*262 Decision will be entered under Rule 50.
Louis R. Eisenmann conveyed a half interest in his business, in trust for the benefit of his minor son. The trust was irrevocable, and the trustee was vested with full and complete powers of management and control. The trustee was a business acquaintance but otherwise unrelated to the grantor. A partnership agreement between the grantor and the trustee to operate a business was a part of the trust agreement. The trustee accepted the trust and actively participated in the management and operation of the partnership and a related partnership formed thereafter. Respondent taxed the income distributable to the trust from each partnership in each of the taxable years to the petitioners upon the theory that no valid partnerships were formed. Held, valid partnerships were formed, and petitioners are not taxable on the trust's distributive shares of the partnership income.
*1427 These consolidated cases involve deficiencies in income tax for the calendar years 1944*263 and 1945, in Docket No. 23929, and the calendar year 1946, in Docket No. 24697, in the respective amounts of $ 8,894.44, $ 11,684.14, and $ 11,858.73.
The issue common to each taxable year is whether the distributive share of Harry W. Parkin, Trustee for Louis Welling Eisenmann, in the partnership income of Louis-White Motors, should be included in petitioners' gross income for each such taxable year. For the taxable year 1945, a like issue arises with respect to the inclusion in petitioners' gross income of the distributive share of Harry W. Parkin, Trustee for Louis Welling Eisenmann, in the partnership income of L-W Sales Company.
FINDINGS OF FACT.
The petitioners, husband and wife, filed joint returns for the taxable years with the collector of internal revenue at Little Rock, Arkansas. Louis Welling Eisenmann, the son of the petitioners, was born on June 1, 1927.
Louis R. Eisenmann, hereinafter referred to as the petitioner, after two years of college, studied law, business administration, and accounting. He was employed by a banking concern in Charleston, South Carolina, an insurance agency in North Carolina, and then by the Ford Motor Company in North Carolina; Virginia; *264 Detroit, Michigan; and Memphis, Tennessee. While in Memphis, he served as zone manager of Ford for the Little Rock area, and installed the Ford dealer in Little Rock. In 1936, he became associated as vice president and general manager on a profit-sharing basis with Rebsamen Motors, the Ford dealer in Little Rock.
On or about March 31, 1942, petitioner terminated his employment with Rebsamen Motors. A month later he became the distributor for White Motor Company trucks. He operated the business under the trade name of Louis-White Motors. This was the first time that petitioner had ever been engaged in business for himself; and outside of the business contacts made during his employment with Rebsamen Motors, his association with the business and economic life of the community was limited.
*1428 For 1940 and 1941, petitioner's gross income as an employee of Rebsamen Motors was approximately $ 22,000 and $ 29,000, respectively. For 1942 and 1943, his income was approximately $ 12,000 and $ 18,000, respectively.
Petitioner turned down the distributorship for White trucks when it was first offered to him. His investigation disclosed: that White Motors was not building trucks, *265 due to war conditions, and there appeared to be no prospects of building them; that operation of this particular business for the previous 3 years had been very unprofitable; that there were very few White trucks in the area, and the parts business was small, running around $ 1,500 per month; and that there was no service business in the area to support the distributorship. The White Motor Company then prevailed upon petitioner to look over the Memphis distributorship, but the information he obtained therefrom did not change his opinion about the chances of success for the business. As a final inducement to petitioner, and because his capital was limited to about $ 3,500, White Motor Company agreed to consign his stock of truck parts and to divert eight White trucks to him which had been built and assigned to other distributors. With these added inducements, petitioner accepted the distributorship.
At the inception of the business, petitioner served as operator, bookkeeper, typist, credit man, salesman, parts helper, and shop worker. His wife came down and helped him with the books as she had had some business experience. His son helped after school and sometimes on Sundays and*266 at nights. During the summer months, petitioner's son worked in the parts department, which was constantly faced with finding parts and getting them, and in the shop as a mechanic's helper where he could relieve an experienced mechanic for use on more serious mechanical jobs. Petitioner's son also assisted him in taking inventory. In addition to his family, petitioner's working force in the early years consisted of one man in the parts department and two mechanics in the shop.
During 1942 and 1943, petitioner's business, Louis-White Motors, was badly in need of capital. Petitioner attempted to secure financing through Commercial Credit Company and C. I. T. Credit Corporation, but neither was interested in extending credit to his business. In order to secure the eight trucks held for his account by White Motor Company, petitioner had to negotiate a loan with the Reconstruction Finance Corporation. Other attempts to finance petitioner's automobile business were unsuccessful.
On or about January 1, 1944, petitioner conveyed a one-half interest in his business to Harry W. Parkin, as trustee for petitioner's minor son, Louis Welling Eisenmann. The stated purpose of the trust was*267 to create a separate estate for petitioner's son and to provide *1429 for its proper management. The trust was irrevocable and was to continue until the beneficiary became 21 years of age. Full and complete powers of management and control were vested in the trustee; and the trust agreement specifically prohibited the reversion or the use of any part of the trust corpus or income for the donor's benefit, or for the support of the donor, his wife, or his son prior to his reaching legal age, or for the satisfaction of any legal obligations of the donor. Attached to and made a part of the trust agreement was a partnership agreement between petitioner and Harry W. Parkin, as trustee. Therein, petitioner and the trustee agreed to become partners under the firm name of Louis-White Motors in the business "of distributing White trucks, parts and accessories, the buying and selling of automobiles, trucks, accessories, and the financing of automobile equipment." The partnership was declared to be a partnership at will which could be continued and terminated at the will of each of the firm members. The partners agreed to share the profits and losses of the business in equal proportion. *268 The partnership books of account were to be kept at the place of business, and were open to inspection by each partner at all times. Each partner was prohibited from acting to obligate the firm outside the scope of its ordinary business. The financial statement of Louis-White Motors at January 1, 1944, which was attached to and made a part of the trust agreement, showed a net worth of $ 10,000 and cash on hand in the amount of $ 772.23.
On or about January 3, 1944, petitioner and Harry W. Parkin, as trustee, by a separate written agreement, provided that petitioner should receive compensation for his services over and above his participation in the profits of the business. The amount of petitioner's compensation was fixed at $ 7,500 per year, until otherwise agreed to in writing.
Petitioner filed a gift tax return with respect to the gift in trust, and reported the value of a one-half interest in Louis-White Motors as $ 5,000. The gift tax return showed no gift tax liability.
Prior to January 1, 1944, petitioner was acquainted with the business ability and reputation of Harry W. Parkin. On occasions, he had sought Parkin's advice on business matters, but the two men were not*269 close friends. Parkin was interested in a number of business enterprises, being president of Parkin Printing and Stationery Company, secretary and treasurer of Tiller Tie and Lumber Company, and secretary and treasurer of Southern National Insurance Company, which sold life, health, and accident insurance, and had an extensive investment policy. In addition, Parkin was interested in a patented rubber valve stem for inner tubes, a contract for the manufacture of which had been entered into with the United States Rubber Company. *1430 Parkin was also associated with the inventor of the Fram Oil Filter in the manufacture of this automobile accessory.
Petitioner regarded Parkin as a highly successful business man and the most capable person that he knew in Little Rock to give him help and guidance in establishing the business. With the aid of a mutual friend, he was able to persuade Parkin to act as trustee for the trust, created for the benefit of his son, and to accept, in his fiduciary capacity, a partner's responsibility in the conduct of Louis-White Motors. Before entering into the partnership, Parkin made certain that there was a provision in the partnership agreement *270 permitting him, as trustee, to withdraw from the partnership at will.
Under date of May 1, 1945, petitioner, Harry W. Parkin, trustee for L. Welling Eisenmann, and Kathryn Mehaffy entered into a partnership agreement under the firm name of L-W Sales Company for the purpose of engaging in the tire and accessory business. The capital of the L-W Sales Company was $ 10,000 which was contributed $ 2,500 by petitioner; $ 2,500 by Harry W. Parkin, as trustee for L. Welling Eisenmann; and $ 5,000 by a third party, Kathryn Mehaffy. Profits and losses of the partnership were to be shared in proportion to the capital contribution made by each partner. The partnership was to be continued and to be terminated at the will of each and every one of the firm members. By written agreement entered into during December 1945 the firm name was changed to Fisk Tire & Supply Company. The L-W Sales Company made very little money during 1945 and 1946 due, in large measure, to the scarcity of tires and materials.
After January 1, 1944, Harry W. Parkin, as trustee, was an active partner in Louis-White Motors. He met with the petitioner at least two or three times a week to discuss immediate problems and*271 once a month to go over the monthly operating statement. They periodically discussed policies as to the development of the parts business, the tire business, and the financing of their operations. Parkin attended meetings with representatives of finance companies, truck manufacturers, an automobile manufacturer, and manufacturers of automobile accessories, such as tires, tubes, and oil filters. He took an active part as a partner in the matters discussed at the meetings with these various representatives. After Parkin, as trustee, became a partner, he obtained credit for the partnership from Union National Bank and from C. I. T. Credit Corporation, which credit had been denied the business when operated by petitioner as a sole proprietorship. Through his business contacts, Parkin was instrumental in acquiring for the partnership tires, tubes, and oil filters as a part of its automobile-accessories business. He persuaded the manufacturers of parts to stock as much as $ 35,000 to $ 40,000 worth of *1431 parts without purchase by the partnership, which could have financed not more than $ 5,000 worth of parts stock on its own capital. He objected to risking the partnership's*272 capital in establishing a branch in El Dorado, Arkansas, in purchasing a Nash franchise, and in entering into the heavy-equipment field; and none of these projects were undertaken. 1 He recommended the acquisition of a lease on property in a different location and the expenditure of $ 7,500 to $ 10,000 on improvements to provide the business with a better physical plant, and this was done. He agreed with petitioner's suggestion that a branch should be opened in Fort Smith, Arkansas, and this branch was opened. Parkin, as trustee, and petitioner were the only persons authorized in the beginning to draw checks on the partnership account. Later, as a matter of convenience, the bookkeeper was authorized to draw checks on the partnership account.
On or about December 31, 1946, the partnership business was incorporated as Louis-White Motors, Inc., an Arkansas corporation. Parkin discussed the incorporation*273 of the business with petitioner and their attorney, and incorporation followed partially as a result of his recommendation. The capital stock of the corporation was issued equally to petitioner and Harry W. Parkin, trustee for L. Welling Eisenmann. Petitioner, Parkin, and their attorney constituted the board of directors of the corporation, petitioner being elected president, and Parkin, secretary-treasurer. Parkin continued to serve as secretary-treasurer of the corporation until the trust terminated on June 1, 1948, at which time L. Welling Eisenmann became secretary-treasurer. Subsequent to the termination of the trust, Harry W. Parkin, individually, continued to serve the corporation, and its successor corporations, as a director.
During and after the taxable years, the trust was regularly credited with its share of the partnership profits on the partnership books. The amount of partnership profits credited to the trust for each of the taxable years 1944-1946, inclusive, was $ 14,262.35, $ 17,589.26, and $ 19,045.53, respectively. These identical amounts were included, as a part of the trust income, when Harry W. Parkin, as trustee, filed his final accounting with the Pulaski*274 Chancery Court and asked that the trust be terminated on or about June 1, 1948.
The partnership books and the trustee's final account to the Chancery Court reflect the same dispositions of the trust's one-half share of partnership income. Except for the purchase of $ 600 of War Bonds, maturity value $ 800, the trust's share of 1944 partnership profits was used to pay income taxes or left in the business. In 1945 the trust invested $ 2,500 in the L-W Sales Co., or Fisk Tire & Supply *1432 Co., paid its Federal income tax installments, and paid its 1944 Arkansas income tax. The trust's distributive share of 1945 partnership profits, from Louis-White Motors and from Fisk Tire & Supply Co., was received on or about January 13, 1946. During 1946 the trust increased its investment in Louis-White Motors in the amount of $ 2,500, purchased War Bonds in the amount of $ 1,125, maturity value $ 1,500, purchased two $ 5,000 life insurance policies with premiums totaling $ 359.40, paid its state and Federal income taxes, the latter in installments, and opened an account with the Union National Bank of Little Rock in which the trustee deposited $ 8,977.51 on January 15, 1946. The trust's*275 share of Louis-White Motors' profits for 1946 was received on January 8, 1947. The trust's investment in Louis-White Motors, which had incorporated its business was increased by $ 950 on January 8, 1947, and the remainder of the trust's distributive share, $ 18,095.53, was deposited in the Union National Bank on the same day.
Subsequent to the taxable years, Harry W. Parkin, as trustee, made numerous investments of trust funds for the benefit of L. Welling Eisenmann. The income from such investments, the proceeds from the sale of some investments, and the cash and investments on hand at the termination of the trust were reflected in the trustee's accounting of his stewardship filed with the Pulaski Chancery Court. The money and other property held under the trust indenture for the benefit of L. Welling Eisenmann were transferred to him on June 1, 1948, and a release secured therefor by the trustee. Under date of June 4, 1948, the Chancery Court decreed that the trust was terminated, that the trustee had fully discharged his duties and was released therefrom, and that the trustee was entitled to a fee for his services of $ 1,000. Harry W. Parkin refused to accept the fee which*276 the Chancery Court allowed him for his services.
The trustee's account, approved by the Chancery Court, and the release, executed by the beneficiary, show that the following described property was delivered by the trustee to the beneficiary upon termination of the trust:
| $ 5,868.30 | in money |
| 245 | shares Louis-White Motors, Inc. |
| 50 | shares American Telephone & Telegraph Company |
| 200 | shares Pepsi Cola Bottling Company Common Stock |
| $ 500.00 | Arkansas Stadium Bond |
| $ 10,000.00 | policy -- Aetna Life Insurance Company |
| $ 2,000.00 | Note (due Aug. 15, 1948) Norman and Elizabeth Kavanaugh |
No part of the trust income or corpus was ever returned to petitioner or to the partnership. Neither the petitioner nor the partnership borrowed any money from the trust. Petitioner continued to support his son throughout the term of the trust, and none of the partnership *1433 distributions to the trust were used for the support or education of petitioner's son. Prior to the termination of the trust, no money, stocks, bonds, or other trust assets were turned over to L. Welling Eisenmann. Petitioner's son has retained for his own use the properties turned over to him by the trustee.
Petitioner*277 and Harry W. Parkin, trustee for L. Welling Eisenmann, in good faith and acting with a business purpose intended to join together in the present conduct of the business enterprises known as Louis-White Motors and L-W Sales Company. The trustee contributed capital to each partnership, actively participated in the operation of its business, and rendered vital services to each partnership during the taxable years.
OPINION.
In determining the deficiencies for the taxable years, respondent taxed all of the partnership income to the petitioner. He contends that petitioner and the trustee were not real partners in the conduct of the business during any of the taxable years. His position is that "petitioner as grantor of the trust retained directly or indirectly the benefits and control over the trust corpus and the income therefrom, and that the arrangement made by the petitioner, although through formal instruments, amounts to no more than a reallocation of the income from Louis-White Motors within the family group, consequently Harry W. Parkin was not a partner with the petitioner in the conduct of the business during any of the taxable years in question."
We are unable to agree with*278 respondent that petitioner as grantor of the trust retained dominion and control over trust corpus and income. Our analysis of the trust agreement shows that full and complete powers of management and control were vested in the trustee, and we have so found. The trust indenture is specific in its prohibition against the use of trust corpus or income for petitioner's benefit, the benefit of his family, or the satisfaction of any of his legal obligations; and the facts show that no part of the corpus or income was so used. The record and our findings establish that petitioner and Harry W. Parkin were business acquaintances with no other relationship existing between them at the time Parkin consented to serve as trustee. The trustee's active participation in the operation of the partnership, and his management and investment of trust corpus and income during and after the taxable years demonstrate the complete dominion and control exercised by him in his fiduciary capacity. Instead of being subservient to petitioner's wishes, the record and our findings show that he actively and successfully opposed petitioner on partnership matters and operations on more than one occasion. He *279 secured credit for the business, which petitioner had been unable to obtain as a sole *1434 proprietor; he made suggestions for the expansion of the partnership business which were adopted and carried out by the partners; and through his business contacts, Parkin, as trustee, secured agency contracts for various automobile accessories for Louis-White Motors which increased the partnership's volume of business. These activities by the trustee, together with his participation in policy-making discussions with petitioner and with third parties, convince us that the fiduciary fully and capably discharged his duties without any dominion or control being exercised over him by the petitioner.
Nor can we agree with respondent that petitioner and Harry W. Parkin, as trustee, were not real partners. This Court and the respondent have recognized that trusts can be members of a partnership. Theodore D. Stern, 15 T. C. 521 (1950); Ethel Holmshaw Fickert, 15 T. C. 344 (1950); Isaac W. Frank Trust of 1927, 44 B. T. A. 934 (1941); Charles E. Ives, 29 B. T. A. 822 (1934);*280 Richard H. Oakley, 24 B. T. A. 1082 (1931); and M. A. Reeb, 8 B. T. A. 759 (1927). The reality of a partnership composed of individuals and trusts has been recognized in Maiatico v. Commissioner (C. A. D. C., 1950), 183 F.2d 836">183 F. 2d 836; Greenberger v. Commissioner (C. A. 7, 1949), 177 F. 2d 990; Thompson v. Riggs (C. A. 8, 1949), 175 F. 2d 81; and the definition of a partnership in section 3797 (a) (2), I. R. C., has been used to cover situations where trusts were members of a partnership as there defined. Theodore D. Stern, supra.The trust created by petitioner was a real entity. It was as much a partner in the enterprise as the other co-partner. It retained its distributive share of partnership income and used the income for trust purposes. Tested by each of the factors prescribed in Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733 (1949), we come inevitably to the conclusion that the petitioner and the trustee in good faith and acting with a business purpose*281 intended to join together in the present conduct of the enterprise.
In so holding, we have carefully considered our decision in Herman Feldman, 14 T. C. 17 (1950), affd. (C. A. 4, 1950) 186 F. 2d 87, and the factors there weighed in determining that a trust for the taxpayer's minor son was not a true partner in a partnership composed of the taxpayer and his brothers. In that case, we were unable to find an intent that the trust was to be a bona fide partner in carrying on the business. Here, we have found that the trust was intended to be a bona fide partner, that the trustee brought credit facilities and business contacts theretofore unavailable to the business, that the trustee assisted in formulating the policies for the business, and that the trustee actively participated in the conduct of the business.
What we have said with respect to the taxability of the income of Louis-White Motors is equally true with respect to the taxability of the income of L-W Sales Company. Weighed by any test, the L-W *1435 Sales Company was a valid partnership, created for a business purpose by partners who intended to join together*282 in the present conduct of a business enterprise.
Decision will be entered under Rule 50.
Footnotes
1. Later, a Nash franchise was acquired, and Nash, like White Motors, was persuaded to consign parts to the partnership.↩