Quick's Trust v. CIR, 20584

Decision Date16 June 1971
Docket NumberNo. 20584,20585.,20584
PartiesGeorge Edward QUICK'S TRUST, U/A #XXXX-XX Mercantile Trust Company National Association, Trustee, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. George Edward QUICK'S TRUST, U/A #XXXX-XX Mercantile Trust Company National Association, Trustee, Transferee, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

John S. Pennell, Chicago, Ill., for appellant.

Janet R. Spragens, Atty., Tax. Div., Dept. of Justice, Washington, D. C., for appellee.

Before JOHNSEN, VOGEL and ROSS, Circuit Judges.

PER CURIAM.

The Commissioner of Internal Revenue determined deficiencies in the income tax returns of appellant, an inter vivos trust established by George Quick on January 12, 1959, for the calendar years 1961, 1962, 1963, 1964 and for the fiscal year ending September 30, 1966. The Tax Court sustained the Commissioner except as to the 1961 determination. The trust appeals the deficiency findings for the other years. All of the relevant facts were stipulated.

Quick was a fifty-percent partner in an architectural and engineering firm which ceased doing active business in 1957. However, the partnership had substantial accounts receivable due it through the year 1967. Quick died on January 23, 1960. At his death the Quick estate was the transferee of his interest in the partnership and became the transferee partner. Subsequently the trust became the tranferee and the transferee partner.

The partnership had a zero basis for its accounts receivable and no outstanding liabilities. The accounts receivable had a face value of $518,000 and a fair market value of $454,991.02. The fair market value of Quick's interest at his death was computed by the IRS to be $264,914.58. Of this fair market value, $227,495.51 was attributable to 50% of the fair market value of the partnership accounts receivable. The partnership filed an election pursuant to § 7541 with its federal income tax return for 1960 to adjust the basis of its partnership interest as provided in §§ 743(b) and 755. This meant that the basis of the accounts receivable to the partnership was increased from zero to an amount approximately one-half their face value. The appellant also used as its basis the date of death fair market value. The Commissioner objected to this latter procedure and this litigation followed.

Appellant argued that the Code embraces the entity theory of partnership and that upon transfer of the partnership share the income tax treatment afforded to it must be solely on the basis of the interest as a whole and that the underlying assets cannot be examined or treated separately. The Commissioner contends that the accounts receivable are separable from the rest of the partnership assets because they are income in respect of a decedent (§ 691) and are not entitled to the stepped-up basis afforded in § 1014(a) according to the express provision of § 1014(c).

Generally, § 742 provides that the basis of an interest in a partnership shall be determined pursuant to § 1011, et seq. Section 1014(a) provides that the basis of property in the hands of those acquiring it from a decedent shall be the fair market value of the property at the date of the decedent's death. The appellant would have us stop here and allow it as...

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