Woodbury v. Comm'r of Internal Revenue, Docket Nos. 4352-65— 4354-65.
| Decision Date | 12 December 1967 |
| Docket Number | Docket Nos. 4352-65— 4354-65. |
| Citation | 49 T.C. 180 |
| Parties | LEO A. WOODBURY, ET AL.,1 PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Dale Forbes and M. O. Wordal, for the petitioners.
Lee A. Kamp, for the respondent.
Held: 1. Reallocation of partnership income determined on the basis of services rendered and respective capital interests of the partners.
2. Income from the sale of certain cattle was constructively received in 1958.
3. In 1960 the partnership made a nontaxable exchange of cattle under sec. 1031(a), I.R.C. 1954.
4. Petitioners are not liable for negligence penalties.
In these consolidated cases the respondent determined income tax deficiencies against petitioners, as follows:
Some issues have been settled by the parties and will be given effect in the Rule 50 computations. Four issues remain for decision. They are:
(1) Whether the equal distributive shares of partnership income reported by Glenn A. Woodbury and his son, Leo A. Woodbury, during the years 1958, 1959, and 1960, should be reallocated on the basis of differing capital contributions and services performed for the partnership.
(2) Whether income from the sale of certain livestock to William A. (Bill) Wilson by the partnership was constructively received in the year 1958.
(3) Whether, in a multiparty transaction in 1960, the partnership made a nontaxable exchange of 225 cows and 425 mixed yearlings located on their Nevada ranch for a like number of cattle on their newly acquired ranch in Montana.
(4) Whether the petitioners were negligent in filing their Federal income tax returns for the years 1958, 1959, and 1960, thereby making them liable for the additions to tax under section 6653(a), I.R.C. 1954.2
Some of the facts have been stipulated by the parties. The stipulations of fact and the exhibits attached thereto are incorporated herein by this reference.
Leo A. Woodbury (hereinafter called Leo) and Anita L. Woodbury are husband and wife whose legal residence was Geyser, Mont., at the time they filed their petitions in these proceedings. Leo was a legal resident of Stevensville, Mont., and Wells, Nev., during the year 1958 and filed his individual Federal income tax return for that year with the district director of internal revenue at Helena, Mont. He was a legal resident of Wells, Nev., during the year 1959 and filed his individual Federal income tax return for that year with the district director of internal revenue at Reno, Nev. Leo and Anita L. Woodbury were legal residents of Wells, Nev., and Geyser, Mont., during the year 1960 and filed their joint Federal income tax return for that year with the district director of internal revenue at Helena, Mont.
Glenn A. Woodbury (hereinafter called Glenn) and Pearl Woodbury are husband and wife whose legal residences were Stevensville, Mont., and Wells, Nev., during the year 1958. They filed their joint Federal income tax return for that year with the district director of internal revenue at Helena, Mont. They were legal residents of Wells, Nev., in 1959 and filed their joint return for that year with the district director of internal revenue at Reno, Nev. They were legal residents of Wells, Nev., and Geyser, Mont., during the year 1960 and filed their joint return for that year with the district director of internal revenue at Helena, Mont. Their legal residence was Geyser, Mont., at the time they filed their petition herein.
Since 1944 Glenn has been in the cattle ranching business. In November 1951, he purchased the 6,100-acre Porche Ranch at Stevensville, Mont., for $90,000, of which $9,815 was allocated to machinery and the remainder to the land and buildings. On January 1, 1957, the balance due on this purchase was $37,500. In 1952 Glenn purchased the 140-acre Jannsen Ranch, adjoining the Porche Ranch, for $28,000. The balance due on the Jannsen purchase on January 1, 1957, was $15,236. Glenn also owned 265 cows, 11 bulls, 1 steer, and 145 yearlings immediately prior to January 1, 1957.
Leo is the son of Glenn and Pearl Woodbury. He was born on January 2, 1938. Leo left college in the fall of 1956 and was married later that year. He has engaged in various ranching activities since he was 6 years of age, and he owned 17 cows, 6 yearlings, and 1 bull just prior to January 1, 1957.
Effective January 1, 1957, Glenn and Leo formed a ‘family partnership’ which engaged in ranching activities during the years in issue. However, they had no written partnership agreement and no title to property was transferred from Glenn's name to Leo's name either prior to or during the years 1958, 1959, and 1960. Partnership assets consisted of capital contributions made by Glenn and Leo on that date.
Partnership assets and liabilities which belonged to Glenn prior to January 1, 1957, had the following values as of that date:
3 The parties are in agreement as to the valuations of the various types of livestock contributed to the partnership on Jan. 1, 1957.
Partnership assets which belonged to Leo prior to January 1, 1957, had the following values as of that date:
Neither Glenn nor Leo made any capital contributions to the partnership after January 1, 1957.
Although Leo was a minor in 1957, he had extensive ranching experience and Glenn considered him to be a full-fledged, capable rancher.
Both Glenn and Leo intended to enter into the partnership on an equal basis and to continue ranching together as partners. Pursuant thereto, each donated such time as was necessary to carry out the ranching operation; each participated in the various aspects of ranching; each drew on the partnership joint account those sums necessary for his personal expenses; and each had an equal say in partnership activities. Glenn discussed the legal ramifications of an equal partnership with an attorney at the time the partnership's 1957 tax return was prepared. Both the partnership and individual Federal income tax returns of Glenn and Leo, as well as the partnership return for 1957, indicated an equal division of partnership profits and losses between the partners in each of the years 1957 through 1960.
Glenn kept the partnership records. No formal records were kept for the years 1957 through 1960 to show the respective capital accounts, drawing of funds, or distributive shares of the partners. The partnership return for each year was filed in the name of Glenn A. and Leo A. Woodbury and was prepared by either an attorney or a certified public accountant.
Title to each of the ranches which the partnership owned during the years in controversy was only in the names of Glenn and Pearl Woodbury. In a financial statement submitted to the Farmers State Bank, Victor, Mont., on December 17, 1957, Glenn stated that he and Pearl were sole owners of the assets listed therein....
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