*1320 These proceedings, consolidated for hearing, involve deficiencies in income taxes in Docket No. 44768 for the year 1926 in the amount of $48.29, and in Docket No. 44769 for the year 1925 in the amount of $5,246.47.
The assignment of error in the proceeding of J. Howard Coombs, Docket No. 44769, is that the respondent erred in taxing to the petitioner all of the profits of a partnership, alleged to exist between the petitioner and his wife, and the assignment of error in the proceeding of Elizabeth M. Coombs, Docket No. 44768, is that the respondent erred in refusing to allow the petitioner to deduct her proportionate share of the losses of the said partnership for the year 1926.
*1321 FINDINGS OF FACT.
The petitioners in these proceedings are husband and wife. In the fall of 1924 they entered into an agreement which reads in part as follows:
1. That the parties hereto shall, as partners, engage in and conduct the business of buying and selling hardware, lumber and mill work and all kinds of building supplies at wholesale and retail.
*1398 2. That the name of the partnership as heretofore, shall be J. HOWARD COOMBS LUMBER COMPANY.
* * *
10. That each party shall be entitled to draw such amount each week from the funds of the partnership as shall from time to time be agreed upon between them.
11. (a) That at the end of each calendar year, a full and accurate inventory shall be prepared, and the assets, liabilities and income, both gross and net, shall be ascertained, and the net profits, or net loss, of the partnership shall be fixed and determined. (b) That the net profits, or net loss, shall be divided equally between the parties hereto, and the account of each shall be credited, or debited, as the case may be, with his or her proportionate share thereof. (c) That, at the termination of this partnership, by the expiration of its term, or by reason of any other cause, a full and accurate inventory shall be prepared, and the assets, liabilities and income, both gross and net, shall be ascertained; (d) That the debts of the partnership shall be discharged; and all moneys and other assets of the partnership, then remaining, shall be divided in specie, between the parties, share and share alike.
*1399 The question of whether a partnership existed between the petitioners during the years 1922, 1923 and 1924 came before this Board in the proceedings of J. Howard Coombs, Docket Nos. 28774 and 32875, reported at . The facts as found in that case are also facts in this case, and the findings of fact reported in our prior decision are incorporated herein by reference.
During the calendar years 1925 and 1926 a number of suits were instituted by the petitioners for materials furnished by the J. Howard Coombs Lumber Company. Such suits were brought in the names of "J. Howard Coombs and Elizabeth M. Coombs, partners trading as J. Howard Coombs Lumber Company."
The petitioner, Elizabeth M. Coombs, did not perform any services for the J. Howard Coombs Lumber Company in 1925 or 1926.
As stated in the facts in the prior proceeding reported in , the "loan account" of Elizabeth M. Coombs was transferred in December, 1922, to a "capital account" in her name and on December 31, 1923, the capital accounts of both the petitioners, as shown by the books of the J. Howard Coombs Lumber Company, were in the amount of $117,077.21 each. For*1400 the years 1924, 1925, and 1926 the ledger shows that entries were made on December 31 of each of those years respectively to these capital accounts in identical amounts. *1322 Upon the incorporation of the company all the property of the preexisting business was transferred to the corporation. Stock was issued to the two petitioners in equal amounts on January 1, 1927.
For the year 1925 both petitioners filed individual returns, each reporting one-half the profits of the alleged partnership and the husband the additional amount of his salary as managing partner drawn therefrom. No partnership return for 1925, Form 1965, was filed until April, 1928. For the year 1926 the petitioners filed individual returns, each deducting one-half of the loss of the alleged partnership for that year. A tentative return for 1926, on Form 1065, was filed on March 10, 1927, and the final partnership return within the 60-day extension allowed.
OPINION.
MATTHEWS: In the earlier proceeding brought by one of the petitioners here upon the same issue as to the years 1922, 1923 and 1924, we held that a partnership did not exist between this husband and wife for those years, saying:
The*1401 evidence here fails to establish any agreement to share the losses of the business; or that a relation of mutual agency existed between the parties; or that the petitioner's wife had any authority to act, or did act, in the name of the partnership. The written agreement came too late to affect the years before us. In any event, it contains at the most a recital of the conclusion that a previous oral contract of partnership was entered into, which conclusion was the subject of proof. It has not been substantiated by evidence sufficient to overcome the presumptive correctness of the Commissioner's determination. * * * [at .]
A different situation exists for the years 1925 and 1926 now before us. Prior to the taxable years the two petitioners had entered into a written agreement of partnership, by the terms of which they agreed to engage as partners in the lumber business, and that at the end of each calendar year the net profits or net loss of the business should be determined and they would divide the net profits or net loss of the business between them equally. During the taxable years the net profits were credited or the net loss was*1402 debited at the end of each taxable period to these parties' capital accounts in equal amounts. The parties held themselves out to the public and traded as partners. Suits on debts owing to the lumber company were brought in the name of "J. Howard Coombs and Elizabeth M. Coombs, partners trading as J. Howard Coombs Lumber Company." On their income-tax returns they each reported one-half of the profits or deducted one-half of the loss. A part of the wife's money which had originally been invested in the business and carried as a loan became under the written agreement a part of the capital of the enterprise, subject to the risks of the business and entitled to share *1323 in the profits. Upon the incorporation of the company stock was issued to the husband and wife in equal shares, which is corroborative of the fact that the wife had owned a one-half interest in the business.
The petitioner argues that the written agreement and the acts of the parties constituted the parties members of a partnership under the New Jersey law, and that a partnership between husband and wife is valid. In our view of the matter it is unnecessary to determine whether a partnership between a*1403 husband and wife can exist in New Jersey. The New Jersey statutes provide that the property of a married woman is her sole and separate property as though she were a single woman. 3 Comp. Stat. N.J. (1911, p. 3225). In the case of , we held that where the evidence showed that the wife owned a one-third interest in a business in New Jersey, operated by her husband, she was taxable on one-third of the profits of such business and that it was unnecessary to decide in such a case whether a partnership between a husband and wife could exist in New Jersey. In the case of , where it was clear that under the West Virginia law a partnership between husband and wife is not recognized at law, the court held, nevertheless, that where the evidence showed a partnership relation between a husband and wife the partnership is not void, but that rights arising thereunder can be enforced in equity. It followed, therefore, in that court's opinion, that each of the members of the purported partnership was taxable on only his or her proportionate share of the profits. See also *1404 ; ; and .
In the instant proceeding it is clear that the petitioner, Elizabeth M. Coombs, owned a one-half interest in the company's assets. We are, therefore, of the opinion that for the year 1925 each of the petitioners is taxable on only one-half of the profits earned by the lumber company and that for the year 1926 they are each entitled to deduct one-half of the loss sustained by the lumber company in that year.
Judgment will be entered under Rule 50.