*2364 1. PARTNERSHIP - HUSBAND AND WIFE. - Husband and wife may be partners under the law of Pennsylvania. Evidence establishes partnership between petitioner and his wife.
2. FICTITIOUS NAME ACT. - Pennsylvania laws requiring registration of the names of persons doing business under an assumed or fictitious name do not affect the status of the partnership.
*93 Respondent determined deficiencies in income tax of $3,740.73 for 1922, $3,522.27 for 1923, and $2,187.33 for 1926, against the petitioner. In seeking redetermination, the petitioner alleges that the respondent erred in not finding that he and his wife, Vinnie M. Newell, were partners during the taxable years in the business conducted under *94 the name of John T. Newell, and erred further in taxing the entire income of said business to petitioner individually when he was the owner of only one-half thereof and his wife the owner of the other half. Docket No. 24094 involves the years 1922 and 1923, and Docket No. 41675, the year 1926. At the hearing the cases were consolidated for hearing*2365 and decision.
FINDINGS OF FACT.
Petitioner John T. Newell is an individual and resides at 102 Second Avenue, Warren, Pa. In 1905 and prior thereto he was the owner of a job printing business, which was conducted under his own name of John T. Newell. In 1905 he was married to his present wife, Vinnie M. Newell. Just previous to the marriage they entered into a verbal antenuptial contract in consideration of and in connection with said marriage, by which petitioner agreed to give his wife one-half of the business conducted by him under the name of John T. Newell. This arrangement continued to January 1, 1927, covering the taxable years in controversy.
In the beginning the business was a small job printing office carried on in rented property, but gradually increased, requiring larger and more adequate quarters from time to time, until in 1922 it purchased at an approximate cost of $40,000 its own property. About 1915 a stationery business or department was added. The business was under the direct management of petitioner who conducted it with several employees. Mrs. Newell was not a printer, but on busy occasions helped out in the stationery department, although not employed*2366 regularly therein. She was frequently consulted by her husband on business questions and on one occasion stopped a sale of the stationery department by objecting thereto when petitioner was willing to sell. When petitioner was sick in a hospital, Mrs. Newell took active executive charge of the business until his recovery and on many other occasions gave orders and directions to employees in the stationery department.
She was consulted in the purchase of paper, supplies, and machinery by petitioner and representatives of the supply houses. On account of the large increase of business one paper concern made an investigation about 1918 or 1919 to ascertain who was behind it and was informed by both petitioner and Mrs. Newell that it was a partnership business. On account of the excellent credit of the business no reports were made to or requested of mercantile agencies. The Warren National Bank, where the banking business of the partnership and of the individuals was done, understood the business was a partnership between petitioner and his wife and so treated it in the negotiation of loans.
*95 The business was conducted at all times simply under the name of John T. *2367 Newell, and that of his wife did not appear in connection therewith as a partner either on the stationery or on the books until 1922. The books were kept in a crude fashion until the last mentioned year. Petitioner withdrew and charged himself with a salary and the resulting profits were withdrawn from the business and deposited in a joint account in bank in the name of John T. and Vinnie M. Newell, upon which both or either of them had the right to check. The regular business account was separate and kept under the name of John T. Newell.
In 1922 petitioner employed a tax accountant to adjust his books to his increasing business and they were then set up as a partnership. Until that time petitioner had been using the forms for an individual tax return sent him by the collector, and was ignorant of the necessity of a partnership return. Beginning for the year 1922, both Newell and his wife have made individual returns, each returning one-half of the profits from the business, and petitioner his salary in addition.
In 1922 the joint account contained approximately $40,000, which was used to purchase and equip a printing plant for the use of the business. Title to the real*2368 estate was taken in the name of both. The business of John T. Newell did not occupy the entire property. The rest of the property was rented out and the receipts from rents were included in the regular business account. In purchasing this property it was necessary to borrow money on a mortgage, the notes for which were signed by both John T. and Vinnie M. Newell. Vinnie M. Newell signed all business loan papers.
The laws of Pennsylvania regulating and requiring all persons doing business under an assumed or fictitious name to register the same with the names of the persons conducting the same were not complied with by petitioner until November, 1926. Leases on property used in the business before it purchased its own property were taken in the name of and signed by John T. Newell only. Personal expense bills of petitioner and his wife were paid from the business account and charged to John T. Newell individually. A residence was purchased and paid for from the joint account and title thereto was taken in Vinnie M. Newell's name. She made no contributions of capital when the agreement was first made and entered into.
OPINION.
*2369 MILLIKEN: In Pennsylvania a married woman may contract with her husband and may enter into a contract of partnership with him. At the hearing, counsel for respondent conceded this. See also .
*96 This leaves for consideration whether or not Vinnie M. Newell was a partner of the petitioner during the taxable years and, if so, what effect, if any, did the failure to comply with the Pennsylvania acts requiring registration of the names of the real owners of a business conducted under an assumed or fictitious name have.
We have had before us a number of cases involving partnerships between husband and wife, and partnerships between other persons. No rigid rules can be laid down as to the requirements to establish the relationship. Ordinarily where two or more persons associate themselves together for a common undertaking for profit, and share in the profits or losses, a partnership results. It is not necessary to constitute the relation that a person should contribute capital, or render services, and we have held in several cases that a husband may constitute his wife a partner by giving her an interest in the business. In*2370 the instant case, the uncontradicted evidence is that petitioner gave his wife a one-half interest in his business at the time of their marriage in 1905 and it is uncontradicted that the arrangment has continued ever since.
The evidence of the bank's attitude, that of the paper supply representative, and Mrs. Newell's refusal to permit a sale of the stationery store, is strongly corroborative of petitioner's contention. Undoubtedly one-half of the surplus profits deposited in the joint account belonged to Mrs. Newell, and when this was reinvested in the business in the purchase of a building, machinery, and supplies, this was a contribution of capital by her, no matter what the books showed, as it is nowhere contended that it was a loan or a gift.
In the case of , a Pennsylvania case, Kelley and his wife were engaged in the job printing business under an oral agreement that they were to have an equal interest in the business. Both contributed a small amount of capital and rendered services. From the accumulated profits they purchased and operated a grocery business, and from the profits of both they became the owners of a one-fourth*2371 interest in the Lucas Coal Co., and it was held that one-half of the earnings from the interest in the coal company belonged to the wife and was not taxable to the husband.
Other Pennsylvania cases are , and , in both of which the husbands transferred to their wives by oral agreement their interests in a partnership conducted under the name of the Puritan Supply Co. and both were held to be valid by this Board. In the former, we distinguished between a transfer or assignment of income derived from a partnership as in , and a transfer of the partnership interest itself.
*97 In , members of a partnership took their wives in as partners, and in upholding the agreement we said:
The respondent denied the existence of a partnership between the petitioners and their wives, apparently upon the ground that there were no written articles of copartnership; that the wives contributed no capital or services to the partnership; and that the scheme was only for the purpose of reducing surtax.
*2372 We think that the evidence actually shows an agreement of partnership between the petitioners and their wives on or about July 1, 1919, whereby the wives of the petitioners were taken into the business as equal partners with the petitioners. On that date a new partnership was formed, composed of four individuals, each having a one-fourth interest therein. The claim of the respondent that the wives contributed no capital to the partnership does not disprove the fact that a partnership agreement was entered into. Persons are often made members of a partnership without themselves contributing anything to the partnership originally. The members of a partnership may set over to a person to be taken in as a partner a percentage of their own interests in the partnership. This is what was done in this case. Each of the petitioners gave to his wife one-half of his capital in the business. From that time on each of the petitioners had capital invested in the business. It is immaterial that they furnished no services to the partnership and received no salaries from the partnership. If the petitioners furnishing the services were willing that the other members of the partnership furnish*2373 no services, yet share equally with them in the profits of the business, there is no provision of law to prevent them from doing so. Although proof that persons claiming to be members of a partnership furnished no capital and contributed no services to the partnership might tend to prove that no partnership agreement was entered into, proof of such facts becomes immaterial when all members of the partnership agree that a partnership contract was entered into.
Nor do we think it is material that the apparent object of the reorganization of the partnership in 1919 was for the purpose of reducing surtaxes payable by the petitioners. Clearly, taxpayers have the right to change their form of organization and their methods of doing business in any way they may see fit so long as they keep within the law.
See, also, ; ; ; .
At the hearing counsel for respondent objected to all evidence tending to establish a partnership between petitioner and his wife unless it was shown that the Pennsylvania laws*2374 requiring registration of owners of business had been complied with, on the ground that business as a partnership could not be conducted legally without compliance with these laws. We had this question before us in the cases of , and , and held that the failure to register names and owners of a business did not affect the status of the partnership and was merely a rule of procedure or practice in court which prevented the bringing of suits or actions in some cases, and prevented the offenders *98 from using certain defenses such as misjoinder or nonjoinder of parties.
We have examined the Acts of 1851, 1917, and 1921 relative thereto again, and the cases cited by both parties, and find no reason to change our former opinion. Even though said acts may not have been complied with, there is nothing in any of them that would forfeit the rights or interest of Mrs. Newell in the business of John T. Newell, and make it the property or income of the petitioner. In *2375 , the Circuit Court of Appeals, Third Circuit, affirmed the decision of this , holding that gifts of interest in a Pennsylvania partnership by husbands to their wives were bona fide and not to be invalidated by failure to comply with the "Fictitious Names Act" of the state law, and the income from such gifts was taxable to the wives.
We conclude that there was a partnership between John T. Newell and his wife, Vinnie M. Newell, during the years 1922, 1923 and 1926, in the business operated as John T. Newell and that each should return and be taxed on one-half of the profits thereof.
Judgment will be entered under Rule 50.