10 T.C.M. (CCH) 1088 (1951)
ARTHUR J. MEIER, MILTON H. MEIER, Petitioner.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Nos. 30008, 30010.
United States Tax Court
November 15, 1951
Income from partnership in which wives were purported principals taxable to husbands.-
Norman Begeman, Esq., for the petitioners.
Gene W. Reardon, Esq., for the respondent.
Taxpayers, officers of a corporation, decided, as a result of friction within the organization, to set up a jobbing business as a possible ‘ out‘ for them in the event that their positions in the corporation should not continue. The new business, a partnership, was set up in the maiden names of the wives of the taxpayer, and the wives signed the partnership agreement. The capital contributed to the partnership actually came from the husbands, and the husbands actually conducted and controlled the income of the business. A large proportion of the products sold by the partnership were products of the corporation in which the taxpayers were officers. The income from the partnership was reported by the wives. The Commissioner determined that it was fully taxable to the husbands, as the de facto partners.- Ed.
MEMORANDUM FINDINGS OF FACT AND OPINION
These proceedings, consolidated for hearing, involve Federal income tax liability for the years 1944 and 1945. Deficiencies were determined as follows:
Petitioner || Docket
No. || 1944
|| 1945 |
J. Meier ................. || 30008
|| $1,677.90 |
H. Meier ................. || 30010
|| 7,800.58 |
The questions for our determination are: (1) Did the Commissioner err in his determination that the entire net income of the Milcrest Company was taxable to the petitioners rather than to their respective wives as reported? (2) If the income is taxable to the petitioners, is it taxable on the basis of the partnership fiscal years ending July 31, 1944, and July 31, 1945, or on a basis of calendar years? (3) (This issue applies only to petitioner, Milton H. Meier, Docket No. 30010). Did the Commissioner err in determining that income from dividends from securities and capital gains from sale of securities for 1945, arising through a brokerage account in the joint names of the petitioner and his wife, is taxable in full to the petitioner, Milton H. Meier, rather than on the basis of one-half thereof to the petitioner and one-half to his wife as reported? A fourth issue raised by the petition in Docket No. 30010 in regard to computing the income tax under section 117(c)(2), Internal Revenue Code, has been conceded by the respondent. FINDINGS OF FACT Arthur J. Meier and Milton H. Meier, petitioners herein, are brothers. For several years prior to the years here involved, and continuously thereafter, Arthur J. Meier has been a director, president and general manager and Milton H. Meier has been a director, vice president and sales manager of Meier-Pohlmann Furniture Company (sometimes hereinafter referred to as the ‘ corporation‘ ), a manufacturer of kitchen and dinette furniture. Petitioners owned 5 2/3 shares of the common stock of the corporation of 400 shares outstanding. Dorothea Meier, wife of Arthur Meier, owned 18 shares, and Clara Meier, wife of Milton Meier, held none of the stock of the corporation. The remainder of the stock of the corporation was owned by relatives, the descendants of the founder of the corporation and grandfather of Arthur and Milton Meier. Arthur Meier became general manager of the corporation sometime prior to 1939 while one Joe Gruender was president, and became president a short time later when Gruender died. During the period from 1942 to 1945 internal dissatisfaction existed within the corporation, with Arthur and Milton Meier on one side and the other stockholders on the other. Early in 1943 Arthur and Milton Meier conceived the idea that the forming of another business might serve as an ‘ out‘ for them if they should leave the corporation. A meeting for the purpose of discussing the formation of a new business was held at the home of one of the Meiers in June 1943, at which Arthur and Milton Meier and their wives, Dorothea and Clara, were present and at which meeting Walter O. Heckmann, who was then the regularly employed accountant and auditor for the corporation and who aided in preparing the personal income tax returns of Arthur, Milton and Dorothea Meier, was invited. At this meeting there was a general discussion as to the formation of a jobbing business. Heckmann recommended that a partnership be formed. A subsequent meeting was held at the home of one of the Meiers about one month later, at which were present the two Meier families, Heckmann and Jack Weinberg, a good friend of the Meier families and an experienced and able salesman, who was then employed as the Chicago representative of the corporation and was at that time engaged in selling furniture on a commission basis to retailers in small lots. Weinberg had been invited to come to St. Louis for the purpose of discussing the possible formation of a jobbing business. At this meeting there was a general discussion again about the friction in the corporation and the possible formation of a jobbing business, which was intended to embrace the representation of the corporation and other manufacturers whose lines...