Long v. Commissioner

1927 BTA LEXIS 2824 | B.T.A. | 1927

Lead Opinion

OPINION.

MoRRis:

The petitioner’s first contention that a partnership existed between himself and wife is not sustained by the evidence introduced in support thereof- The evidence shows that the petitioner promised to pay a reasonable share of the profits for the use of her securities .as collateral for loans. An agreement that a portion of the profits are to be paid as compensation for money advanced, in the absence of other elements of a partnership, does not create such a relationship. Fechteler v. Palm Bros. & Co., 133 Fed. 462. The fact that the petitioner referred to his wife as his partner, and for credit purposes notified R. G. Dun & Co. to that effect, does not establish that a partnership in fact existed. There are certain well defined incidents of a partnership relation, which we are unable to find in the relationship which existed between the petitioner and his wife.

Several of the well recognized tests of the existence of a partnership are sharing of profits and losses, mutual agency and community of interest. The two last named essentials are entirely lacking in the instant case. The evidence is indefinite as to the sharing of losses, and the profits were to be distributed not upon an agreed percentage, but the wife was to receive whatever share the husband determined to be reasonable. As a partnership did not exist between the petitioner and his wife the $15,000 payments to her in each of the years in question were not a distribution of partnership profits.

The second contention of the petitioner is that if a partnership did not exist, the $15,000 payments to her were compensation for the use of her securities and therefore deductible from his gross income. Section 214 (a) (1) of the Revenue Acts of 1918 and 1921 allows as a deduction from gross income “ all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” It was necessary for the petitioner to obtain capital or credit from some source in order to carry on his business. In our opinion the $15,000 payments to the wife for the use of her securities that he might obtain the necessary capital were an ordirary and necessary expense of his business, and are deductible in determining his net income.

The respondent raised the question of fraud in his brief, but our decision makes it unnecessary to pass upon it.

Judgment will be entered on 10 days' notice, rnider Rule 50.

Considered by Trammell and Littleton.