*2199 INCOME - PARTNERSHIP PROFITS. - Upon the proof, held that petitioner's wife was the owner of a one-third interest in a partnership during 1922 and 1923, having received same by gift from petitioner, and that the one-third of the profits of the partnership paid to and received by her in those years was income to her, and respondent was in error in including such amounts in petitioner's income.
*1031 This proceeding is in respect to deficiencies in income taxes of $1,053.09 for the calendar year 1922 and $5,563.71 for the calendar year 1923, resulting from respondent's inclusion in petitioner's income of amounts paid to his wife in those years as profits distributable to her upon a partnership interest belonging to her.
FINDINGS OF FACT.
Petitioner is a resident of Detroit, Mich. In 1919, together with two associates, Wing and Barr, he organized a partnership under the firm name of the Tubular Specialty Mfg. Co. Each of the three partners contributed $5,000 and, under*2200 the articles of partnership, each shared equally in profits. Petitioner took no active part in the business. Shortly after the organization of the business petitioner made a verbal gift to his wife of one-half of his one-third interest in the partnership and following this, in February, 1920, a new contract of partnership was executed to which petitioner's wife was a party, setting out and reciting the individual interests of petitioner and his wife as partners with a one-sixth interest each in profits and partnership property. Following this one-sixth of all the partnership profits during the years 1920 and 1921 were paid to petitioner's wife and one-sixth to petitioner.
About the beginning of the year 1922 petitioner made a verbal gift to his wife of his remaining one-sixth partnership interest and advised the partnership of his action and the change of ownership of such interest was recorded on the books effective on January 1, 1922. No new agreement of partnership was executed, but for the calendar years 1922 and 1923 none of the partnership profits were paid to petitioner but one-third of such profits, or $7,695.08 for 1922 and $32,713.83 for 1923, was paid to his wife*2201 by check made to her individually. Following this, up until 1925, when the partnership was dissolved, petitioner's wife was paid one-third of all profits and upon dissolution of the partnership and sale of its assets in the latter year she was paid one-third of the proceeds. The partnership profits paid petitioner's wife and the proceeds of sale of partnership assets paid over to her were not received by petitioner directly or indirectly and never came at any time into his *1032 possession. Petitioner's wife on her returns for 1922 and 1923 reported as income the amount found as received in each of said years by her from the partnership. In determining the deficiencies here appealed from respondent increased petitioner's income for each of those years by the sum so received by his wife in that year.
OPINION.
TRUSSELL: The theory upon which respondent has included in petitioner's income these amounts received by his wife in the taxable years in question appears to be that the gift by petitioner to his wife is one unenforceable under the statute of frauds as not in writing and that the laws of Michigan forbid a partnership relation between husband and wife, and consequently*2202 the partnership interest must be recognized as still in the ownership of the husband during the years in question, and his wife be considered as having no interest in the partnership or liability in connection therewith.
In so far as the first question is concerned, it may be said that the statute of frauds concerns the remedy alone, merely making unenforceable an unperformed contract to which it applies or refusing damages for its breach, and may be invoked only by the party to the contract against whom it is sought to be enforced or by one who has derived a definite interest in the subject matter through such party. It can not be taken advantage of by a third party who is not a privy or successor in interest of one of the parties. Williston on Contracts, vol. 1, sec. 530. In the present case we have not a contract to convey but a completed transaction - a gift made and received, of property which petitioner had a right to convey and in which the United States had no form of interest. The statute of frauds has no application.
The answer to the first question disposes of the second, even though respondent be correct in his theory that petitioner's wife did not under the laws*2203 of Michigan become a partner under the contract of February, 1920. She was the beneficial owner of the partnership interest and received the income from same. Whether or not she was in law a partner is immaterial. The income was from her property, was received by her, and was taxable to her. ; ; ; . Respondent was in error in including in petitioner's income these amounts received by his wife.
Reviewed by the Board.
Judgment will be entered for the petitioner.
STERNHAGEN, ARUNDEL, and MURDOCK dissent.