dissenting: The conclusion of the majority that a partnership should be recognized between petitioner and his wife is, in my opinion, contrary to the essential concepts of the Supreme Court on the subject. It is based upon three facts only: (a) Contribution of capital interest by the wife after gift thereof by the petitioner, made after he had decided to change the form of business from corporation to partnership; (b) partnership agreement providing that the wife should receive a percentage of the profits; and (c) the provision that the husband should be managing partner and liquidator upon dissolution. From these facts and n'othing more, so far as I am able to discern, the majority announces the ultimate fact of bona fide partnership, so intended. It will be noted that there is no finding of fact that the wife ever actually participated in the partnership profits, or that she was to pay any share of partnership losses — an obviously logical requirement of good faith partnership — or that she ever exercised any control over her capital contribution. On the contrary, it is found that she at no time rendered any services to the partnership. Under such facts, it is my view that the conclusion of bona fide partnership, so intended, is not only without foundation in the facts, but contrary thereto and contrary to requirements set both by logic and by the Supreme Court, as expressed in Commissioner v. Tower, 327 U. S. 280, and Commissioner v. Culbertson, 337 U. S. 733.
In the light of the principal fact relied upon by the majority, that is, the fact of capital contribution by the wife, we note that in the Tower case the Supreme Court said:
* * * The question here is not simply who actually owned a share of the capital attributed to the wife on the partnership books. A person may be taxed on profits earned from property, where he neither owns nor controls it. Lucas v. Earl, supra. The issue is who earned the income and that issue depends on whether this husband and wife really intended to carry on business as a partnership. Those issues cannot be decided simply by looking at a single step in a complicated transaction. To decide who worked for, otherwise created or controlled the income, all steps in the process of earning the profits must be taken into consideration. * * *
Yet here the majority obviously overemphasizes, if indeed it does not give controlling effect to, the fact of capital contribution by the wife— to say nothing of neglecting the fact that the gift to her was made by the petitioner after his decision to change the business from corpora-, tion to partnership. The fact of ownership by the wife of her contribution seems in the mind of the majority to determine the taxability, though in the Tower case, as above seen, the petitioner may be taxed on profits earned from property though he neither owns it nor controls it, under the doctrine of Lucas v. Earl, 281 U. S. 111, and other cases. The majority do not follow but disregard the concept: ‘‘The issue is who earned the income * * *,” as expressed in the Tower case, and, as expressed in the Culbertson case, “that income must be taxed to him who earns it” — citing, inter alia, Lucas v. Earl, supra, and Helvering v. Clifford, 309 U. S. 331. As if to stress the point, the Court immediately concludes: “Furthermore, our decision in Commissioner v. Tower, supra, clearly indicates the importance of participation in the business by the partners during the tax year.” Yet here the majority seems to regard participation in the business and earning of the income by the wife as unnecessary elements, since they find only that she contributed capital and had a right to income.
The Culbertson case also enumerates among facts to be considered “the actual control of income and the purposes for which it is used”; again, it notes that “the family relationship often makes it possible for one to shift tax incidence by surface changes of ownership without disturbing in the least his dominion and control over the subject of the gift or the purposes for which the income from the property is used”; and that in the Tower and Lusthaus cases that Court “distinguished between active participation in the affairs of the business by the donee of a share in the partnership on the one hand and his passive acquiescence to the will of the donor on the other.” Here, however, the majority, despite the fact that the partnership agreement provides that the petitioner should be managing partner and liquidator upon dissolution, and that the wife at no time rendered any services to the partnership, discusses not at all the question whether the petitioner had dominion and control over the subject matter of his gift to the wife or whether she participated in the partnership business. In short, though the Culbertson case forbids a conclusion of partnership upon a test merely of contribution of capital, the majority, I submit, make that test and make it controlling. This seems peculiarly illogical in this case, where it is found that the capital contributed by both husband and wife was $29,710.03 (to the new partnership in 1941), whereas the partnership income ascribed by the Commissioner to the petitioner for 1944 was $21,666.85. The capital appears, therefore, as a minor element in the production of income, no doubt due to the fact that the business was that of commission merchant, selling agent, and factor. In some businesses, e. g., lending money, the capital contribution might be the most important element, and I see a difference in the weight ascribable to capital, dependent upon the nature of the business, under the concept of the Supreme Court. Here, logic indicates it is of little weight, yet by the majority it is allowed not only to obscure the question of control by the husband, but to control completely. No inquiry is made as to whether the petitioner retained dominion and control over the gift of capital made to his wife or as to her “passive acquiescence” to his will; the reason rather clearly being that the facts found that the wife rendered no services and that he was manager indicate, if they do not prove completely, such passive acquiescence by her to his will.
I do not mean that such lack of participation or any other element is controlling; but I do affirm that the Supreme Court requires consideration of:
* * * all the facts — the agreement, the conduct of the parties in execution of its provisions, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purposes for which it is used, and any other facts throwing light on their true-intent— * * *
and that here the majority not only fail to do so, but disregard elements considered by the Supreme Court as requisite to a sound examination as to where partnership profits are taxable, and that it so appears on the face of the opinion, and that no examination is made as to whether the petitioner by the arrangement made was able “to shift tax incidence by surface changes of ownership without disturbing in the least his dominion and control over the subject of the gift or the purposes for which the income from the property is used,” or whether the petitioner was able “to retain ‘the substance of full enjoyment of all the rights which previously he had in the property,’ ” but that, on the contrary, the fact of capital contribution placed in a partnership is made to control.
In the Culbertson case the Supreme Court, referring to the alleged partner, says: “Whether he is free to, and does, enjoy the fruits of the partnership is strongly indicative of the reality of his participation in the enterprise.” I am not unconscious of the fact that the majority state the ultimate fact that: “The partnership of F. A. Marsily & Co. was a bona fide partnership and was so intended by the three partners * * also that the formation of the partnership “was motivated solely by business reasons relating to the welfare and credit standing of the partnership business”; and again that in the syllabus it is stated that petitioner’s wife, having made a valid contribution of capital of which she was the full and legal owner, “and it having been the bona fide intention of the partners to carry on a partnership,” the wife should be recognized as a partner. Logic seems to require, however, that such ultimate facts or conclusions must rest upon the facts which alone are stated in the findings, and that beyond that point they are mere fiat. We are required to find the facts. Those here found do not justify the ultimate findings and conclusions, if, in truth, the basic question here is “who earned the income,” and, in my view, the Supreme Court requires of us, in search for reality of partnership, consideration of elements lacking or negatived in the findings here. The result here is, in my opinion, a violation of the injunction of the Supreme Court that no single test, such as contribution of capital, be made conclusive.
I realize too that the opinion recites that the Commissioner made no point of the fact that the wife was not paid or credited with her share of the profits, and that: “Apparently she has been recognized as a partner in the business for several years and we have no reason to believe that she was not credited or paid her share of the profits from time to time.” This is, of course, reversal of burden of proof and unwarranted assumption, and the failure of the Commissioner to dwell upon the lack of payment of profits to the wife is, in my view, no buttress for a general conclusion with so frail a foundation as here appears, or reason why we should jettison essential requirements of logic set by the Supreme Court on this question. Believing that the majority opinion affirmatively shows that it fails to comply with the concepts of the Supreme Court on this subject, I respectfully dissent.
Murdock, Turner, Arnold, Hill, and Harron, JJ., agree with this dissent.