Thorrez v. Commissioner of Internal Revenue, 10121.
| Decision Date | 01 June 1946 |
| Docket Number | No. 10121.,10121. |
| Citation | 155 F.2d 791 |
| Parties | THORREZ et al. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Sixth Circuit |
J. Adrian Rosenburg, of Jackson, Mich., (Rosenburg, Painter & Navarre, of Jackson, Mich., of counsel), for petitioners.
Sewall Key, J. Louis Monarch, and Lee A. Jackson, all of Washington, D. C., for respondent.
Before HICKS, SIMONS and MILLER, Circuit Judges.
The petitioners seek a review of rulings of the Tax Court which upheld in each instance a deficiency income tax assessment by the Commissioner of Internal Revenue for the calendar year 1941. A separate petition was filed by each of the petitioners herein in the Tax Court, but in order to facilitate the trial and hearing the cases were there consolidated and have been so consolidated in this review. The cases again present the question of income tax liability resulting from the creation of a family partnership.
The Michner Plating Company, the partnership involved, was organized in September, 1936. The original partners were Camiel Thorrez and Joseph Michner, two of the petitioners herein, and a third individual, John Piniewski. Each of the three partners made an initial capital contribution of $2,000 to the business. On December 3, 1938, Edward A. Forner, another of the petitioners herein was admitted as a partner. He contributed $2,000 in cash and also his one-half interest in the assets of another metal plating business known as the Chromium Plating Corporation. The other one-half interest in the assets of that corporation was owned by Michner Plating Company and was contributed to the new partnership by the three other parties. On August 31, 1940, Walter Michner, the fourth petitioner herein, who was a son of Joseph Michner and had worked for the Company since its organization, was admitted to membership. He was required to make a capital contribution of $2,000 to the business, although a one-fifth interest in the business at that time was worth considerably more than that amount. On November 23, 1940, Michner Plating Company acquired by merger all of the assets of another metal plating company, Jackson Chromium Plating Company, which was also a partnership and at the time of the merger was owned by the partners in Michner Plating Company. In the latter part of December, 1940, the other partners in Michner Plating Company bought out the interest of the fifth partner, John Piniewski, for $10,000.
On January 2, 1941, the four partners being the petitioners in these actions, executed an agreement which purported to authorize each of them to transfer portions of their partnership interest to their wives and children. The agreement provided that the four partners should retain complete management and control over the partnership and that no wife or child could dispose of his or her interest without offering it first to the partner from whom it was acquired, if he should be a partner in the business, and then to the other partners at its appraised "fair value." If none of such partners should desire to purchase the interest it might then be offered at the appraised value "to anyone acceptable to the remaining partners."
On the following day, January 3, 1941, another agreement, styled "Articles of Co-Partnership," was executed by the petitioners herein as parties of the first part and the members of their respective families referred to in the agreement of January 2, 1941, as parties of the second part. This agreement referred to the previous agreement and then recited that whereas each of the parties of the first part had made such transfers to the members of their families and whereas the parties of the second part were desirous of becoming members of the partnership, and the parties of the first part were desirous of having them do so, therefore all of the parties did enter into a co-partnership for the purpose of carrying on a general metal plating business under the firm name of Michner Plating Company, being a successor to the co-partnership heretofore carried on under that style and firm name by the parties of the first part. Each of the four families had a 25% interest in the partnership. The interest of the Thorrez family was divided equally between Camiel Thorrez, his wife and three sons. The Walter Michner interest was divided equally between Walter Michner and his wife, Marie Michner. The Joseph Michner interest was divided equally between Joseph Michner, his wife Lottie Michner and a daughter. The Forner interest was divided equally between Edward A. Forner, his wife and two daughters. The partnership accordingly comprised 14 partners. As a contribution to the capital of the partnership the parties were to contribute their respective undivided percentage interests as above set out in the assets of the Michner Plating Company. The articles provided that the control and management of the partnership should be exercised by the parties of the first part and that no share in the control and management of the partnership should be exercised by any of the parties of the second part; that Joseph and Walter Michner should devote their full time to the business with the former acting as general manager, and should receive salaries of $250 and $200 a month respectively, plus bonuses based on a percentage of certain of the profits; that Camiel Thorrez and Edward A. Forner should devote only so much of their time to the business as they saw fit; that all major policies affecting the business should be determined by all of the partners, but that no contracts or transactions on behalf of the partnership should be made by any of the new partners; that none of the parties of the second part could dispose of his or her interest without first offering it to the transferor from whom it was received, then to the other tranferees of such transferor as a group, and then to the other parties of the first part, at its then appraised value, and if said options to purchase were not exercised the partner desiring to dispose of his interest might do so to anyone acceptable to the remaining partners; and that each partner should share in all the profits and losses of the business in proportion to his respective interest. They further provided that proper books and records should be kept, for a partnership bank account, and for a distribution of the net profits of the business semiannually unless by mutual agreement they were left in the business. The partnership was to continue for a period of twenty years unless earlier dissolved by mutual agreement, and upon its termination the assets were to be distributed to the partners in proportion to their respective interests.
On January 1, 1941, Joseph Michner, Camiel Thorrez and Edward A. Forner were equal partners in another metal plating business known as Mayo...
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