*178 Decision will be entered under Rule 50.
1. Under the evidence, held, petitioner and his wife were partners in the operation of the Brentwood Coal & Coke Co. from September 1, to December 31, 1943. Each partner was entitled to one-half the income from the partnership and the Commissioner erred in taxing petitioner with the one-half of the income which belonged to his wife.
2. On December 15, 1943, petitioner filed an amended Form 1040-ES (Declaration of Estimated Income and Victory Tax by Individual for the Calendar Year 1943). He did not at that time remit payment on the balance of estimated tax shown to be due by the estimate, which was $ 34,483.50. The Commissioner determined a penalty under the provisions of section 294 (d) (1) (B), I. R. C. Petitioner has not shown that his failure to pay the installment of his estimated tax within the time prescribed by law was due to reasonable cause and not to willful neglect. Held, the Commissioner is sustained in his imposition of the penalty.
*933 The Commissioner has determined a deficiency in petitioner's income and victory tax for the year 1943 of $ 16,236.77 and a penalty of $ 3,448.35. The year 1942 is also involved because of the Current Tax Payment Act. Inasmuch as the adjustments made by the Commissioner to the net income as disclosed by petitioner's return for the year 1942 are not in issue, these adjustments will not be enumerated. In a recomputation under Rule 50 they will remain as determined by the Commissioner in his deficiency notice. To petitioner's net income as disclosed by his return for 1943 the Commissioner has added $ 20,655.79 as "net profit from business." That adjustment*180 was explained in the deficiency notice as follows:
(a) It is determined that the alleged partnership between you and your wife, Mary Ann Felix, doing business under the name of Brentwood Coal and Coke Company, is not recognizable for Federal income tax purposes, and the entire income from the business is taxable to you.
The Commissioner then computed the net income from the business of the Brentwood Coal & Coke Co. for the year 1943 and arrived at a total figure of $ 82,132.31, which is $ 20,655.79 more than petitioner reported on his return. To the adjustments made by the Commissioner in his deficiency notice for the year 1943, petitioner assigned error as follows:
(a) In determining the taxable income of the petitioner for the year 1943, the Commissioner erroneously failed to recognize for Federal income tax purposes, the partnership between the petitioner and his wife, Mary Ann Felix, doing business under the name of Brentwood Coal and Coke Company.
*934 (b) In connection with this failure to recognize the partnership above referred to, Commissioner erroneously added to the income of the petitioner the sum of $ 16,719.76 for the year 1943.
(c) The failure of the Commissioner*181 to include only 50% of the income of the partnership in the return of the petitioner, the balance in the return of his wife, Mary Ann Felix as a partner in the Brentwood Coal and Coke Company.
(d) The Commissioner has erroneously added a penalty to the deficiency in the amount of $ 3,448.35. No adequate grounds or detail computations or reasons are stated by the Commissioner for the assertion of this penalty.
FINDINGS OF FACT.
Petitioner resides in Pittsburgh, Pennsylvania. The return for the period herein involved was filed with the collector of Internal Revenue for the twenty-third district of Pennsylvania. Petitioner and his wife, Mary Ann Felix, were married on October 1, 1935. In 1936 when times were bad and petitioner had only from one to three days work a week, he and his wife decided that if they could get a truck of some kind petitioner could get a little bit of hauling that would help out and keep them going. They saw a truck advertised in a Pittsburgh paper and asked the wife's father to lend them $ 200 (they were at that time living at the wife's father's house), which he did. Later, with $ 200 borrowed from petitioner's father, they bought a more suitable body for*182 this truck and it was immediately put into use by petitioner.
At the beginning, petitioner hauled junk or whatever he could with his truck. In the early part of 1937 petitioner got a job with the WPA. The truck broke down and he traded it in on a new truck, which was used on the WPA job as well as to haul coal. As the WPA job was supposed to be for only a few months, petitioner and his wife decided to get into the coal business, and they selected "Brentwood Coal & Coke Company" as a good name for it. They had blotters printed advertising the business and had boys distribute them. The address given on the blotters for the place of business of the company was 110 Kirk Avenue, Carrick, Pennsylvania, which was the home of the parents of the wife. The blotters had printed on them "A. Felix, Manager."
The wife went to the place of business every day and took such orders as she could get and stayed there until petitioner returned from his work, when they went to their own home. She took care of the telephone, placed ads, gave drivers their orders, and did whatever was necessary. The husband was working on the outside and the wife was attending to the business on the inside. The *183 business grew even while petitioner was still working for the WPA. They needed another truck and they located one, but they did not have the money to pay for it, so they obtained a loan from the wife's father of $ 50, which *935 they used for a deposit on the truck. They began to advertise in the Pittsburgh newspapers. After their business increased they commenced to hire trucks. The wife gave the drivers their orders where to take the coal, took the money that was turned in, and paid the drivers what was coming to them. If the customer was not there to receive and pay for the coal, the drivers would call the wife and she would give them instructions what to do with the coal, as they were not permitted to leave it without receiving payment. The wife approved the bills for payment, made distribution of the expenses, and kept track of the expenses incurred in the operation of the business, although later they employed a bookkeeper, who is still working for them. If there was a breakdown in the machinery, the wife would be called and she would look in the "parts" book and get the parts number and order the part. She ok'd all lease agreements before they were signed. She *184 had a portable typewriter which she took along and wrote up the agreements in the homes of the owners of the coal and had them sign the agreements. She drew on the bank account to pay their living expenses.
As their business got better and they could not get enough coal from some of the strip mines, they decided to buy a shovel and engage in the stripping business themselves, which they did. The wife put ads in the paper for a shovel and received a number of calls and letters. Petitioner, on one occasion, was inclined to purchase a shovel for $ 2,400, but the wife became interested in a shovel which cost only $ 600, and she finally prevailed upon the petitioner to buy the latter shovel. In June of 1940 they needed another shovel, and they bought their first new shovel and financed it through a trust company.
The wife attended to the office business every day without a break up to two days before their first baby was born, on October 2, 1938. She remained home then for six weeks, but during that time still kept in touch with the truck drivers and gave them their orders and paid them off. The petitioner's sister took the telephone orders for her while she was away. In September*185 of that year her father died and her mother had to rent out the house. Mrs. Felix's sister permitted her to have their business telephone transferred to the sister's home and thereafter, for awhile, she used her sister's home as an office for the company and was there the whole day.
Having been advised by their accountant sometime in the fall of 1943 to put their partnership in writing, they had John E. Evans, their lawyer, prepare a written partnership agreement. This partnership agreement begins by stating:
Articles of Agreement, made and concluded the First day of September, A. D., in the year of our Lord one thousand nine hundred and forty-three (1943) between Albert T. Felix of the City of Pittsburgh, Allegheny County, Pennsylvania*936 of the one part and Mary Ann Felix of the like residence, of the other part.
Although this partnership agreement says that it was made and concluded on September 1, 1943, it was not in fact signed by the parties on that date, but was signed sometime later in 1943. The partnership agreement provided, among other things, as follows:
1. The said parties have agreed and by these presents do agree to associate themselves in the business of*186 mining and selling coal, the general excavation of earth, rock and other materials and the transportation of such coal and other materials and of buying, leasing or selling of equipment and transportation facilities useful or convenient in connection with the business of the mining and selling of coal and excavation earth, rock and other materials; which said co-partnership shall continue from the date of these presents for, during and to the full end and term of one year next ensuing.
2. That the trade-name under which said co-partnership shall operate is Brentwood Coal & Coke Company.
3. And to the end and purpose aforesaid, he, the said Albert T. Felix hath, the day of the date of these presents, delivered in, as assets of the said partnership certain equipment and assets of the value of $ 67,752.85, as listed in Schedule A, hereto attached and made part hereof; and the said Mary Ann Felix has likewise so delivered the sum of $ 35,118.05, both the said equipment as well as the money to be used, laid out, and employed in common between the parties to this agreement, for the management, operation and carrying on of the said business to their general advantage.
The partnership agreement*187 provided for the assumption of certain obligations of Albert T. Felix, which when given effect made his net contribution to the partnership $ 35,729.81 and, in paragraph 5, it is provided:
a. That each of the said parties shall devote all their time and attention to the business of the co-partnership.
b. That proper books of account shall be kept under supervision of the partnership, That they shall be open to the inspection of each partner at all times.
c. That all such profit, gain, and increase as shall arise by reason of the said joint business shall be equally and proportionately divided between them, share and share alike. And also all losses that shall happen in the said business, by bad debts, or otherwise, shall be paid and borne equally between them.
Other provisions of the agreement are as follows:
8. This partnership shall continue from year to year after the end of the term hereinabove set forth until either of the partners shall have given written notice to the other at least four months before the expiration of any calendar year of his or her desire to terminate the same at the expiration of such year. Upon the termination of the partnership, distribution of the*188 assets thereof shall be made as follows:
a. Each of the parties hereto shall be entitled to nominate one person to act as an appraiser of the partnership's assets and liabilities. In case either of the parties shall fail to nominate within fifteen days after the termination of the partnership, such an appraiser on his or her behalf, the other party hereto shall have the right to nominate such an appraiser for him or her. The two *937 appraisers thus chosen shall select a third. The three appraisers shall then audit the books of the partnership and appraise and value to the best of their judgment all the assets and liabilities of the partnership, and shall divide the assets into two shares and apportion the liabilities to each of such such shares, so that the two shares, subject to the liabilities apportioned to each share, shall, in the opinion of the appraisers, be of equal value.
b. The order in which each of the parties hereto shall have the right to select as his or her own one of said shares, shall then be determined by lot. Such selections shall be made in writing and after such selections are made each of the parties hereto, or his or her heirs or legal representatives, *189 will execute all necessary instruments to effectuate the transfer to each of the parties hereto of the share so selected by him or her.
On September 24, 1943, petitioner and his wife filed a certificate in the office of the Prothonotary of Allegheny County, Pennsylvania, under the Fictitious Names Act of Pennsylvania, stating that petitioner and his wife were carrying on or conducting a business under the assumed or fictitious name of "Brentwood Coal & Coke Company."
The first bank account of the business was in the Brentwood Bank and it was in the name of Albert and Mary Ann Felix. Later another account was opened in the same bank in the name of Mary Ann Felix, although checks were signed "Mary Ann Felix -- Special Account." An account in the Carrick Bank was also in the name of Mary Ann Felix and so was an account in the Mellon National Bank. On November 7, 1942, an account was opened in the name of Mary Ann Felix in the St. Clair Deposit Bank, the amount deposited being $ 4,850.25. The name of Albert Felix was added to this account. There was an account in the Houston Bank in the name of the wife. During all the time from 1937 to the date of the trial there were no other accounts*190 for the business of Brentwood Coal & Coke Co. than the ones mentioned above, except accounts in the Farmers Bank in Kittanning, which they used to pay their employees while they worked there. There was one account in that bank in Albert's name and one in Mary Ann's name. They never had an account in the name of Brentwood Coal & Coke Co. Although the money taken in from the operation of the business was for the most part deposited in the name of Mary Ann, the funds belonged to them jointly and were used freely in the business.
A partnership return of income for the year 1943 was filed by Brentwood Coal & Coke Co. This return showed "Ordinary Net Income, $ 31,930.28," and it showed "Partners' Shares of Income and Credits, Albert Felix -- $ 15,965.14, and Mary Ann Felix -- $ 15,965.14." This return covered the income of the Brentwood Coal & Coke Co. for the period beginning September 1 and ending December 31, 1943. Mary Ann Felix filed an individual income and victory tax return for the year 1943 and reported as her net income the $ 15,965.14 shown on the partnership return as her share of the partnership income for the *938 year 1943. Albert Felix filed an individual income*191 and victory tax return for the year 1943 on which he reported $ 45,511.38 as net income from business operated as a sole proprietorship for the period January 1 to August 31, 1943. He reported $ 15,965.14 as income from the partnership of Brentwood Coal & Coke Co., operated as a partnership for the period September 1 to December 31, 1943. The Brentwood Coal & Coke Co. during the years 1942 and 1943 was engaged in the business of mining and selling coal, the general excavation of earth, rock, and other materials and the transportation of such coal and other materials. Its office was in petitioner's residence. In the carrying on of this business throughout both taxable years petitioner was actively engaged in the production and transportation of coal and attending to outside matters necessary for the carrying on of the business. Mary Ann Felix, throughout both taxable years, was active in supervising the selling of coal, the collection therefor, the paying of bills and the looking after matters in the office necessary for and vital to the carrying on of the business.
There was a bona fide partnership existing between Albert Felix and Mary Ann Felix in the operation of the Brentwood*192 Coal & Coke Co. during the period September 1 to December 31, 1943, and each partner was entitled to one-half of the profits earned by such partnership during said period.
Facts Relative to the Penalty.
Although on December 15, 1943, petitioner filed an amended Form 1040-ES (Declaration of Estimated Income and Victory Tax by Individual for Calendar Year 1943), he did not at that time make payment on the balance of the estimated tax shown to be due on the estimate, $ 34,483.50. When queried at the hearing as to why he did not pay the $ 34,483.50 shown to be due on the estimate filed, he answered: "We didn't file any remittance with it because we did not have the money. We had it all invested in machinery. It was paid later. We paid the penalty and everything." The failure of petitioner to pay the installment of the estimated tax shown on the declaration of estimate which he filed December 15, 1943, was not due to reasonable cause.
OPINION.
At the outset it is necessary to make some clarification of the issue which we have here to decide. Petitioner in his brief argues that we should hold that a bona fide partnership existed between petitioner and his wife, Mary Ann, throughout*193 the taxable year 1943 and that the income of the Brentwood Coal and Coke Co. for the entire year 1943 should be equally divided between them. That is not the issue raised by the pleadings. It is considerably narrower than *939 that. What the Commissioner did in his deficiency notice was to add to the net income reported by petitioner on his income tax return for the year 1943, $ 20,655.79 additional income from the business of Brentwood Coal & Coke Co. This amount included the income which Mary Ann had reported on her return as her share of the partnership profits from Brentwood Coal & Coke Co. for the period September 1 to December 31, 1943.
This action of the Commissioner was assigned as error by the petitioner. The first subdivision of facts in his petition upon which he relies in support of his assignment of error is:
(a) Brentwood Coal and Coke Company is a partnership organized, pursuant to written Articles of Co-Partnership executed, under date of September 1, 1943 by Albert T. Felix and his wife, Mary Ann Felix.
While the partnership return filed under the name of Brentwood Coal & Coke Co. stated that it is for the year 1943, it actually covered the business operations*194 of the company for the period September 1 to December 31, 1943. Petitioner's own income and victory tax return filed for the year 1943 treated the income of the Brentwood Coal & Coke Co. as a sole proprietorship for the period January 1 to August 31, 1943, and he returned all that net income as taxable to him. He returned as his part of the partnership income only one-half of the net income of Brentwood Coal & Coke Co. for the period September 1 to December 31, 1943. He nowhere alleges that his return was in error and that he erred in returning the income of Brentwood Coal & Coke Co. as a sole proprietorship for the period January 1 to August 31, 1943.
Therefore, it seems to us that the pleadings raise the issue, Was there a bona fide partnership existing between petitioner and his wife, Mary Ann, under the name of Brentwood Coal & Coke Co. covering the period September 1 to December 31, 1943? This being our understanding of the issue, we think it must be decided in favor of the petitioner.
We do not understand that there is any controversy as to the correct net income of Brentwood Coal & Coke Co. for the period here in question. The Commissioner made some more or less minor *195 adjustments in the income reported on the partnership return, but these are not contested. As we have already indicated, the only issue, in so far as the partnership is concerned, which petitioner raises in his petition is that the Commissioner erred in holding that he and Mary Ann were not partners during the period September 1 to December 31, 1943. In support of his determination that no partnership existed between Mary Ann and Albert, respondent relies principally upon Commissioner v. Tower, 327 U.S. 280">327 U.S. 280, and Lusthaus v. Commissioner, 327 U.S. 293">327 U.S. 293. The Supreme Court said in the Tower case:
*940 There can be no question that a wife and a husband may, under certain circumstances, become partners for tax, as for other, purposes. If she either invests capital originating with her or substantially contributes to the control and management of the business, or otherwise performs vital additional services, or does all of these things, she may be a partner as contemplated by 26 U. S. C. §§ 181, 182, 86 U. S. C. A. Int. Rev. Code, §§ 181, 182. The Tax Court has recognized*196 that under such circumstances the income belongs to the wife. * * *
See our discussion of the Supreme Court's decision in Francis A. Parker, 6 T.C. 974">6 T. C. 974.
Petitioner's lawyer who drew up the partnership agreement stated the capital contribution of each partner was arrived at upon information furnished to him by petitioner's accountant. This information was based upon the fact that most of the machinery used in the business of Brentwood Coal & Coke Co. stood in Felix's name and the cash was deposited in the banks in Mary Ann's name and she drew all the checks. Respondent argues that, even though the money was deposited in Mary Ann's name, it either belonged to her husband or represented gifts of money made to her by her husband and, therefore, did not constitute capital originating with her and would not constitute a valid capital contribution by her to the partnership. Even if we assume that respondent is correct in this contention, nevertheless we still hold that Mary Ann was a partner in the business, because she contributed vital, important, and essential services to the business during the period in question. See Francis A. Parker, supra.*197 It is not necessary to set out here in detail the nature of these services. They are fully set out in our findings of fact. These facts show that Albert attended to the outside work of the business and Mary Ann looked after the inside. One of the witnesses in his testimony summed it up this way:
I said she was the one that seemed more conversant with business matters than the husband did. The husband was the one who was out running the shovel, or the trucks and she was the one who was in touch with the people in the office and with whom they did business. * * * When I wanted to find out anything about the business, as a rule I had to get it from Mrs. Felix.
There is much other testimony in the record to the same effect and there is none to contradict it. We, therefore, think that Mary Ann was a full partner in the business for the period in question, even though it be assumed that she made no capital contribution which originated with her. Francis A. Parker, supra.
The Commissioner argues that, even though we should hold that a valid partnership existed between Albert and Mary Ann, it should not date from September 1, 1943, because the written*198 partnership agreement was not signed on that date, but was signed later in the year 1943. It seems unquestionably true that the partnership agreement was not signed until some time after September 1, 1943. We are *941 unable to make a finding from the evidence as to the exact date in 1943 when it was signed. However, the evidence does convince us that Mary Ann and Albert had agreed orally to conduct their business as a partnership from and after September 1, 1943. Just what their business relationships were prior to that date we do not have to decide, because, as we have already pointed out, we do not think the pleadings put it in issue. A certificate under the seal of William H. Frasher, Prothonotary of Allegheny County, Pennsylvania, is in evidence. It bears date September 24, 1943, and certifies that:
Mary Ann Felix, Albert T. Felix carrying on or conducting business under the assumed or fictitious name, style or designation of Brentwood Coal & Coke Co. has filed in this office the Certificate provided for in the Act of Assembly of the Commonwealth of Pennsylvania * * *.
So, from all the evidence we are convinced that Mary Ann and Albert, on or about September 1, 1943, *199 definitely agreed to conduct the business of Brentwood Coal & Coke Co. as a partnership, with each partner sharing one-half the profits and losses. This oral partnership agreement was put in writing and signed by the parties sometime later in the taxable year. We, therefore, hold that the partnership of Brentwood Coal & Coke Co. was effective from September 1, 1943, and that one-half of the net profits therefrom belonged to Albert and were taxable to him and one-half of the net profits belonged to Mary Ann and were taxable to her. Cf. Weizer v. Commissioner, 165 Fed. (2d) 772.
Penalties.
The Commissioner, along with his determination of the deficiency, also determined a penalty of $ 3,448.35. This penalty he described in the deficiency notice as follows:
A penalty in the amount $ 3,448.35 has been imposed under the provisions of Section 294 (d) (1) (B) of the Internal Revenue Code inasmuch as you failed to pay an installment of the estimated tax within the time prescribed.
The statute under which the Commissioner imposed the penalty is printed in the margin. 1
*200 *942 Under section 59 (a) of the Internal Code, payment of estimated tax is required on the 15th day of the last month of each quarter. In 1943, that being the first year of the so-called pay as you go tax plan, the first declaration and payment was required on or before September 15 of that year (Regulations 111, sec. 29.58-6 (a) (1)). For crediting payments on 1942 tax, the final payment for 1943 would be due on December 15 of that year (Regulations 111, sec. 29.58-10 (a)).
Section 294 (d) (1) (B) provides an addition to the tax in the case of failure to pay an installment of estimated tax within the time prescribed, unless the failure is shown to the satisfaction of the Commissioner of Internal Revenue to be due to reasonable cause and not to willful neglect. That addition is in the amount of 5 per cent of the unpaid part of the installment, plus an addition of 1 per cent for each month (except the first) during which the installment remains unpaid, but in no event to exceed 10 per cent of the unpaid part of the installment. Consequently, a taxpayer who failed to pay any part of an installment when due and for as much as six months thereafter would be liable for the maximum*201 addition of 10 per cent.
Petitioner, on December 15, 1943, filed an amended Form 1040-ES (Declaration of Estimated Income and Victory Tax by Individual for the Calendar Year 1943), showing a balance due of $ 34,483.50, but he failed at that time to make payment of any part of this unpaid balance. Just on what date later he paid this amount the evidence does not inform us. In the revenue agent's report of examination of petitioner's income tax return for the year 1943, a copy of which was furnished petitioner, there was set up an addition to the tax of 10 per cent under section 294 (d) (1) (B) of the Internal Revenue Code. In the notice of deficiency this addition to tax was finally determined. In paragraph 4 (d) of the petition the following assignment of error is made:
The Commissioner has erroneously added a penalty to the deficiency in the amount of $ 3,448.35. No adequate grounds or detail computations or reasons are stated by the Commissioner for the assertion of this penalty.
The petition contains no allegations of fact in support of this assignment of error and petitioner has adduced scant proof with respect to this penalty. This being the state of the record, petitioner*202 is liable for the penalty imposed by section 294 (d) (1) (B).
Decision will be entered under Rule 50.
Footnotes
1. SEC. 294. [I. R. C.]. ADDITIONS TO THE TAX IN CASE OF NONPAYMENT.
* * * *
(d) Estimated Tax. --
(1) Failure to file declaration or pay installment of estimated tax. --
* * * *
(B) Failure to Pay Installments of Estimated Tax Declared. -- Where a declaration of estimated tax has been made and filed within the time prescribed, * * * in the case of a failure to pay an installment of the estimated tax within the time prescribed, unless such failure is shown to the satisfaction of the Commissioner to be due to reasonable cause and not to willful neglect, there shall be added to the tax 5 per centum of the unpaid amount of such installment, and in addition 1 per centum of such unpaid amount for each month (except the first) or fraction thereof during which such amount remains unpaid. In no event shall the aggregate addition to the tax under this subparagraph with respect to any installment due but unpaid, exceed 10 per centum of the unpaid portion of such installment.↩