Staebler v. Commissioner of Internal Revenue, Docket No. 28520.

• Citation: 17 BTA 1086
• Decision Date: 25 October 1929
• Docket Number: Docket No. 28520.
• Parties: J. FRED STAEBLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

17 B.T.A. 1086 (1929)

J. FRED STAEBLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 28520.

Board of Tax Appeals.

Promulgated October 25, 1929.

F. E. Ross, C. P. A., for the petitioner.

Bruce A. Low, Esq., for the respondent.

This is a proceeding for the redetermination of a deficiency in income taxes asserted by the respondent for the fiscal year ending January 31, 1924, amounting to $1,368.75. The error assigned is that the respondent refused to allow the petitioner and his wife to make separate returns of income received from the petitioner's business.

FINDINGS OF FACT.

The petitioner resided in Ann Arbor, Mich., during the taxable period. He and his brother, as partners, owned and conducted a business under the name of the Staebler Oil Co., located in Ann Arbor. Each partner contributed $5,000 as capital when the business was first started in 1919.

In January, 1923, the petitioner gave to his wife an equal share in his portion of the net profits of the Staebler Oil Co., said profits to be determined after deducting from income the salaries of the petitioner and his brother. The petitioner's wife thereafter was credited on the books of the Staebler Oil Co. with her share of the net profits, monthly, and her drawings were charged against such account. She did not contribute any capital nor any services to the company. The petitioner and his wife filed separate income-tax returns, each reporting as income the amount credited to such taxpayer on the books of the Staebler Oil Co. The respondent has determined that the amount credited to the petitioner's wife, and reported by her, was taxable income to the petitioner.

OPINION.

MARQUETTE:

The petitioner contends that he and his wife should be permitted to make separate income-tax returns as to the profits received by them from the Staebler Oil Co. The respondent has asserted that all of such profits are taxable to the petitioner alone. No other issue is presented by the record.

The petitioner proceeds under section 218 (a) of the Revenue Act of 1921, which provides:

SEC. 218. (a) That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the partnership is computed, then his distributive share of the net income of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner's net income is computed.

It was stated by counsel that the petitioner, when he gave to his wife an equal share of his net profits, intended to make her a partner in the business. However, under the law of Michigan as interpreted by the courts of that State, a wife may not become a partner with her husband. Artman v. Ferguson, 73 Mich. 146; 40 N. W. 907. The petitioner now concedes this, but he contends that a joint adventure was formed, and that for income-tax purposes it is to be treated in like manner as a partnership. In support of his contention, reliance is placed upon L. F. Sunlin, 6 B. T. A. 1232, wherein this Board held that although the intermarriage of a man and woman who were at the time business partners might work a dissolution of that partnership, still the wife was not...