Munter v. Comm'r of Internal Revenue, Docket Nos. 3063
| Decision Date | 16 May 1945 |
| Docket Number | Docket Nos. 3063,3064. |
| Parties | CARL P. MUNTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.SIDNEY S. MUNTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Where there was, in fact, no contribution of capital or services to a partnership by the wives of two partners, the partnership will not be recognized for income tax purposes as including the wives and the income from partnership is taxable to the husbands. Samuel Kaufman, Esq., for the petitioners.
Homer F. Benson, Esq., for the respondent.
This report supersedes that appearing at 4 T.C. 1210.
These consolidated proceedings involve deficiencies in income tax for the calendar year 1941 in the amount of $13,847.03 in the case of petitioner Carl P. Munter and $15,612.54 in the case of petitioner Sidney S. Munter. The Federal income tax returns of the petitioners for the taxable year were filed with the collector for the twenty-third district of Pennsylvania at Pittsburgh, Pennsylvania. The proceedings were submitted upon a stipulation of facts and certain exhibits. The issue submitted in each case is whether the income of two businesses carried on in partnership is that of the two petitioners or whether one-half of such income is taxable in equal proportions to their wives.
Prior to May 1, 1940, the petitioners were the sole owners and proprietors, as partners, of two laundry businesses in Pittsburgh, Pennsylvania, each having an undivided one-half interest. On that date the partnership assets consisted of land, buildings, and equipment having an adjusted cost basis of $272,579, an inventory of $11,973, and purchased good will of $85,144.
On the aforementioned date the petitioners and their wives entered into a joint agreement providing as follows:
AGREEMENT
Articles of Agreement entered into this 1st day of May, 1940 by and between SIDNEY S. MUNTER, SARAH APPEL MUNTER, CARL P. MUNTER and ROBERTA GROSS MUNTER, all of the City of Pittsburgh, County of Allegheny, Pennsylvania, WITNESSETH:
WHEREAS, Sidney S. Munter and Carl P. Munter are the sole proprietors and owners of Sweet Clean Damp Wash Laundry (a partnership) located at 1111 Lincoln Avenue, Pittsburgh, Pennsylvania, and are also the sole owners and proprietors of the Perfect Laundries of Pittsburgh (a partnership) located at 128 Lexington Avenue, Pittsburgh, Pennsylvania; each one having an undivided one-half (1/2) interest in all of the assets, real, personal and mixed, of each company; and
WHEREAS, it is the desire of Sidney S. Munter and Carl P. Munter to admit their wives as equal partners into the partnership of both of the above companies and give to each of them an undivided one-fourth (1/4) interest in each of the companies as of May 1, 1940, NOW, THEREFORE, WITNESSETH:
First: Sidney S. Munter, Carl P. Munter, Sarah Appel Munter and Roberta Gross Munter have agreed and do hereby agree and associate themselves as partners under the name of Sweet Clean Damp Wash Laundry and under the name of the Perfect Laundries of Pittsburgh for the purpose of engaging in the operation of a general laundry business and dry cleaning business.
Second: Sidney S. Munter agrees and does hereby set over, give and deliver to Sarah Appel Munter one-half (1/2) of his undivided one-half (1/2) interest in all the assets, real, personal and mixed, to which he has title, both in the Sweet Clean Laundry and in the Perfect Laundries.
Third: Carl P. Munter hereby agrees and does hereby set over, give and deliver to Roberta Gross Munter one-half (1/2) of his undivided one-half (1/2) interest in all assets, real, personal and mixed, to which he has title, both in the Sweet Clean Damp Wash Laundry and in the Perfect Laundries.
Fourth: It is understood and agreed that each of the parties, to-wit, Sidney S. Munter, Carl P. Munter, Sarah Appel Munter and Roberta Gross Munter, shall have title to an undivided one-fourth (1/4) interest in each of the companies; and the rights and liabilities of each of the partners in the partnerships shall in all respects be equal.
Fifth: The partnership businesses shall be conducted on the premises at 1111 Lincoln Avenue and at 128 Lexington Avenue, Pittsburgh, Pennsylvania.
Sixth: None of the partners shall during the existence of this partnership give any note or accept or endorse any bill of exchange without the consent of the other partners and none of the partners shall without the consent of the other partners, sell or assign his or her share or interest in the partnerships.
Seventh: (a). It is understood and agreed between the parties that in the event of the death of Sarah Appel Munter, leaving to survive her husband, Sidney S. Munter, then he shall succeed to her undivided one-fourth (1/4) interest and he shall assume all the debts and obligations of Sarah Appel Munter in the partnership.
(b). In the event of the death of Roberta Gross Munter, leaving to survive her husband, Carl P. Munter, then he shall succeed to her entire undivided one-fourth (1/4) interest and he shall assume all the debts and obligations of Roberta Gross Munter in the partnership.
(c). In the event of the death of Sidney S. Munter, the surviving partners shall succeed to his undivided one-fourth (1/4) interest in both partnerships share and share alike; and it is further understood and agreed that Carl P. Munter shall have the privilege and right of buying the entire interest of Sarah Appel Munter in both partnerships at the book value; which book value shall not include good will; and further that Carl P. Munter shall have five (5) years in which to pay the purchase price of said interest to Sarah Appel Munter and Sarah Appel Munter agrees to sell all of her interest at the book value price.
(d). In the event of the death of Carl P. Munter, the surviving partners shall succeed to his undivided one fourth (1/4) interest in both partnerships share and share alike; and it is further understood that Sidney S. Munter in both partnerships at the book value; which book value shall not include good will; and it is further understood that Sidney S. Munter shall have five (5) years in which to pay the purchase price of said interest to Roberta Gross Munter and Roberta Gross Munter agrees to sell all of her interest at book value price.
Eighth: All salaries for services rendered by any of the partners shall be fixed and determined by Sidney S. Munter and Carl P. Munter and all net profits of the partnerships after payment of all expenses shall belong to the partners in equal share.
Ninth: Each partner shall at all times pay and discharge his separate and private debts whether present or future and indemnify therefrom and from all actions, proceedings, costs and demands, the partnership property and the other partners.
Tenth: Proper books of account shall be kept of all matters, transactions relating to the said businesses as are usually entered in books of accounts and said books of account, together with all papers and documents belonging to the partnerships, shall be kept at the place of the business of the partnership and each partner shall at all times have free access to and the right to inspect said books.
Eleventh: (a). None of the partners shall without the consent of the others enter into any bond or become bail, endorsee or surety for any person or cause anything to be done whereby the partnership property may be seized or attached.
(b). None of the partners shall without the consent of the others assign or charge his share in the assets or profits of the partnership.
Twelfth: The rights and obligations created by this agreement shall extend to all the heirs, executors and administrators of all the parties hereto.
Following the execution of the above agreement the petitioners and their wives registered under the Fictitious Names Act of Pennsylvania. The petitioners each filed for the year 1940 gift tax returns reporting in each instance a gift of a one-fourth interest in the two partnerships at a valuation of $54,464.24. Each petitioner took an exclusion of $4,000 and a specific exemption of $40,000 and each return computed a gift tax due of $180.32. Whether such tax was paid in either instance is not disclosed.
Two months after the execution of the agreement set out above deeds were executed by petitioners and their wives conveying to a straw man the real estate used in the two partnerships, and reconveyance was immediately made by such grantee to petitioners and their wives to the same property, by which it was provided that each petitioner and his respective wife were vested with an estate by the entireties in one-half of the conveyed property.
After the execution by petitioners and their wives of the agreement of May 1, 1940, the petitioners' wives contributed no services to the two businesses and the activities of those businesses were thereafter conducted by petitioners in the same manner as theretofore.
It is petitioners' sole contention that by the agreement entered into on May 1, 1940, each made a complete gift of a one-fourth interest in the assets and business of the partnership business to his wife and by the same instrument their wives entered into partnership with them, contributing thereto, in each case, the one-fourth interest which had been coincidentally so received by them under the contract.
Respondent, on the other hand, argues that by the transaction no completed gift of any interest in the assets of the partnership was effected, that the wives therefore contributed no capital to the alleged new partnerships, and that consequently such alleged new partnerships are not to be recognized for tax purposes and the income in question is taxable to petitioners. We agree with respondent.
Since it is stipulated that the wives furnished no services to the partnership, its recognition for Federal income tax purposes, in so far as the wives are concerned, depends...
To continue reading
Request your trial
-
Apt v. Birmingham
...1003, affirmed 2 Cir., 1936, 86 F.2d 710; Myers v. Commissioner, 1948, 11 T.C. 164; Akers v. Commissioner, 1946, 6 T.C. 693; Munter v. Commissioner, 1945, 5 T.C. 39; Thorrez v. Commissioner, 1945, 5 T.C. 60. But see, Whayne v. Glenn, D.C.W.D.Ky.1945, 59 F. Supp. 517, 524. However, it has al......
-
Singletary v. Comm'r of Internal Revenue
...to contradict the completeness of the gift by petitioner to his father and mother, upon which their status as partners rests. See Carl P. Munter, 5 T.C. 39.ARUNDELL, VAN FOSSAN, and DISNEY, JJ., agree with this ...
-
State v. Hitchcock
...Rev., 327 U.S. 293, 66 S.Ct. 539, 90 L.Ed. 679; Lorenz v. Com'r Int. Rev., 3 T.C. 746, affirmed, 6 Cir., 1945, 148 F.2d 527; Munter v. Com'r Int. Rev. 5 T.C. 39, dismissed, 3 Cir., June 23, 1947; Lowry v. Com'r Int. Rev., 6 Cir., 1946, 154 F.2d 448; Thorrez v. Com'r Int.Rev., 6 Cir., 1946, ......
-
Decker v. Commissioner, Docket No. 3922.
...Commissioner v. Tower, 327 U. S. 280 46-1 USTC ¶ 9189. Respondent relied upon Burnet v. Leininger, 285 U. S. 136 3 USTC ¶ 909; Carl P. Munter, 5 T. C. 39 Dec. 14,555; and Camiel Thorrez, 5 T. C. 60 Dec. 14,560; aff'd., 155 Fed. (2d) 791 46-1 USTC ¶ The facts of this case closely resemble th......