Abrams v. Commissioner
| Decision Date | 17 October 1961 |
| Docket Number | Docket No. 83074. |
| Citation | 1961 TC Memo 287,20 TCM (CCH) 1501 |
| Parties | Edith W. Abrams v. Commissioner. |
| Court | U.S. Tax Court |
Sidney B. Gambill, Esq., and Edward I. Roth, Esq., 1259 Denniston St., Pittsburgh, Pa., for the petitioner. Charles A. Boyce, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined deficiencies as follows:
Sec. Sec. Sec. Sec
293(b) 6653(b) 294(d)(2) 294(d)(1)(A)
Year Income Tax IRC of 1939 IRC of 1954 IRC of 1939 IRC of 1939
1952 ($ 522.74) $379.86 $813.86
1953 2,637.80 $1,318.90 344.20
1954 3,353.07 $1,676.54 270.06
The parties have stipulated certain adjustments which have the effect of eliminating the amounts of the deficiencies determined for 1953 and 1954, and resulting in an overpayment for 1952. The petitioner, by amended petitions, claims overpayments as follows:
1952 $9,646.66
1953 5,098.94
1954 5,718.33
The first question is whether the petitioner is taxable as a partner or joint venturer, or as the assignee of a portion of a partnership interest in McKees Rocks Industrial Enterprises (sometimes hereinafter called "Enterprises".) Further remaining questions are whether the petitioner, if held to be an assignee, is entitled first to recover her basis for the assigned interest before realizing any income from the transaction; and whether the petitioner is subject to addition to tax under section 294(d)(1) (A), I.R.C. of 1939 for failure to file a timely declaration of estimated income tax for 1952, and under section 294(d)(2) for a substantial underestimate of estimated tax for 1952. The additions to tax for fraud determined for 1953 and 1954 have been conceded by the Commissioner at the hearing.
Those facts which have been stipulated are hereby found as stipulated.
The petitioner filed her federal income tax returns for the years 1952, 1953, and 1954 with the director of internal revenue, Pittsburgh, Pennsylvania. Her returns were filed on the cash receipts and disbursements method of accounting.
The petitioner's husband died on May 11, 1951, as a result of an automobile accident on that day, and the petitioner inherited all of his properties, including the interest in McKees Rocks Industrial Enterprises hereinafter described.
Leonard Morey, Paul McBeth, and Charles Samuel entered into a partnership agreement dated June 15, 1950. McBeth resided in Pittsburgh, Pennsylvania. Morey and Samuel resided in New York. McBeth was engaged in the machine tool business in Pittsburgh. Morey was a machinery dealer. Samuel was in the scrap business. Their businesses were substantial. The purpose of the partnership was to acquire, in McKees Rocks, a suburb of Pittsburgh, the assets of Pressed Steel Car Company, Inc., and its subsidiary, Pittsburgh, Allegheny and McKees Rocks Railroad Company. Pressed Steel Car Company was a large but financially distressed business. The purchase price was approximately $2,240,000. The assets were acquired in order to liquidate the scrap, machinery, and other equipment and to rent or sell the real properties of these businesses.
The partnership agreement was, in part, as follows:
Agreement of Partnership
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I. The name of the partnership shall be "McKees Rocks Industrial Enterprises."
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III. This Agreement shall be effective as of June 15, 1950 and thereafter shall continue in full force and effect to and including the fourteenth day of June, 1953 and may be extended thereafter by the unanimous consent of all the Partners.
IV. The Partners have made the following contributions to the partnership, which amounts were paid over to Pressed Steel Car Company, Inc., on the fifteenth day of June, 1950, on account of the purchase price of the above described properties and assets:
Leonard Morey $ 33,333.34
Charles Samuel 33,333.33
Paul McBeth 33,333.33
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Total $100,000.00
The Partners agree that any additional funds required by the partnership shall be contributed one-half by Leonard Morey and one-half by Charles Samuel, and that Paul McBeth shall not be required to make any further contribution to the partnership except to the extent necessary to satisfy his obligation to bear a proportion of the partnership losses as hereinafter in Paragraph V set forth.
V. The interests of the respective Partners in the partnership and in the properties and assets owned by it shall be as follows:
Leonard Morey 41.66 2/3 %
Charles Samuel 41.66 2/3 %
Paul McBeth 16.66 2/3 %
The partners shall share all profits and distributions in accordance with the foregoing percentages, and all losses shall be borne by the Partners in the same percentages.
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In the event of the death of any Partner, the partnership shall not be terminated thereby, but the partnership and its business shall continue, nevertheless, until the end of the fiscal year in which such death occurs, at which time the partnership shall terminate. Upon any such death, the estate of the deceased Partner shall immediately succeed to the interests of, and shall stand in the place and stead of, the deceased Partner, but shall have no right or voice in the management and conduct of the partnership business. In the event the partnership terminates at the end of the fiscal year in which a Partner dies, or as a result of any other cause, all the remaining assets and properties of the partnership shall be distributed among the Partners and the estates of any deceased Partners in proportion to the interests of the respective Partners as set forth in Paragraph V hereof and a final accounting rendered to all the Partners and the estates of any deceased Partners.
VIII. All Partners shall have equal rights in the management and conduct of the partnership business. None of the Partners shall enter into any contract or engagement or give credit or lend any of the partnership monies or dispose of any partnership assets or give any bill, note, or security or contract any debt on account of the said partnership, except with the consent of the others.
The Partners agree, however, to execute such applications, agreements, or other documents (a) as may be necessary or desirable in order to obtain a surety bond or undertaking of a surety company to secure payment of a portion of the purchase price of the property and assets to be acquired as contemplated in the said Agreement dated as of June 15, 1950, between Pressed Steel Car Company, Inc., and the Partners, or (b) as may be necessary or desirable in order to obtain funds sufficient to pay such portion of the purchase price at the time of closing under said Agreement in lieu of obtaining any such bond or undertaking, or (c) as may otherwise be required by the terms of said Agreement. It is understood and agreed, however, that Leonard Morey and Charles Samuel will each supply one-half of any collateral or other security which may be necessary or desirable, in addition to the assets of the partnership, in order to obtain such bond or undertaking, or to obtain funds to make such payment in lieu thereof, and that Leonard Morey and Charles Samuel shall indemnify Paul McBeth for sums paid by him by reason of any applications, agreements, or other documents executed by him pursuant to this paragraph, provided that this provision shall not effect Paul McBeth's obligation to bear his proportionate share of any losses as set forth in Paragraph V hereof.
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IX. Accurate accounts shall be kept of all matters relating to the partnership business. Monthly trial balances shall be prepared and submitted to each Partner.
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Each of the three partners invested $33,333.33 in the partnership, which was used to make a down payment of $100,000 on the purchase of the assets. This is the only capital contributed by the partners which was reflected on the books of Enterprises other than what is reflected as undistributed profits.
Sidney A. Abrams, the petitioner's husband, entered into an agreement with Samuel on June 15, 1950, as follows:
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WHEREAS, Abrams has heretofore paid to Samuel the sum of One Dollar and other good and valuable consideration to be used by Samuel as part of his contribution to the Joint Venture known as McKEES ROCKS INDUSTRIAL ENTERPRISES; and
WHEREAS, the parties hereto wish to express their agreement with respect to the sum so paid by Abrams to Samuel;
NOW, THEREFORE, in consideration of the payment of the above mentioned sum and in consideration of the mutual covenants and agreements herein contained, it is mutually agreed as follows:
1. Samuel agrees to pay and/or set over, assign and transfer to Abrams forty-eight per centum (48%) of his then remaining eight and one-third per centum (8 1/3 %) interest in all distributions received by him from the said Joint Venture, whether representing profit, return of original contribution or otherwise, and forty-eight per centum (48%) of his eight and one-third per centum (8 1/3 %) interest in all stock, assets, or other forms of property or assets received by him as a distribution from said Joint Venture, promptly on receipt thereof by him.
2. Abrams agrees to pay to Samuel forty-eight per centum (48%) of eight and one-third per centum (8 1/3 %) of any additional contributions that Samuel is called upon to make as a participant in said Joint Venture in accordance with the terms of said Samuel's Agreement, and further agrees to make available to Samuel forty-eight per centum (48%) of eight and one-third per centum (8 1/3 %) of any collateral that Samuel may be required to make available to the Joint Venture pursuant to the terms of said Samuel's Agreement, a copy of which is hereunto attached, made a part hereof and marked "Exhibit A".
3. Samuel...
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