Ford v. Comm'r of Internal Revenue, Docket Nos.9391
| Citation | 19 T.C. 200 |
| Decision Date | 12 November 1952 |
| Docket Number | 9392,Docket Nos.9391,9393. |
| Parties | CLARENCE B. FORD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF WADE E. MOORE, DECEASED, MADGE M. MOORE, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.VERN FORCUM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Cecil Sims, Esq., W. W. Berry, Esq., and P. K. Seidman, Esq., for the petitioners.
S. Earl Heilman, Esq., for the respondent.
Petitioners Clarence B. Ford, Wade E. Moore, and Vern Forcum each originally had a 25 per cent interest in the Forcum-James Construction company, a partnership, prior to 1940. In 1940 and 1941, each petitioner, with the consent of the other partners, transferred portions of his 25 per cent interest to members of his respective family. After such transfers a partnership agreement was entered into admitting to the partnership of Forcum-James Construction Company the parties to whom such transfers had been made. Held, these partnership agreements were entered into by the parties with a bona fide intent in good faith and acting with a business purpose to join together in conducting a contracting business as a partnership, and are valid for tax purposes.
Respondent determined deficiencies in income taxes in these proceedings for the calendar year 1943, as follows:
+-----------------------------------------------------------------------------+
¦Taxpayer ¦Docket ¦Deficiency ¦
¦ ¦No. ¦ ¦
+-------------------------------------------------------+---------+-----------¦
¦Clarence B. Ford ¦9391 ¦$138,477.18¦
+-------------------------------------------------------+---------+-----------¦
¦Estate of Wade E. Moore, deceased, Madge M. Moore, ¦9392 ¦125,482.17 ¦
¦executrix ¦ ¦ ¦
+-------------------------------------------------------+---------+-----------¦
¦Vern Forcum ¦9393 ¦88,012.33 ¦
+-----------------------------------------------------------------------------+
In Docket No. 9392 the petitioner was filed by Wade E. Moore who died on October 23, 1951. By order of this Court dated December 11, 1951, the caption was changed to the title listed above.
These cases also involve the year 1942 because of the Current Tax Payment Act. They have been consolidated and involve a single common issue, viz., whether the partnership of Forcum-James Construction Company, as agreed upon by the several partners, was a valid partnership to be treated as such under the provisions of the Internal Revenue Code. Respondent determined that each petitioner owned a 25 per cent interest in the partnership throughout the years 1942 and 1943. Petitioners assign error to such determination and allege respectively that Clarence B. Ford owned a 6 1/4 per cent interest, Wade E. Moore owned an 8 1/3 per cent interest, and Vern Forcum owned a 15 per cent interest.
Additional minor adjustments have been settled by agreement of the parties and will be given effect under Rule 50.
The petitioners in this case, Clarence B. Ford, Wade E. Moore, and Vern Forcum, each filed Federal income tax returns for the years 1942 and 1943 with the collector of internal revenue for the district of Tennessee. Clarence B. Ford and Vern Forcum resided in Dyersburg, Tennessee, and Wade E. Moore resided in Obion, Tennessee.
Forcum-James Construction Company, a partnership, hereinafter called Forcum-James, began business in 1933 at Dyersburg, Tennessee. The partners were Vern Forcum, Wade E. Moore, R. M. Ford, and Clarence B. Ford; each had a 25 per cent interest. Wade E. Moore, hereinafter referred to as a petitioner, died on October 23, 1951, and his estate is a party in this proceeding. Forcum-James has engaged continuously in business until the present date. The principal source of income of Forcum-James was through its interest as a partner in various other partnerships and joint ventures engaged in the contracting business.
During the years 1942 and 1943, and prior thereto, Forcum-James owned a 50 per cent interest as a partner in the business known as W. R. Aldrich & Company, which latter company was engaged in the general contracting business but more specifically in the construction of roads, street, and bridges. During this same period, Forcum-James had a 50 per cent interest in another partnership known as L. O. Brayton Company which specialized in rural electrification construction. And Forcum-James also had a 50 per cent interest in a third partnership known as Pioneer Contracting Company which performed general contracting but specialized in ‘heavy construction and heavy dirt moving projects.‘ These three subpartnerships owned their equipment and employed their own personnel. When any one of the three subpartnerships completed a job and if it made a profit on the job, the profit was divided 50 percent to Forcum James and the remaining 50 per cent to the other partners. When any one of the three subpartnerships engaged in active construction work, Forcum-James would furnish its pro rata share of the capital necessary to perform the job.
In addition to its income through subpartnerships, Forcum-James from time to time would enter into joint ventures with other independently operating contracting concerns, furnishing capital for the job and receiving its pro rata share of any profits. Forcum-James would sometimes enter into subcontracts in its own name for the performance of a particular part of a general contract. Since Forcum-James did not have any regular employees and it did not own any equipment, it employed others to do the actual work. Forcum-James at all times maintained as large an amount of capital as it could. An important material and necessary function of Forcum-James was the supplying of capital for contracting jobs, whether the jobs were taken in the name of and performed by any one of the subpartnerships, a joint venture, or in the name of Forcum-James. In addition to capital, the four original partners had skill and contacts to obtain business and to select those who were to perform the work. Forcum-James also made some investments in stock and bonds from which it received income from time to time.
Through its investments and activities, Forcum-James had accumulated a large amount of capital by December 31, 1940, and on that date the books of the company showed the following amounts as the capital accounts of the original four members of the partnership:
+-----------------------------+
¦Name ¦Amount ¦
+-----------------+-----------¦
¦Vern Forcum ¦$109,423.14¦
+-----------------+-----------¦
¦Clarence B. Ford ¦109,423.13 ¦
+-----------------+-----------¦
¦R. M. Ford ¦109,423.13 ¦
+-----------------+-----------¦
¦Wade E. Moore ¦109,423.13 ¦
+-----------------------------+
Discussions were had between Clarence B. Ford and his wife Gladys B. Ford off and on for two or three years prior to the end of 1940, and on December 31, 1940, Clarence B. Ford transferred one-fourth of his interest in the Forcum-James partnership to his wife Gladys B. Ford. She knew nothing about the contracting business, except as a wife ordinarily has general knowledge of her husband's business, but she knew that the contracting business entailed large risks. On December 31, 1940, Clarence B. Ford also made an irrevocable transfer in trust of a 25 per cent interest of his original capital account in Forcum-James to each of his sons, William Kent Ford and Jere B. Ford, as beneficiaries, their ages being 11 and 9, respectively. Charles F. Moore (who was not related to Wade E. Moore) was trustee with broad powers of management and control and with all the duties and rights of a partner, but limited to the amount of the trust property. The trust was to terminate when William Kent Ford attained age 27, with contingent remainders over. The trust instrument directed that the trustee's share of the partnership's distribution of capital and of its profits be distributed to him and become part of the trust assets; that the trustee in his discretion distribute the income of the trust as he deemed advisable, necessary, or desirable to the beneficiaries or to others on their behalf; that the trustee might cause any of the trust property to be registered in the name of his nominee, to take and keep the same unregistered, in bearer form, or in such condition that the same would pass by delivery without disclosure, in any case, of any trust, and that the trust did not relieve the grantor of his parental obligation for maintenance, support, and education of the beneficiaries. Charles F. Moore, the trustee, was experienced in the business as office manager of the partnership. He received compensation of $2,500 a year as trustee.
Both new partners, Gladys B. Ford and Charles F. Moore as trustee, signed contracts as partners and discussed the partnership business. At the time of the transfer, Gladys B. Ford had a separate estate of about $20,000. Gladys B. Ford retained her own bank account and she also had her own separate lock box in which she kept investments that she purchased in her own name with her profits from the partnership. Charles F. Moore as trustee for William Kent Ford and Jere B. Ford received his proportionate share of the income from the partnership, which he invested and also used to pay taxes. Clarence B. Ford filed a gift tax return reporting the gift of a 6 1/4 per cent interest in Forcum-James to his wife and the gift of a 12 1/2 per cent interest in that business to Charles F. Moore as trustee for his two sons.
On February 11, 1941, Ford addressed a letter to the partnership stating that with the knowledge and approval of the original partners he had...
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