Singletary v. Comm'r of Internal Revenue

• Decision Date: 30 June 1945
• Docket Number: Docket No. 5090.
• Citation: 5 T.C. 365
• Parties: LEWIS HALL SINGLETARY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

5 T.C. 365

LEWIS HALL SINGLETARY, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 5090.

Tax Court of the United States.

Promulgated June 30, 1945.

Petitioner, from 1936 to 1939, operated a chain of filling stations under a trade name. In 1939 he executed an instrument purporting to transfer to his wife, in consideration of love and affection, an undivided one-half interest in the personal property, personal assets, and good will of the business and agreeing that thenceforth they should engage in the business as partners. The wife brought in no new capital and contributed no services, and the business was thereafter carried on as it had been carried on previously. Bookkeeping entries were made crediting one-half of the profits to petitioner and one-half to his wife; but most of the amount credited to the wife remained in the business. Early in 1941 petitioner's father and mother delivered a note to petitioner and his wife for $20,000, in consideration of which the latter two executed an instrument purporting to convey to each of the former a one-quarter interest in the business. Thereafter articles of partnership were signed by the four. The father and mother contributed no additional capital and rendered no services, and the business was carried on as before. Bookkeeping entries were made crediting one-fourth of the earnings to each of the four, but most of the earnings credited to the father and mother were left in the business and credited on the note. Petitioner had made an arrangement with his parents under which their interest in the property was to be left by will to petitioner to the exclusion of his brothers and sisters. Held, under the facts, showing has not been made that the several individuals were, in 1940 and 1941, engaged in carrying on business in partnership, and the Commissioner did not err in including the earnings of the business in petitioner's gross income. S. P. Cain, Esq., for the petitioner.

Edward L. Potter, Esq., for the respondent.

The Commissioner determined deficiencies in petitioner's income tax for the years 1940 and 1941 in the respective amounts of $2,879.86 and $13,737.43. The only adjustment in issue is the inclusion in gross income of all the net income from a business conducted under the name of Sing Oil Co.

In the petition it is alleged that there was a bona fide partnership between petitioner and his wife during the year 1940 and that they correctly divided the income, 50 percent to each. It is further alleged that there was a bona fide partnership in 1941 composed of petitioner, his wife, his father, and his mother, the income of which was includible in the gross income of each of the partners in the proportion of 25 percent to each.

FINDINGS OF FACT.

Petitioner is a resident of Pelham, Mitchell County, Georgia, and filed his returns for the taxable years with the collector of internal revenue for the Georgia district.

Petitioner and his wife were married in 1929. Before their marriage the wife had worked as a teacher and secretary. She continued to work a portion of the time after their marriage. They kept a joint bank account and the money earned by each was deposited therein and both drew checks against it. In May of 1936 they had between $350 and $400 in this account and in addition thereto owned their home, all of which was from their joint efforts. At that time they were the parents of one child.

Petitioner was working on a salary and in 1936 decided to go into business for himself. He opened up a retail filling station in Pelham. The funds used to acquire the business consisted of the $350 or $400 in the joint bank account and $1,000 borrowed on a note endorsed by his father. The business grew, other stations being added. Petitioner's wife assisted in the office work, looked after collections, and kept the records for something like three years. The expected arrival of a baby caused her to discontinue the work and since 1939 she has worked only intermittently.

Petitioner had adopted Sing Oil Co. as a trade name, under which the business was being carried on. He was also interested in a corporation having the same name which was being operated in North Carolina. By January 1, 1939, he owned eleven filling stations and a wholesale business supplying them with gas, oil and lubricants. On January 1, 1939, he and his wife, in the presence of a notary public, executed a document reading as follows:

I, L. H. Singletary, in consideration of love and affection hereby bargain, sell, grant, convey, transfer and deliver unto my wife, Mildred Singletary, her heirs and assigns an undivided one-half interest in and to all the personal property and personal assets, including good will, of every nature and kind, wherever the same may be, and in whatsoever form or condition had and used by me individually trading as Sing Oil Company in connection with the buying and selling of gasoline, kerosene, lubricating oils, and automobile accessories at wholesale and retail and the general operation of service stations, including leases, service station equipment and stock located at the following places, to-wit: Ft. Valley, Camilla, Cuthbert, Doerun, Edison, Meigs, Newton, Pelham, Poulan, and Sylvester, Georgia, as well as all trucks, vehicles and other equipment used in the operation of my business under the name and style of Sing Oil Company, only saving and excepting therefrom, however, my stock in Sing Oil Company of North Carolina, Incorporated, as well as my interest in any and all partnerships with other persons, trading as Sing Oil Company— it being my intention to give my said wife an undivided one-half interest and to convey title hereby in all of my assets, good will, and other property of every name and nature wheresoever located, including all contracts, obligations and everything in any way pertaining to the business heretofore conducted by me individually under the name and style of Sing Oil Company, except as above stated.

And I do for myself, my heirs, executors, administrators and assigns covenant to and with Mildred Singletary, her heirs, executors, administrators and assigns to warrant and defend the title to said property before mentioned, against the lawful claim or claims of any and all persons whomsoever.

And the said L. H. Singletary and Mildred Singletary hereby agree that they will become and be partners under the firm name of Sing Oil Company to engage in the buying and selling of gasoline, kerosene, lubricating oils and automobile accessories at wholesale and retail and the general operation of service stations heretofore engaged in by said L. H. Singletary, individually, beginning on this date and lasting until in some way dissolved.

Both partners hereto are to give their entire time to the business, except Mrs. Mildred Singletary, who will be financial and credit advisor for the firm and who will give such time to the business as she may see fit.

The profits of said business shall from time to time be equally divided between said partners, share and share alike, and the loss shall likewise be equally borne by said partners.

In witness Whereof, both of the partners hereto have hereunto signed their names on this the 3rd day of January, 1939.

The filling stations had been purchased from the profits of the business. They were operated on a commission basis. Petitioner supplied the oil, gas, and lubricants and transported it to the various stations in trucks.

A gift tax return was filed by petitioner and the gift tax shown to be due was paid. After January 1, 1939, petitioner and his wife kept separate bank accounts in which their individual funds were deposited. They filed returns for 1939 in which the income of each was shown. The returns were examined by representatives of the Treasury Department, but no deficiencies in tax were determined.

The net income of the business for 1940 was shown by the information return (Form 1065) to be $22,386.38. One-half of this amount was included in the gross income of petitioner and a like amount was included in the income of his wife.

Petitioner's wife withdrew no funds in 1940 and the actual withdrawals made by her in 1939, if any, have not been shown. An analysis of her account on the books of the business (Exhibit 9) is as follows:

+-----------------------------------------------------------------------+
                ¦Date    ¦Items                                    ¦Debit    ¦Credit    ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦1940    ¦                                         ¦         ¦          ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦Sept. 10¦Check to Int. Rev. Com                   ¦$287.59  ¦          ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦Dec. 10 ¦Check to Int. Rev. Com                   ¦173.32   ¦          ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦Dec. 31 ¦Cr. by distribution of profits, 1939-1940¦         ¦$24,140.61¦
                +--------+-----------------------------------------+---------+----------¦
                ¦        ¦                                         ¦460.91   ¦          ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦        ¦Credit balance                           ¦23,679.70¦          ¦
                +--------+-----------------------------------------+---------+----------¦
                ¦        ¦                                         ¦24,140.61¦24,140.61 ¦
                +-----------------------------------------------------------------------+
                

On January 1, 1941, petitioner and his wife executed an instrument reading as follows:

IN CONSIDERATION of the sum of $20,000.00 to us in hand paid, we, Lewis Hall Singletary and Mildred S. Singletary, hereby sell to B. E. Singletary and Lela Pilcher Singletary a one-half interest in the business and physical assets of the Sing Oil Company as heretofore operated by us in the State of Georgia, consisting of one...