concurring: This is one more of the long list of cases where a husband has undertaken to make members of his family copartners in a business enterprise. It is unlike some cases in the brevity of the evidence, which consists only of some formal documents. The chief one is the agreement signed by petitioners and their wives, dated May 1, 1940. It is primarily upon that document that petitioners rest their case.
The number of cases involving the question presented here has become substantial. See “Partnership in Tax Avoidance,” by Randolph Paul, The George Washington Law Review, vol. 13 (2) (Feb. 1945), p. 121. The fact that the arrangements are uniformly within the family group has invited close scrutiny of the facts. This Court and the Circuit Courts have held in many instances that formal arrangements are not conclusive for tax purposes, and that a contract which satisfies the requirements of the substantive law of partnerships does not in itself constitute a contract which can be recognized for purposes of Federal income tax law so as to relieve a taxpayer from the burden of tax upon income produced by a business enterprise which he has conducted formerly alone, or in a partnership relation with another. While the majority opinion does not cite many of the decisions, they can not be ignored. They constitute a body of authority which must be considered. See Earp v. Jones, 131 Fed. (2d) 292; certiorari denied, 318 U. S. 764; Schroder v. Commissioner, 134 Fed. (2d) 364; Frank J. Lorenz, 3 T. C. 746; affd., 148 Fed. (2d) 527; Francis Doll, 2 T. C. 276; affd., 149 Fed. (2d) 239 (C. C. A., 8th Cir.); A. L. Lusthaus, 3 T. C. 540; affd., 149 Fed. (2d) 232 (C. C. A., 3d Cir.); O. William Lowry, 3 T. C. 730.
In this proceeding the question is to determine the liability for income tax upon the income produced by two business enterprises. That which produced the income was the enterprises themselves, the capital of the businesses and the labor and skill of those who combined such with the capital in the conduct of the business. The enterprises themselves are not taxable entities, as corporations are. The enterprises were created and kept going by petitioners. The Commissioner has determined that only petitioners are liable for tax on the income of the businesses, and that determination means, also, that only the petitioners were carrying on the businesses. The issue involves the application of a fundamental rule of tax law that income is taxable to the person who earns it, or who owns it, or who has the economic interest in it, however that rule is best expressed. If all that petitioners did was to share with their wives the income which a business which they carried on produced, the situation is no different from that in Burnet v. Leininger, 285 U. S. 136. It would be well to give thought to the full meaning of what was said in that case, particularly, “That which produced the income was not Mr. Leininger’s individual interest in the firm.” It may be that here, when each petitioner assigned an undivided one-half of his undivided one-half interest in the businesses to his wife, he did no more than Leininger did. Leininger’s income tax liability remained unchanged.
The above is intended to raise questions. The questions are raised to emphasize the importance of the burden of proof upon petitioners. Their burden can not be met by the agreement alone, which is all that is relied upon. It is necessary to know what the effect of the agreement was upon the carrying on of the businesses which produced the income. Within this area, the question presented is very much a fact question. Also, since the arrangement could be one where no more was done than to reallocate family income within the family group, form can not be determinative. The burden of proof is broad in this case, and in all cases involving the same general issue. Where so little evidence is produced upon the matter of how the businesses were conducted after the arrangement, there is a failure of proof. If petitioners’ economic position, economic activities, control over the businesses, control over the income, conduct of the businesses, and such went on exactly in the same way after the formal execution of the agreement, then the income of these businesses must still be taxed to petitioners because their wives have not in reality acquired a direct interest in the businesses which produced the income, but have acquired only a derivative interest, the real interest remaining in their husbands. Petitioners have not overcome a presumption which lies in the determination of the respondent, which is that, at best, petitioners did no more than assign some of their own income to their wives.
Mellott and Opper, JJ., agree with the above.