Robertson v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 34709.
| Decision Date | 24 June 1930 |
| Docket Number | Docket No. 34709. |
| Parties | JAMES L. ROBERTSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Watson Washburn, Esq., for the petitioner.
C. H. Curl, Esq., for the respondent.
The respondent determined deficiencies in petitioner's individual income tax of $2,339.59 for 1923 and $5,243.67 for 1924, and the petitioner attacks this on several grounds. The evidence does not, in our opinion, sufficiently establish the facts to justify special findings and we discuss the evidence in the course of the opinion.
(1) The principal contention of the petitioner is that the partnership of which he was a member was composed not only of himself and one Veiller, but also of his two daughters, and that he was only required to include in his own income his share of such larger partnership, because the daughters' alleged shares went directly to them and were taxable to them. The respondent says that the daughters were not partners and that petitioner is taxable upon his one-half share of the partnership profits. Respondent admits that Veiller and Robertson constituted a partnership, but insists that it was comprised only of these two men and that the daughters were not partners.
A partnership, unlike a corporation, is not formed by a prescribed method. It may be recognized in a variety of conduct and circumstances, and the questions whether a partnership exists, and if so, the persons who compose it with consequent rights and liabilities, are difficult and may be differently decided by a turn of the evidence. They can not be decided solely with regard to the understanding of the alleged partners, their intention, their opinions or their conclusions, however admissible in evidence these may be. For despite their oral statements of their intention and understanding, the evidence of conduct and circumstances may indicate that in the eyes of the law no partnership exists.
In the present case, the existence of the alleged partnership comes into question long after the alleged event, collaterally, not to resolve disputes among the alleged partners inter sese, or with those who have dealt directly with the firm, but incidentally to determine the tax liability of one of its members. None of the firm's inherent rights or remedies is to be or can be affected by the decision. The Government, whose demand is being considered, has had no dealings with the business and imposes its tax only in the light of the circumstances in which the business has been conducted. When the taxpayer undertakes to avoid this tax, it is not too much to require his oral statement to be substantiated by evidence of facts and circumstances reasonably signifying that a partnership genuinely exists. This is especially true when the alleged partners are members of the same family and household. As in other cases where tax liability has been affected by close family relations, the statements, acts, and circumstances must all be considered and subjected to special scrutiny. P. B. Fouke, 2 B. T. A. 219.
The petitioner and Veiller had been associated for some time as real estate brokers, negotiating sales and promoting real estate projects in the vicinity of Grand Central Terminal, New York. For this they received commissions. Prior to 1921, it is not clear what the nature of this association was; but in that year they agreed to be partners, each receiving one-half of the earnings. The petitioner testified that they agreed to share expenses; but from the accounts it appears that Veiller paid the rent, telephone and other small items of expense, while Robertson paid the salary of the bookkeeper and an occasional miscellaneous item. Subcommissions appear to have been sometimes paid directly out of specific commissions earned. No capital was required and none was contributed by either one.
Robertson had contracted a second marriage, which he regarded as unfortunate, and in 1922 he wanted to assure to his grown daughters an income. The relation between the daughters' income and the second marriage is not explained, but petitioner testified that this was the primary reason for the idea of making his daughters partners in the firm. From the standpoint of the business there was no need for their admission into the firm, for they had no business to bring and no service to perform. We can give scant weight to petitioner's statement that by reason of their "contacts" they were "able to tell us of the possibilities" of business. In 1922 he suggested to Veiller that his daughters be taken into the firm and receive, with himself, one-sixth each of the earnings, Veiller to retain his one-half share unaffected. The bookkeeper was then instructed to account for the earnings by allocating one-half to Veiller and one-sixth to Robertson and each of the two daughters. The older daughter was then and has since been a "newspaper woman" and the younger daughter remained at home. Aside from the older daughter's coming into the office once or twice a week, neither took an active part in the business and neither brought in any earnings or was responsible for any commissions. The older daughter was in Europe for three months in the winter of 1923 and 1924. The younger daughter was apparently responsible for the household.
The partnership of Veiller & Robertson made no contracts, incurred no liabilities, and had no bank account. The rent and telephone were assumed by Veiller alone. When commissions were earned they were received by either Veiller or Robertson. Veiller took them in about 70 per cent of the time. He then gave his check for one-half to Robertson and Robertson in turn gave his check for one-third to each daughter or deposited such a check to her personal account in the local bank in Bronxville. The daughters used the money to build their residence.
The only accounting entries as to the daughters was a record of one-sixth of each commission received. There was no double entry system, no profit and loss statement, no balance sheet and no ruling or closing of the accounts. No part of the expenses was charged to or paid by the daughters.
Robertson introduced his daughters to several people as members of his firm. Neither of the daughters was a licensed real estate broker, but Veiller and Robertson and the firm were licensed.
This in our opinion was nothing more than a method by Robertson of distributing his partnership income among his daughters and himself. The relation between the daughters and the business was without substance and was not founded...
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