Estate of Trammell v. Comm'r of Internal Revenue

Citation18 T.C. 662
Decision Date25 June 1952
Docket NumberDocket No. 27666.
PartiesESTATE OF GEORGE MARSHALL TRAMMELL, GEORGE M. TRAMMELL, JR., ADMINISTRATOR, DE BONIS NON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

For several years prior to his death, decedent was an equal partner with his wife in a business in Nashville, Tennessee, known as ‘Grace's‘ which was a ladies ready-to-wear shop handling high class merchandise. ‘Grace's‘ enjoyed a very profitable trade and had an excellent reputation in the community for reliability and fair dealings. In the estate tax return which was filed, decedent's one-half interest in this business was returned at $33,966.82, which was the book value of one-half of the assets of the business at the time of decedent's death and included nothing for the value of good will. The Commissioner in his determination of the deficiency determined that decedent's one-half interest in the partnership at the date of his death, including good will, was $55,000. Held, the value of decedent's one-half interest in the partnership business at the time of his death, including good will, was $45,000. E. J. Walsh, Esq., for the petitioner.

Frederick T. Carney, Esq., and S. Earl Heilman, Esq., for the respondent.

The Commissioner has determined a deficiency in estate tax against the Estate of George Marshall Trammell of $8,424.91. The deficiency is due to four adjustments made by the Commissioner to the net estate reported on the estate tax return. These adjustments are:

+-------------------------------------+
                ¦Sch. B—Stocks and Bonds   ¦$1,752.50 ¦
                +--------------------------+----------¦
                ¦Sch. C—Mtgs., Notes & Cash¦109.17    ¦
                +--------------------------+----------¦
                ¦Sch. D—Life Insurance     ¦8,056.23  ¦
                +--------------------------+----------¦
                ¦Sch. E—Jointly Owned      ¦21,033.18 ¦
                +--------------------------+----------¦
                ¦Total                     ¦$30,951.08¦
                +-------------------------------------+
                

The Schedule E adjustment is explained in the deficiency notice, as follows:

With respect to item 2 this schedule in the estate tax return you included the value of decedent's interest in the business carried on under the name of Grace's at $33,966.82. It has been determined that the value of the decedent's interest in that business including good will was $55,000.00.

The petitioner does not contest adjustments shown above as Sch. B, C, and D adjustments. Petitioner does contest the adjustment shown above as Sch. E. adjustment. Petitioner assigns errors as follows:

(a) The Commissioner erroneously determined that the value of decedent's interest in the business operated by Mrs. Grace Trammell and the decedent as partners under the name of ‘GRACE'S‘ was $55,000.00 at February 12, 1946.

(b) The Commissioner erroneously failed to allow as additional debts of the decedent deficiencies in income taxes due by the decedent for the years 1944, 1945 and the period ended February 12, 1946, aggregating $2,035.39.

(c) The Commissioner erroneously failed to allow additional attorney fees and expenses of administration incurred and to be incurred in the prosecution of this appeal.

It was stipulated at the hearing that additional attorney's fees incurred in the prosecution of this appeal should be allowed in a recomputation under Rule 50. Therefore there is no longer any issue as to the matters raised by petitioner's assignment of error (c). Also we do not understand that respondent is contesting petitioner's right to have as a deduction for additional debts existing at the time of decedent's death, the amount of income tax deficiencies determined against decedent's estate after his death for tax periods prior to his death and ending with his death, and which deficiencies in income taxes plus interest were paid after decedent's death.

A statement from the collector of internal revenue, Nashville, Tennessee, was introduced in evidence as petitioner's Exhibit 4 and will be made a part of our Findings of Fact. It will furnish information and data for any allowance which petitioner is entitled to receive in a recomputation under Rule 50, for the additional debts raised by petitioner's assignment of error (b). So the only issue we have to decide in this proceeding is the one raised by petitioner's assignment of error (a).

FINDINGS OF FACT.

The petitioner is the Estate of George Marshall Trammell by George M. Trammell, Jr., Administrator, de bonis non. George Marshall Trammell died February 12, 1946, and at the time of his death he resided in Nashville, Tennessee. The estate tax return was filed with the collector of internal revenue for the district of Tennessee at Nashville, Tennessee.

The decedent had originally been a bank examiner and then comptroller of a Nashville bank before he became connected with ‘Grace's.‘ ‘Grace's‘ is a ladies ready-to-wear shop in Nashville. Mrs. Grace Trammell, wife of decedent, operated the shop herself before she married decedent, and when decedent and Grace were married decedent became a partner owning a half interest in the business. The Partnership Agreement was entered into on June 29, 1939. It is a short agreement, and is as follows:

AGREEMENT, made this twenty-ninth day of June, 1939, by and between G. M. TRAMMELL and GRACE W. TRAMMELL.

WITNESSETH:

WHEREAS, the parties hereto in equal amounts are the owners of the entire capital stock of the corporation known as GRACE'S, INC., conducting a ready-to-wear business in Nashville, Davidson County, Tennessee, and as such stockholders, desire to surrender said charter of incorporation, and surrender up their stock for cancellation, and have all of the assets of the corporation conveyed to them as partners, and they to assume all of the obligations of the corporation.

NOW, THEREFORE, we, G. M. Trammell and Grace W. Trammell do hereby for ourselves, and our respective heirs, executors and administrators, agree to become partners in the business of ladies ready-to-wear, under the firm name of GRACE'S, for a term beginning June 30, 1939, and continuing until such partnership is dissolved by mutual consent. We agree that each of us shall contribute one-half of the assets conveyed to us by Grace's, Inc., as our contribution to partnership capital, including bank accounts, choses in action, etc., and that we will, at all times, keep proper books of account and give our best efforts to making the business successful.

We agree that we shall, at all times, be owners of the partnership property in equal amounts, and that gains and profits shall be distributed to us from time to time in equal amounts as we may determine, which may be in the form of a salary, or merely as a drawing account against profits, as we may determine.

In the event this agreement is terminated by the death or inability to act of either of said partners, it is expressly agreed that the surviving partner may continue the business as theretofore, and buy out the business of such partner, by paying therefor the reasonable value of the partner's property as may be determined from the books of the partnership, paying nothing for good will, and taking into account depreciation, etc.

IN WITNESS WHEREOF, we have hereupto set our names, this twenty-ninth day of June, 1939, in duplicate, each of us having a copy thereof.

(Signed) G. M. TRAMMELL (Signed) GRACE W. TRAMMELL.

The surviving partner, Grace W. Trammell, did buy the decedent's interest in the partnership at book value. This purchase was made by her on January 31, 1948, nearly two years after decedent's death. The book value of the decedent's interest at the time of his death as shown by the balance sheet was $33,966.82 and this is the value listed in the return for estate tax.

It is stipulated that the earnings for the following years will be as stated: January 1, 1936, to December 31, 1936, there was a $4,975.18 loss; January 1, 1937, to December 31, 1937, there was an $8,394.12 loss; January 1, 1938, to December 31, 1938, there was a $733.68 gain; January 1, 1939, to June 30, 1939, there was $479.54 loss; July 1, 1939, to June 30, 1940, there was a gain of $18,162.58; July 1, 1940, to June 30, 1941, there was $21,182.99 gain; July 1, 1941, to June 30, 1942, $22,221.90 gain; July 1, 1942, to June 30, 1943, $61,045.22 gain; July 1, 1943, to June 30, 1944, $99,435.42 gain; July 1, 1944, to June 30, 1945, $105,730.49 gain. For the years 1936 through June 30, 1939, the business was operated as a corporation, and the net earnings figures are arrived at after the deduction of all salaries and business expenses. From June 30, 1940, through June 30, 1945, the business was operated as a partnership. During these particular years the earnings shown in the figures which have been stipulated are without any deduction for salaries to partners....

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