Rossmoore v. Commissioner of Internal Revenue

• Decision Date: 01 April 1935
• Docket Number: No. 4.,4.
• Citation: 76 F.2d 520
• Parties: ROSSMOORE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

76 F.2d 520 (1935)

ROSSMOORE v. COMMISSIONER OF INTERNAL REVENUE.

No. 4.

Circuit Court of Appeals, Second Circuit.

April 1, 1935.

Zeiger & Berliner, of New York City (Ephraim Berliner and Joseph J. Zeiger, both of New York City, of counsel), for appellant.

Warren F. Wattles, of Washington, D. C., for appellee.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The taxpayer appeals from an order of the Board of Tax Appeals fixing a deficiency in his income tax for the years 1926 and 1927. The case arises upon precisely the same facts as Rossmoore v. Anderson (C. C. A. 2) 67 F.(2d) 1009, except that it concerns later years. It would be res judicata, had the Commissioner seen fit so to plead; and it is at best only an effort to reargue the same question. Ordinarily we should therefore be content to affirm by a mere reference to our earlier disposition; but as we did not write any opinion and the authorities are in some confusion anyway, it seems better to declare ourselves a little at large. Rossmoore, the taxpayer, was one of a firm of three certified accountants who agreed to dissolve on November 1, 1920, after doing business for less than a year. The firm was to take up no new business, but complete its contracts and collect everything due or to become due. The cash on hand, except a reserve of $5,000, was to be at once distributed, and Rossmoore was "retained" at his own expense to wind up all pending business, under the supervision, however, of the other two. He was to have a salary of $12,000 as liquidator; it being expected apparently that the winding up would not take more than fourteen months. It did take much longer, so that very substantial sums were distributed among the partners as late as 1926 and 1927. How far these moneys were due at dissolution, and how far they were earned later, does not appear; presumably they were earned later. Two months after the dissolution agreement, that is, on January 3, 1921, Rossmoore conveyed to his wife individually one-third of "the profits and any and all other moneys, advantages, interests and benefits to be derived and realized out of the said partnership business now in liquidation," except the reserve and his salary. The other two-thirds he also conveyed to her upon various trusts not necessary to set out. Rossmoore's share of the distributions of 1926 and 1927 were paid in accordance with the assignment, one-third to his wife, two-thirds under the limitations of the trust. He did not return them as part of his income and the Commissioner assessed a deficiency against him for this reason. The Board affirmed this and he appealed.

The assignment made the assignee as little a member of the firm as though it had not been dissolved; it made her as little a direct owner of any interest in the firm property; it was no different from an assignment before dissolution. The opposite might indeed be true, if we were to regard the firm as wholly at an end; conceivably it might also be true, at least for tax purposes, if upon dissolution nothing remained to be done but to collect and distribute debts unconditionally due. But this firm took seven years to liquidate, and the business continued and so did the firm; "on dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed." New York Partnership Law (Consol. Laws N. Y. c. 39) § 61. This was the common law as well. Roby v. American Central Insurance Co., 120 N. Y. 510, 24 N. E. 808. Rossmoore does not indeed argue that his wife became a member of the firm; quite the contrary, his theory is that his interest in it was like that of a shareholder in a company, or a beneficiary in a trust; it was a right against the "firm entity" and assignable as such. Once assigned, any income arising out of it was as little derived through the assignor, or taxable against him, as dividends upon transferred shares or payments upon an assigned equitable interest. This position rests upon the premise of section 52 of the New York Partnership Law, which declares that "a partner's interest in the partnership is his share of the profits and surplus." That was true long before the act was passed. Fourth Nat. Bank v. Carrollton R. R., 11 Wall. 624, 20 L. Ed. 82. It was the consequence of the elaborate system of cross-trusts which the English chancellors had devised in the eighteenth century. Harris v. Commissioner (C. C. A. 2) 39 F.(2d) 546. But our law has never adopted the civil law theory of the firm as a juristic entity; the Uniform Partnership Law as little as any other. That statute recognizes the partners as co-owners ("tenants in partnership") of the "specific" firm property (section 51 N....