SHAINBERG v. Commissioner, Docket No. 26838
| Decision Date | 27 February 1953 |
| Docket Number | 26841,26842,26840,26844,26839,26845.,Docket No. 26838,26843 |
| Citation | 12 TCM (CCH) 201 |
| Parties | Herbert Shainberg and Mariette Shainberg et al. v. Commissioner. |
| Court | U.S. Tax Court |
E. Chas. Eichenbaum, Esq., Boyle Building, Little Rock, Ark., Leonard L. Scott, Esq., and W. S. Miller, Jr., Esq., for the petitioners. S. Earl Heilman, Esq., for the respondent.
These proceedings involve deficiencies in income tax, as follows:
Docket
No. Petitioner Year Deficiency
26838 Herbert Shainberg and Mariette Shainberg ..... 1944 $84,069.26
26839 Ben Goldstein ................................ 1943 97,414.62
1945 93,698.20
1946 30,521.09
26840 Nathan Shainberg and Dorothy Shainberg ....... 1944 84,048.31
26841 Ben Goldstein and Minnie Goldstein ........... 1944 84,159.07
26842 Nathan Shainberg ............................. 1943 97,787.33
1945 93,853.37
1946 30,566.64
26843 Sam Shainberg ................................ 1943 87,083.30
1945 89,626.81
1946 44,846.98
26844 Herbert Shainberg ............................ 1943 97,780.93
1945 93,563.89
1946 30,545.90
26845 Estate of Elizabeth
Shainberg, Deceased
Sam Shainberg, Administrator
and Sam Shainberg .......................... 1944 77,079.40
In Sam Shainberg, Docket No. 26843, in determining a deficiency in the income tax of petitioner for the year 1943, the Commissioner did so by adding to the net income as disclosed by petitioner's return "(a) Partnership income $59,071.74." This adjustment was explained in the deficiency notice as follows:
Similar adjustments were made to Sam Shainberg's income for the years 1945 and 1946 in the same Docket No. 26843, resulting in the deficiencies determined for those years and were explained in the deficiency notice in the same manner as above noted. Petitioner Sam Shainberg assigned error as to the foregoing adjustments stating, among other things, as follows:
"(h) The Commissioner of Internal Revenue erred in computing the amount of partnership income attributable to the petitioner for the periods hereinabove indicated."
The deficiencies against the other petitioners in the other docket numbers were determined in the same manner as in Sam Shainberg, Docket No. 26843, and the explanation was the same as noted above and the assignments of error were the same except as to amounts. It is not deemed necessary to set out these details here. The main issue raised in each docket number is the partnership issue.
The proceedings have been consolidated.
Some of the facts were stipulated and as stipulated are adopted as a part of these Findings of Fact and are incorporated herein by reference.
Petitioners Herbert Shainberg and Mariette Shainberg are husband and wife. Petitioners Ben Goldstein and Minnie Goldstein are husband and wife. Petitioners Nathan Shainberg and Dorothy Shainberg are husband and wife. Petitioner Sam Shainberg was the husband of Elizabeth Shainberg, now deceased, whose estate is also a petitioner in this action. Nathan Shainberg, Herbert Shainberg, Minnie Goldstein and Beatrice Leach are children of Sam Shainberg. Nathan Shainberg, Herbert Shainberg and Ben Goldstein each have two children. All the parties reside in Memphis, Tennessee. The income tax returns were filed with the Collector for the District of Tennessee.
Nathan Shainberg was 34 years of age in 1941. Ben Goldstein was 40 years of age in 1941.
The business involved in this proceeding, Sam Shainberg Dry Goods Company, was founded by Sam Shainberg in 1902 or 1904, originally consisting of one retail store in Memphis, and a wholesale business operated from an annex in the back of that store. Nathan Shainberg, Herbert Shainberg, and Ben Goldstein have each worked in the business since their high school days, each having more than 20 years experience in the business. In 1925, the wholesale part of the business was moved from where it was then situated, and expanded. In 1928, Sam Shainberg Dry Goods Company, sometimes hereafter referred to as The Dry Goods Company, began to open additional retail stores and gradually terminated the wholesale business, becoming a chain of retail department stores prior to the years involved in this proceeding.
In 1936, The Dry Goods Company became a partnership with Sam Shainberg, Nathan Shainberg, Herbert Shainberg, and Ben Goldstein each owning a one-fourth interest in the business. This partnership is the immediate predecessor of the partnership organized August 1, 1941, with the above four original partners and the trusts hereinafter described as participating members. In July 1940, Sam Shainberg suffered a severe heart attack and was rendered totally and permanently disabled. Since that date he has been completely inactive, his connection with the business being limited to occasional social visits.
In the early part of 1941, the then partners in The Dry Goods Company became concerned about the status of their business due to the threatening international situation. Sam Shainberg was no longer active and Nathan Shainberg and Herbert Shainberg had registered for the draft on October 16, 1940. Ben Goldstein, 39 years of age at the time, was not at the moment in prospect of being drafted but he had no experience with the financial and management phases of the business, having spent most of his time supervising individual stores. With the draft regulations changing frequently, the partners were worried about the fate of their partnership business if the two Shainberg brothers were called into military service. The partners discussed this problem frequently seeking a solution which would insure the continuance of the business in the event the managing partners were drafted.
This emergency situation had much to do with the creation, in 1941, of trusts by each of the then partners whereby these trusts acting through the cotrustees, Eugene Sebulsky and Auvergne Williams, became active participating partners in The Dry Goods Company. Nathan Shainberg, Herbert Shainberg, and Ben Goldstein had two primary purposes in mind for the establishment of the trusts: (1) insurance of the continuance of the management of the business in competent hands in the event any or all of the then active partners were forced to leave the business, and (2) the setting up of a separate fund or estate for the benefit of their minor children. Sam Shainberg's purpose in creating the trusts was to set aside separate interests for each of his children, who were all adults and married. He had had this plan in mind for a long time prior to the situation which motivated the other partners.
On August 1, 1941, the following instruments were executed:
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