*1888 1. The partnership relation is not shown by the evidence to have existed among the petitioners and their wives during the years 1922, 1923, and the period January 1 to April 30, 1924.
2. The petitioners and their wives were equal partners in the firm of MacDonald & Harrington from May 1 to December 31, 1924, and during the years 1925 and 1926.
*260 These proceedings, which were consolidated for hearing and decision, are for the redetermination of deficiencies asserted by the respondent as follows:
| Amount of deficiencies | ||
| Year | Harrington | MacDonald |
| 1922 | Less that $10,000 | Less than $10,000 |
| 1923 | Less than 10,000 | Less than 10,000 |
| 1924 | 1,659.69 | 1,419.34 |
| 1925 | 719.39 | 817.61 |
| 1926 | 716.73 | 688.29 |
The petitioners allege in each proceeding that the respondent erred in taxing to them the entire income of the partnership of MacDonald & Harrington, of which they were members, instead of to the petitioners and their wives.
FINDINGS OF FACT.
During the years 1922*1889 to 1926, inclusive, each petitioner was married and living with his wife in California.
On January 15, 1918, the petitioners formed a partnership under the name of MacDonald & Harrington, for the purpose of dealing in lumber at wholesale. Their capital was about $20,000, of which each contributed about one-half. No articles of partnership were drawn up, the partnership agreement being oral.
In the year 1919 the petitioners considered the advisability of taking their wives into the firm. They formed the intention of making their wives partners from the beginning of 1920, and several *261 drafts of partnership articles were made from time to time which were not satisfactory and none was signed until May, 1924. The pertinent provisions of that agreement are as follows:
Articles of Co-Partnership.
Articles of Co-partnership, made and entered into the 1st day of January, 1920, between LESTER W. MACDONALD, HELEN M. MACDONALD, GLENN M. HARRINGTON, and JOSEPHINE B. HARRINGTON, all doing business in the City and County of San Francisco, State of California;
The said parties above named have agreed and by these presents do agree to become co-partners in business together*1890 under and by the firm name and style of "MACDONALD & HARRINGTON", in the business of buying, selling, vending and manufacturing lumber and all its products and by-products of every kind or nature, to own and operate ships and shipping and to own, buy, sell and vend any real or personal property of any kind, incidental to or necessary in the judgment of said co-partners to the carrying on of said business. The principal place of business of said co-partnership is to be at the City and County of San Francisco, State of California, or elsewhere as may be agreed upon between said co-partners and at such location therein or at any other place as may be mutually agreed upon; said co-partnership commencing on the 1st day of January, 1920, and to continue until dissolved by the mutual agreement of the parties hereto. The partners hereto have delivered in as capital stock of said co-partnership, certain money and property as shown by the books of said co-partnership and the amount of the capital stock of said co-partnership is the amount and value thereof as shown by said books of said co-partners; that said capital stock is owned in equal shares by said co-partners, share and share alike*1891 to be used and employed in common between them for the support and management of the said business and to their mutual benefit and advantage;
It is agreed by and between the said parties that at all times during the continuance of their co-partnership, said Lester W. MacDonald and Glenn M. Harrington and each of them will give their attendance and do their and each of their best endeavors and to the utmost of their skill and power, exert themselves for their joint interest, profit, benefit and advantage of said business and will buy and sell merchandise with the joint stock and the increase thereof in the business aforesaid; that said Lester W. MacDonald and Glenn M. Harrington shall each receive a salary to be agreed upon in consideration of giving their time and efforts to said business, which shall be charged as an expense of said business; that said co-partners shall and will at all times during their co-partnership, bear, pay and discharge equally between them all rents and other charges and expenses that may be required for the support and management of the said business; that all gains, profits and increase that shall come, grow or arise from or by means of the said business, *1892 shall be divided between them, share and share alike; and all losses that shall arise or happen to their said joint business by bad debts or otherwise, shall be borne and paid equally between them;
* * *
Either said Lester W. MacDonald or Glenn M. Harrington is given the full right, power and authority to sign, make, execute and deliver, checks, notes, or other instruments in writing or evidences of indebtedness and to borrow money and hypothecate assets for the said co-partnership and for said business and said acts of either of said co-partners shall be binding upon said co-partnership.
* * *
In *262 the event of the death of either Helen S. MacDonald or Josephine B. Harrington, said co-partnership shall not be terminated nor the interests of the respective co-partners affected, except that the interest of said deceased in the co-partnership shall be transferred to her surviving husband and no adjustment of account shall be necessary.
In the event of the death of either Lester W. MacDonald or Glenn M. Harrington, who are the active and managing partners, this co-partnership shall thereupon be terminated and the books of the company shall be closed as of the first*1893 day of the succeeding month and all profits or loss for the current year distributed in equal proportions to the four partners upon the basis of four equal shares. The interest of such deceased and his surviving wife shall be purchased by the other surviving partners at book value as appears by the books of the said co-partnership.
* * *
(Signed) L. W. MACDONALD
G. M. HARRINGTONJOSEPHINE B. HARRINGTON
HELEN S. MACDONALD.
No change was made in the partnership books until the close on December, 1920, when the respective wives of the petitioners were credited each with one-fourth of the net profits of the business for that year. On February 3, 1921, Mrs. Harrington and Mrs. MacDonald received their first withdrawals of profits from the firm, and thereafter each withdrew approximately $300 per month. In September, 1925, the monthly withdrawal amounts were increased to $400. These amounts were fixed by mutual agreement between petitioners and their wives, and $300 per month corresponded approximately to the amount which each petitioner had given his wife for household and personal expenses. The monthly withdrawals from the partnership profits by Mrs. Harrington and Mrs. *1894 MacDonald saved to the petitioners the amounts they had previously had to spend for their wives' clothing, running their houses, and the like. The petitioners each drew out $500 per month.
Neither of the wives of the petitioners contributed anything to the partnership except that Mrs. Harrington had advanced about $1,500 to the petitioner Harrington about two years before he entered the partnership originally. This amount was pooled with his savings, and out of the common fund he bought housekeeping furniture and paid for his interest in the firm.
No bill of sale or other instrument in writing was executed whereby any interest in the partnership business was transferred to the petitioners' wives, except the articles of partnership which were signed in 1924. These articles were not recorded, nor was the name and style of the partnership registered with any State or city authorities. Neither Mrs. Harrington nor Mrs. MacDonald took any active part in the conduct of the partnership affairs. No capital account was set up on the books of the firm for either wife, and no *263 entries were made with respect to them except to credit them with their shares of the profits, and*1895 to charge their withdrawals against their profit accounts.
The income of the partnership, for income-tax purposes, for the period January 1, 1924, to April 30, 1924, amounted to $18,679.61, and for the period May 1 to December 31, 1924, it amounted to $37,359.23.
The respondent has determined that the petitioners were the sole members of said partnership during the years 1922 to 1926, inclusive, and he has taxed the entire partnership income to them in equal shares.
OPINION.
MARQUETTE: The sole question raised by these proceedings is whether the income of the partnership of MacDonald & Harrington, for the years 1922 to 1926, inclusive, should be divided equally between and taxed to the petitioners alone, or whether it should be divided equally among and taxed to the petitioners and their respective wives. The determination of this question depends upon whether Mrs. MacDonald and Mrs. Harrington were partners in the firm of MacDonald & Harrington during the years involved.
The same question was presented to us by these petitioners for the years 1920 and 1921 in *1896 . We there held that there was "not a preponderance of evidence to establish the partnership relation among the petitioners and their wives. * * * There is no evidence that the wives entered into the relationship of mutual agency with their husbands, or that their wives entered into such an agreement with the petitioners as to constitute them partners, and the actual conduct of the parties, as well as the other evidence in the case, leads us to the conclusion that the partnership was not formed until 1924, when the articles of copartnership were executed."
In the present proceedings the petitioners produced no evidence with respect to the years 1922, 1923, and the first four months of 1924, essentially different from that which they offered in the case above quoted, and we find nothing in the record to justify us in holding that the petitioners' wives became members of the partnership prior to May 1, 1924.
However, we are of opinion that the partnership relation between the petitioners and their wives did come into existence in May, 1924, when the partnership articles were executed, and that that relationship continued without*1897 interruption through the year 1926. Under the California law, husband and wife may become partners and *264 carry on a partnership business. Section 158, Civil Code of California. And this right has been recognized by this Board in ; . In each of those decisions the conditions under which the wife was taken into partnership business with the husband were very similar to the conditions present in the proceedings now before us. The respondent in the present proceedings does not question the right of the wives to become partners with their husbands, although he denies that they certainly did so. He also contends that, as both the petitioners and their wives were residents of California during all the taxable years, even if the wives were partners, the partnership income would become community property and therefore the shares of partnership income received by the wives would be community income and taxable to the husbands.
Section 218(a) of the Revenue Act of 1924 and 1926 provides that:
Individuals carrying on business in partnership shall be liable for income tax only*1898 in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, * * *
We have found that the petitioners and their respective wives were all equal partners from May 1, 1924, until the close of the year 1926. In view of that fact the respondent's contention is answered by the section above quoted. In that statute the Congress has definitely set forth the manner in which income acquired by a partnership shall be taxed, namely, to the individual members of the partnership in proportion to their distributive shares. Whether, under California laws, a wife's partnership profits become community property, or whether they remain her own separate property, is immaterial in this instance. A Federal statute fixing the manner by which the incidence of the tax takes place, and designating the individual upon whom the tax falls, is not limited in its application by the varying laws of the different States. *1899 .
Under similar circumstances, in , and , we held that a wife's distributive share of partnership profits, in California, was not taxable as income to the husband. The respondent erred in his determination, and each of these petitioners should be taxed upon only one-fourth of the net income of the partnership from and after May 1, 1924.
Judgment will be entered under Rule 50.