*1672 Upon the evidence held that a partnership existed during the taxable year between the petitioner and his wife, and that the petitioner is taxable upon only one-half of the net income of the partnership.
*259 This is a proceeding for the redetermination of a deficiency in income tax for the year 1927 in the amount of $700.54.
The only assignment of error is that the respondent refused to recognize the existence of a partnership between the petitioner and his wife in West Virginia and added to the petitioner's income the amount of income reported by the wife on her separate return.
FINDINGS OF FACT.
The petitioner is a married man, a resident of Huntington, W. Va.
In 1891 when the petitioner and his wife, Maggie M. Brackman, were married they started out on a very small scale to sell lunches. At that time they orally agreed to jointly engage in this business and to share equally the resulting profits or losses. They had practically no capital to begin with. The petitioner's wife would prepare the lunches, consisting mostly of weiners and*1673 hot tamales, at home and the petitioner would sell them on the street. They later acquired a lunch wagon and in 1927 they owned a lunch wagon and orange drink stand at 1526 Ninth Street, which was erected on property they had acquired at a cost of approximately $51,000.
The parties took out of the profits of the business only enough for their bare living expenses and deposited the remainder in the West Virginia Savings Bank and Trust Company, later the First National Bank. They had a checking account in that bank in the name of J. W. Brackman and a savings account in the name of Maggie Brackman. Whenever they had any extra money in the checking account they would deposit it in the savings account. By arrangement with the bank the petitioner could make withdrawals from the savings account which stood in his wife's name.
As the business became more and more profitable the profits therefrom were invested to a large extent in real estate. The petitioner always consulted his wife about what real estate he should buy and did not purchase it unless she approved. In 1927 the petitioner and his wife owned about thirty pieces of real estate, the title to all *260 except about*1674 five being in their joint names. When they purchased real estate they usually made a small cash payment and gave notes in their joint names for the remainder. Sometimes they borrowed part of the money from the bank, the notes being signed by them both.
Prior to the acquisition of the lunch wagon at Ninth Street, the petitioner's wife cooked and prepared or supervised the cooking and preparation of the lunches at their home and at the lunch wagon and attended to the bank deposits. After they acquired the lunch wagon on Ninth Street and during 1927 she had charge of the wagon, prepared the drinks in the orange drink stand, attended to the bank deposits and collected the rents from the real estate owned by her and the petitioner.
Neither the petitioner nor his wife knew anything about bookkeeping and prior to 1921 when the petitioner went to make out his income-tax return he went to the Custom House and consulted with a Mr. Blume, who helped him make them out. In 1921 his son, Howard, who was employed by him at a salary of $35 a week, was instrumental in getting an accountant, Brit Smith, to make out the returns. From 1921 to 1925, at the direction of Howard, Smith credited*1675 the profits made from the lunch wagon business to J. W. Brackman and his son Howard and filed returns on the basis of a partnership between those two. These returns were signed by the petitioner.
The petitioner's wife did not know that the returns were being made and the books kept on the basis of a partnership between the petitioner and his son until some time in 1925. At that time a newspaper article appeared written by a reporter who had had an interview with Howard to the effect that the business was a partnership between Howard and his father. The petitioner's wife was very indignant when she read this and at her instigation she and the petitioner employed another bookkeeper, Ernest S. Allie, a public accountant. At the end of the year 1926 Allie closed the books on the same basis that they had been formerly closed, i.e., a partnership between the petitioner and his son. However, after a conversation with the petitioner and his wife early in 1927 he changed the closing entry for 1926 and credited one-half of the net profits to the petitioner and one-half to his wife and made the returns for 1926 and 1927 on that basis.
Weekly salaries were credited on the books to the*1676 petitioner and his wife, but they never drew any salaries. Likewise, the profits were credited to each but were not withdrawn.
The rents from the properties owned jointly by the petitioner and his wife were included as part of the gross income in the returns for *261 1924, 1925, 1926 and 1927. In 1927 the gross income from such property was $7,799.35.
The petitioner and his wife filed returns for 1927 showing a net income of $10,567.95 each. The respondent added the amount of $10,567.95 to the petitioner's income, thus arriving at the deficiency here in controversy, upon the ground that a partnership between husband and wife is not provided for under the laws of West Virginia, and that therefore the petitioner was liable for tax on the entire income from their business.
OPINION.
MATTHEWS: The sole issue presented in this proceeding is whether the petitioner and his wife were partners so that only one-half of the income derived from the business conducted by them jointly is taxable to the petitioner. The petitioner's wife from the time they were married always assisted in the business and gave him advice as to what investments to make. They orally agreed to share*1677 the profits and losses equally. The profits were not distributed to them, but were invested in real estate, which was taken in their joint names.
Stevenson, who was credit manager of a company which advanced supplies for the lunch wagon, testified that in extending credit he looked to Brackman and his wife for payment and presumed that they were in partnership. He knew that the real estate stood in their joint names. Gohen, a bank official, testified that in lending money to them and in accepting their notes it was recognized that they were jointly interested in the business conducted by them. While the testimony of the parties concerned that there was such an oral agreement is not sufficient to establish a partnership, when taken into consideration with their actions, the activities of the wife and the investment of their surplus in joint property, and the testimony of Stevenson and Gohen, we are of the opinion that the petitioner has established the existence of a partnership between himself and his wife during the taxable year. See *1678 ; .
We do not believe that the fact that the returns were made for prior years on the basis of a partnership between the petitioner and his son Howard is material. The petitioner's wife did not know that returns were being made in this way and the petitioner testified that he merely signed them when they were made out, not realizing their significance. Both of them testified emphatically that Howard was not a partner in the business and the respondent did not introduce any evidence to rebut this testimony.
*262 The respondent contends, however, that under the law of West Virginia a partnership between husband and wife is not valid. In the case of , we held that where a husband and wife entered into a partnership in West Virginia the husband was not taxable on the wife's distributive share of the partnership's earnings.
A similar decision was reached by the District Court for the Southern District of West Virginia in the case of *1679 . That court referred with approval to the Biggs case and held that, in accordance with the case of , although in law in that State a partnership contract between a husband and wife is not recognized, such a partnership is not void and rights arising thereunder could be enforced in equity. The court further held that where a husband, after acquiring 95 per cent interest in a partnership business, transferred as a gift to his wife the ownership of a 40 per cent interest therein, the income of the wife from such 40 per cent interest was taxable to her and not to her husband. See also . In accordance with these decisions we hold that the petitioner is not taxable on the share of the partnership earnings which were distributable to the wife, and reported by her on her return.
Judgment will be entered for the petitioner.