Culbertson v. Commissioner of Internal Revenue, 12232.

• Decision Date: 30 June 1948
• Docket Number: No. 12232.,12232.
• Citation: 168 F.2d 979
• Parties: CULBERTSON et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

168 F.2d 979 (1948)

CULBERTSON et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 12232.

Circuit Court of Appeals, Fifth Circuit.

June 30, 1948.

Benjamin L. Bird, of Fort Worth, Tex., for petitioners.

Homer R. Miller, Robert N. Anderson and Harry Baum, Special Assts. to the Atty. Gen., Theron L. Caudle, Asst. Atty. Gen., and Charles Oliphant, Chief Counsel, Bureau of Internal Revenue, and John W. Smith, Sp. Atty., Bureau of Internal Revenue, all of Washington, D. C., for respondent.

Before HUTCHESON, McCORD, and WALLER, Circuit Judges.

WALLER, Circuit Judge.

For nearly a quarter of a century William O. Culbertson and R. S. Coon were partners in the cattle-raising business near Dalhart, Texas. Coon raised many cattle but had no children. Culbertson raised both. He had four sons, a daughter, and a one-half interest in approximately fourteen hundred head of cattle at the time of the transaction around which this case centers. Coon furnished the finances; Culbertson looked after the cattle. About the time the Culbertson boys reached the age of twelve, each, like most ranch-reared boys, began to work on the ranch at various and sundry jobs.

In 1939, due to the age and health of Mr. Coon, it was determined to liquidate the herd and dissolve the partnership. To that end the partnership sold some three hundred and fifty head of Braford cattle to the four boys, but before the transaction was fully completed, a friend of the parties sought to buy these cattle from the partnership. At the suggestion of Mr. Coon, the friend bought them from the boys, paying a profit of $5.00 per head.¹

By October, 1939, the herd had been reduced to approximately fourteen or fifteen hundred registered cattle. Thereupon Culbertson offered to purchase the remainder of the herd at a price around $65.00 per head. Four persons were present in the office of Coon & Culbertson in Dalhart on the night the proposition of the sale of Coon's interest in the partnership cattle to Culbertson — or to Culbertson for his four sons — was tentatively agreed upon. The witnesses all recount Coon's long-standing avocation and hobby of breeding Hereford cattle and his interest in seeing that the strain thus developed should continue. The witnesses all agreed: that Coon stated that he would accept Culbertson's proposition to buy his interest in the cattle provided that Culbertson would, in turn, sell same to the latter's four sons, who had worked on the ranch and who would be able to carry the herd into the future; that Culbertson desired to talk to his sons first; that he did talk to them, and that the offer was accepted and the trade was consummated by a bill of sale from Coon & Culbertson to Culbertson, and another bill of sale from Culbertson to his four sons. All witnesses agreed as to the fine quality of registered Hereford cattle that had been bred through the years, Coon's interest in its continuation, as well as his interest in, and friendship for, the Culbertson boys — for the education of two of whom he had provided in his lifetime and for the other two he had provided in his will.

There was no mention of income tax or tax consequences in the discussions leading up to, and consummating, the deal. All witnesses were agreed that the idea uppermost was the continuation of the cattle-breeding business of Coon & Culbertson through the instrumentality of Culbertson and the sons of Culbertson, who, since childhood, had worked on the ranch with the cattle and one of whom was then foreman, and later manager, of the ranch. There is not the slightest proof in the evidence but that the four Culbertson boys each acquired a one-fourth interest in the one-half interest of Coon in the cattle in question. The partnership of Coon & Culbertson, as well as Culbertson and his sons, owned no land but utilized grazing leases.

It is conceded that the father put up the money for the purchase of the cattle from Coon and that he in turn sold that half interest to his sons and took their note therefor; that in addition to the note being given by the boys for the amount necessary to purchase Coon's cattle, they also gave their note for the purchase of a one-half interest in other miscellaneous properties which had theretofore been used at the ranch. Neither is it disputed that a considerable portion of the purchase price was returned to the elder Culbertson by the sale, in due course, of partnership cattle, and that the balance then remaining unpaid on the notes was canceled as a gift. It is also undisputed that thereafter Culbertson gave a one-eighth interest in his own cattle to his daughter, but since it was not contemplated that the daughter would perform services or contribute capital to the partnership, no effort is made here to have her considered, or included, as a partner for tax purposes.

The plan whereby all four of the boys would work on the ranch when they were not in school was disrupted by the War. All were put into the military service. The education of the younger ones was delayed, and at the time of the hearing two of the boys were still in school. Upon his release from the service, the oldest son resumed his job as foreman or manager of the ranch and the second had also done some work there after his return from the War and from college.

The Dalhart newspaper, quoting Mr. Culbertson, announced in December, 1939, the fact of the dissolution of the Coon & Culbertson partnership, and that in the future the business would be operated by the Culbertson boys under the name of Culbertson and Sons. A bank account was opened in the name of W. O. Culbertson and Sons, upon which the father and either of his four sons could check. The membership of Coon & Culbertson in the American Hereford Association at Kansas City, the place where Hereford cattle are registered, was changed to W. O. Culbertson and Sons, to whom an appropriate certificate was issued.

Mr. W. H. Coon, the nephew of the elder Coon, wrote to Mr. Wright, the manager of the National Finance Credit Corporation, on November 23, 1939, stating that: "Mr. W. O. Culbertson and Sons will take over the Coon & Culbertson herd November 1st, 1939. Mr. R. S. Coon is selling his interest in the cattle to this new firm — W. O. Culbertson and Sons." Concededly, W. O. Culbertson and Sons was not a corporation or mere trade name. A partnership return for W. O. Culbertson and Sons for the year 1940 was filed with the Collector of Internal Revenue. The letterheads of W. O. Culbertson and Sons showed the names of the father and his four sons thereon.

A reading of all the evidence thus far could leave no one in the slightest doubt as to the intent, purpose, and effect of the transaction in question. However, the Commissioner contends that the picture changes upon observance of a second instrument that was drawn up after the first bill of sale was executed from father to sons. This second bill of sale also looms large in the consideration of this case by The Tax Court. It will be remembered that two of the Culbertson boys were minors at the time of the formation of the partnership. It will also be remembered that the new partnership required financing. When inquiry was made from Mr. Wright of the finance company, Mr. Culbertson was told that it would be necessary for him to have some kind of a paper showing that he had a right to execute mortgages, sign...