit. trary, it made it clear that no one element Supreme is essential. The decided Oct. 1952. Argued against taxpayer evi- dence of an intent to form a expectation taxpayer’s would, sons future, contribute their
time and services That decision was not reached because an indis-
pensable element was lacking, but because present one element enough was not justify a finding carry of intent to on a present partnership. The mere fact that
Richard did actively not participate in the preclude does not the possibility
of a bona fide intent form a partnership. He did contribute and this would
justify, but necessarily compel, a find- ing that there requisite intent him a finding that there the Tax Court’s
As intent to make the son a
was an absence of legal was the result conclu- investment alone is insuffi-
sion accept
cient, finding cannot as de- we that, it is cisive. Without reasonable to be- contrary finding would
lieve that have Consequently we remand the
been made. point further free concept participation that active necessarily the business must have been
shown to establish the status of
the son. remanded.
Reversed and Judge (concurring in result). concur in remand because of the
I below,
erroneous statement law