*237 Decision will be entered for the respondent.
Family Partnership -- Limited Partner -- Lack of Intention. -- Although formalities to form a partnership in which the then wife of the petitioner was to be a limited partner were carried out, the petitioner and his wife did not really and truly in good faith and acting with a business purpose intend to join together to conduct a partnership in which the wife was a real limited partner.
*542 The Commissioner determined a deficiency of $ 22,195.05 in the income tax of the petitioner for 1944. The only issue is whether the Commissioner erred in taxing as a part of the petitioner's income *543 the 15 per cent of partnership income which was to go to his wife under an agreement entered into in March, 1944.
FINDINGS OF FACT.
The petitioner filed his individual income tax return for 1944 with the collector of internal revenue for the third district of New York. He lived in New York City.
The petitioner and Jacob Hoffman entered into a partnership on or shortly before June 1, 1943, to engage in the manufacture*238 of ladies coats and suits under the name Hoffman-Boylin.
The petitioner and Hoffman and their wives, Dorothy Boylin and Minna Hoffman, entered into an agreement in March, 1944, which was dated January 2, 1944. It was stated therein that the petitioner and Hoffman were to be general partners, with capital interests of $ 35,000 each, and their wives were to be limited partners, with capital interests of $ 15,000 each, in the Hoffman-Boylin business, commencing January 2, 1944, and continuing until the general partners might decide to terminate it. The general partners were to operate the business in all respects. They were to receive annual salaries of $ 18,000 each, after which the profits were to be paid 15 per cent to each of the wives and 35 per cent to each of the husbands. The limited partners were not to take part in the management or to transact any business for the partnership, but could inspect the books at any time. The agreement provided in detail how the interest of a general partner should be handled in case of his death and stated that the interest of the limited partner should be purchased by the surviving general partner, along with that of her deceased husband, *239 both at book value.
The petitioner instructed his wife to sign the above agreement, explaining only that it was necessary for her to become a partner in order to reduce his income taxes. He did not allow her to read it. She signed it, but never knew anything or did anything about the business as a limited partner. She had been a model, but had had no experience in business.
A bank loaned $ 15,000 on March 17, 1944, upon the personal note of Dorothy, endorsed by the petitioner. The note was due June 16, 1944. Dorothy had no assets at that time and made none of the arrangements for the loan. She signed the papers on the instructions of the petitioner. The $ 15,000 was turned over to Hoffman-Boylin and credited on its books to a capital account in the name of Dorothy. The note was once extended and then paid on October 4, 1944, by Hoffman-Boylin, at which time $ 15,000 was charged to Dorothy's capital account.
*544 A certificate of limited partnership was filed with the Clerk of New York County on March 17, 1944, and next day notices of the formation of a limited partnership were published.
Dorothy and the petitioner separated on July 13, 1944. The petitioner commenced *240 an action for divorce in New York County on July 18, 1944. The action was discontinued on November 1, 1944. The petitioner and Dorothy entered into an agreement on August 4, 1944, giving the petitioner custody of their two infant children, with the right in Dorothy to visit them. The petitioner brought an action for divorce in a Nevada court and was granted a divorce by that court on September 25, 1944.
The petitioner and Dorothy entered into an agreement on October 2, 1944, reciting, inter alia, that the petitioner was not obligated to support and maintain Dorothy, and providing, inter alia, that the petitioner pay Dorothy $ 7,500 as a "voluntary contribution" and she accept it "in full satisfaction and in lieu of support and maintenance" for life. The petitioner paid Dorothy $ 7,500 on October 2, 1944. However, it was understood between Dorothy and the petitioner that she would receive a total of $ 25,000, with all taxes thereon paid, as a complete property settlement.
The books of Hoffman-Boylin contained a page showing entries as follows:
| Dorothy Boylin -- Capital Acct. | |||||
| 1944 | 1944 | ||||
| Oct. 4 | C44 | $ 15,000.00 | Mar. 18 | C48 | $ 15,000.00 |
| Dec. 31 | J19 | 24,201.15 | |||
| Dorothy Boylin -- Drawing Acct. | |||||
| 1944 | 1944 | ||||
| Dec. 31 | J19 | 24,201.15 | Dec. 31 | J19 | 24,201.15 |
*241 The petitioner, Dorothy, Hoffman, and his wife entered into an agreement on January 13, 1945, providing that Dorothy retire from the partnership and the others continue, with Boylin having a capital interest of $ 50,000, and Dorothy was to receive $ 24,201.15 as her share of the 1944 profits.
The events related below in this paragraph also took place at the meeting on January 13, 1945. Dorothy signed Federal and New York State income tax returns for 1944 which had been prepared for her by the petitioner or his counsel. The Federal return showed tax due of $ 9,052.69. The petitioner made out a check on behalf of Hoffman-Boylin payable to Dorothy in the amount of $ 24,201.15, and his counsel wrote on the back thereof: "In full payment of investment and profit (1944)." Dorothy endorsed the check and later cashed it. The petitioner also gave her his own check for $ 3,448.26. Dorothy then gave to the petitioner or his counsel her check in the amount of *545 $ 9,052.69, payable to the Federal Government, and her check in the amount of $ 1,096.72, payable to the State of New York. Counsel for the petitioner made the following notations on a piece of paper and gave it to Dorothy: *242
| Fed tax | 9,052.69 |
| State tax | 1,096.72 |
| 10,149.41 tax total | |
| 24,201.15 | Hoffman Boylin |
| 3,448.26 | Check from F Boylin |
| 27,649.41 | Total Recd. |
| 17,500.00 | Dorothy Net |
| 10,149.41 | Tax |
| Re Tax adjustments & Profits for Dorothy Boylin in Re Hoffman | |
| Boylin. |
The Commissioner, in determining the deficiency, increased the petitioner's income as shown on his return by $ 25,006.45, and explained in that connection:
It is determined that your former wife, Mrs. Dorothy Boylin may not be considered to be a member of the partnership known as Hoffman-Boylin, and that accordingly 50% of the distributive income of the partnership is taxable to you.
The Commissioner now proposes to refund the taxes paid on Dorothy's return for 1944.
Dorothy did not at any time really and truly intend to join together with the petitioner, Jacob Hoffman, and Minna Hoffman as a limited partner in relation to the business of Hoffman-Boylin.
The petitioner did not at any time really and truly in good faith and acting with a business purpose intend that Dorothy should join together with him, Jacob Hoffman, and Minna Hoffman, as a real limited partner in relation to the business of Hoffman-Boylin. His purpose in *243 having Dorothy sign the agreement in March, 1944, was to minimize his Federal income tax liability on his share of the profits of that business.
The Commissioner did not err in including 50 per cent of the distributive net income of Hoffman-Boylin in the income of the petitioner for 1944.
The stipulated facts are incorporated herein by this reference.
OPINION.
The question here is whether the petitioner's wife was a real partner, and that depends upon their intent. . The petitioner relied solely upon *546 the facts agreed to by the parties and called no witness. Cf. ; ; affd., . The respondent called Dorothy, the alleged limited partner, and her testimony supports the Commissioner's determination. The petitioner's counsel argues that her testimony is not reliable because of her break with the petitioner and because she may benefit if the taxes shown on her return are refunded. She was subpoenaed as a witness. The Court*244 has carefully considered her appearance, demeanor, manner of testifying, and certain corroborating documents which she produced, as well as the circumstances mentioned by the petitioner, in the light of the entire record, and believes that she has told the truth as she saw it. Her testimony was not contradicted or weakened except as the agreement of October 2, 1944, might contradict it. Due consideration has been given to that document, but its terms are not conclusive on the Court. ; ; ; ; .
Dorothy signed the agreement of March, 1944, to accommodate the petitioner, but knew only vaguely that it had to do with a partnership in which she was to be a partner in some way so that her husband could benefit taxwise. She did not know what rights, if any, she had under the agreement. Her knowledge of the borrowing of $ 15,000 and the use to which*245 that money was to be put was likewise vague, because her husband would not discuss business affairs with her. She knew practically nothing about the business. She testified, and this is the only direct evidence of intent in the record aside from the agreement, that she never really intended to join with her husband as an actual partner of any kind in the business and that he told her to sign the papers so that his income tax would be reduced.
No other purpose in having her sign appears in the record. The earnings were all out of proportion to the capital involved. It does not appear that the business needed money. Dorothy could not furnish either money or credit. The $ 15,000 was apparently borrowed on the petitioner's credit. She took no part, even the part which a limited partner might take, in the business. She saw no books and did not know that she had any right to see them. She claims that all of the money which she received was in settlement of marital rights and differences between her and the petitioner. Although she had employed counsel, she apparently thought that her husband was using his partnership funds to settle with her in connection with the divorce and *246 was not, in part, giving her partnership earnings to which she was entitled. She actually received $ 25,000 net, the amount she says he agreed to pay. The divorce settlement and her supposed share of the *547 1944 partnership earnings are tied in, one with the other. The alleged partnership was changed promptly after the divorce, as soon as the books were closed, to exclude Dorothy. She received nothing for her alleged right to participate in the business as a limited partner. Cf. , in which the wife continued as a partner for more than a year after the divorce and then was paid for her interest. In short, the arrangements in regard to the partnership were always made to suit the convenience of the petitioner as it appeared at the moment.
Not only does the stipulation fail to show that the Commissioner erred in holding that Dorothy's purported participation in the partnership was lacking in genuineness, but the record as a whole shows affirmatively that the petitioner did not in good faith and acting with a business purpose intend to have Dorothy join with him and Hoffman in the conduct of the business*247 even to the extent of a limited partner.
The agreement relied upon by the petitioner was executed about March 17, 1944, yet it was dated back to January 2, 1944. Obviously, one-half of all 1944 earnings of the business up to March 17 belonged to the petitioner, so that he could not escape Federal income tax thereon by any device short of subsequent losses.
Decision will be entered for the respondent.