*237 Decision will be entered under Rule 50.
1. Petitioner, engaged in the automobile agency business, conveyed to his wife a one-half interest in sundry corporate assets distributed to him upon dissolution, upon the understanding that the assets would be left in a partnership. The partnership was formed, by written agreement, on the same day. Saving of taxes was one of the factors being considered. The wife had had no official connection with the corporation, though she took an interest in its affairs, entertained her husband's business associates and attended some meetings involving the business. She did essentially the same after formation of the partnership. Her partnership profits were, so far as spent by her, used largely for family matters. Held, that the Commissioner did not err in including the entire partnership income in petitioner's gross income.
2. Held, on the facts, that the Commissioner erred in including in corporate assets received by petitioner upon distribution an amount for good will.
*693 This proceeding involves a deficiency of $ 88,135.88 in income tax for 1941. The issues are whether the petitioner received "going-concern *694 value" upon the liquidation of the corporation of which he was the sole stockholder, and whether all the net income of a partnership is taxable to petitioner.
FINDINGS OF FACT.
The Capitol Cadillac Co., hereinafter referred to as the corporation, was organized in 1934, under the laws of Delaware. All of the corporation's class A stock was issued to the General Motors Holding Corporation, hereinafter referred to as the Holding Corporation, a division of the General Motors Corporation. The purpose*239 of organizing the corporation was to obtain a franchise for the sale and servicing of Cadillac and Pontiac automobiles. Such a franchise and one for the sale of La Salle automobiles were acquired by the corporation. The franchise for Pontiac automobiles was terminated in the fall of 1940, and on October 1, 1940, one was obtained for the sale of Oldsmobile automobiles.
The franchises under which the corporation operated were not assignable and were "personal contracts" between the General Motors Corporation and petitioner. They required the corporation at all times to maintain a place of business satisfactory to the General Motors Corporation and provided that the General Motors Corporation was entitled to the use of the words "Cadillac" and "Olds" or "Oldsmobile," as applied to motor vehicles and chassis, parts, and accessories, and the good will attached thereto, and that the dealer was not an agent or legal representative of the General Motors Corporation. The General Motors Corporation could cancel the franchises without cause upon three months notice, effective during the months of July, August, and September, and without notice under certain specified conditions. Incapacity*240 or death of the distributor automatically terminated the franchises. Their terms obligated the corporation to operate a used car department and a service department. In addition thereto the corporation operated a new car department and a parts department. The franchises were the standard forms used by the General Motors Corporation for the exclusive sale of its products in specified territory and were similar to the forms used by the automotive industry as a whole.
The used car department of the corporation was operated at a loss and its service department was not a profitable operation. The corporation did not finance the sale of cars sold by it or otherwise engage in an automobile finance business.
By the terms of an agreement entered into on May 16, 1935, the petitioner, an individual residing in the District of Columbia, acquired an option to purchase stock of the corporation at its book or par value, whichever was greater. Until the petitioner acquired 51 percent of the *695 stock the purchases were to be made by the petitioner from dividends and bonuses paid to him by the corporation, and thereafter purchases could be made irrespective of the sources from which the*241 funds were derived. The option agreement was a standard form used by the General Motors Corporation for such transactions and similar to the agreements used by the automobile industry as a whole. During the life of the option the agreement obligated the petitioner to convert class A stock purchased from the Holding Corporation into class B stock and denied petitioner the right to dispose of any of his stock without the consent of the Holding Corporation. The class B stock did not carry voting rights. Salary and bonus payments to petitioner were controlled by the Holding Corporation through a majority of the directors of the corporation.
Between June 1934 and August 1940 the petitioner purchased 490 shares of the corporation's stock from the Holding Corporation at a total cost of $ 52,208.72. All of the stock acquired, except the initial purchase made in June 1934 at a cost of $ 1,210.88, was purchased with funds received out of profits of the corporation. The stock so acquired was converted into class B stock in accordance with the option agreement.
The corporation was not entitled to receive any compensation upon the termination of the franchises other than that provided for*242 in the agreements. If the corporation had been liquidated prior to the time petitioner acquired all of the stock, its net assets would have been distributed proportionately to the corporation's stockholders. In the sale of stock by the Holding Corporation to dealers, nothing is paid by the latter for good will or going-concern value.
The net income of the corporation each year to 1940, inclusive, was as follows:
| 1934 | $ 10,693.35 |
| 1935 | 39,500.81 |
| 1936 | 20,442.61 |
| 1937 | 37,269.51 |
| 1938 | $ 31,597.53 |
| 1939 | 38,398.14 |
| 1940 | 40,929.31 |
At various times after 1934 the petitioner spoke to his wife, Irma M. Akers, about forming a partnership with her to carry on the business of the corporation after he had acquired all of its stock. The Holding Corporation declined to authorize petitioner to transfer any of his stock of the corporation to his wife until he acquired all of its outstanding shares. The General Motors Corporation assured petitioner that if he formed a partnership with his wife it would grant to the partnership franchises for the sale of Cadillac, La Salle, and Oldsmobile automobiles.
In December 1940 petitioner made a bank loan of $ 25,000 on his and his wife's signatures*243 as comakers to enable him to purchase the remaining *696 stock of the corporation, amounting to 210 shares. Thereafter, during the same month, petitioner purchased the shares from the Holding Corporation at a cost of $ 22,524.56. The corporation was dissolved on December 31, 1940, and its assets were distributed to petitioner as sole stockholder on January 2, 1941.
The assets consisted, among other things, of moneys, accounts receivable, inventories of new and used cars, parts, material and equipment, machinery and other fixed assets, furniture and fixtures, and leaseholds. The corporation's liabilities at that time, exclusive of capital stock, were $ 220,908.27, and book net worth $ 94,142.57.
On January 2, 1941, the petitioner executed and delivered to his wife an instrument reading as follows:
Know All Men by These Presents, that I, Floyd D. Akers, in consideration of natural love and affection and of the sum of Ten Dollars ($ 10.00) to me in hand paid by Irma M. Akers, do hereby sell, assign, convey and set over unto the said Irma M. Akers an undivided one-half of all property of every kind and description by me received upon dissolution of the "Capitol Cadillac Company" *244 (a Delaware Corporation) and the distribution to stockholders of its assets, all as set forth in the Balance Sheet hereto attached and by reference made a part hereof; to have and to hold all said property unto her, the said Irma M. Akers, absolutely and in full and perfect ownership.
There was an understanding between petitioner and his wife that the interest conveyed would be left in the business of a partnership to be formed by them the same day. The instrument was placed in a joint safe deposit box maintained by petitioner and his wife. Petitioner's wife understood that if she withdrew the interest assigned to her it would be necessary for petitioner to discontinue business.
Thereafter, on January 2, 1941, petitioner and his wife executed an instrument for the formation of a partnership under the name of Capitol Cadillac Co., effective immediately, and to continue for a period of one year, at which time the agreement could be terminated by written notice given by either party. If no such notice was given, the agreement was to continue indefinitely, subject to cancellation by either party by giving 30 days written notice. The instrument further provided that by their execution*245 of the instrument each party contributed to the partnership all property formerly used by the corporation in the conduct of its business; that the parties would use their best efforts to accomplish the purpose of the business; that full and accurate books would be kept, to which each party should at all times have access without hindrance of the other; that upon the termination of the partnership a fair, full, and general accounting should be taken, not including, however, any item for good will or going-concern value; that within ten days after the making of such an accounting, the partner who had received notice of the termination of the partnership should have the right to purchase the interest of the *697 other partner, at its fair appraised value and the right, as such a purchaser, to continue the business under the name of Capitol Cadillac Co.; that if neither party exercised the right of purchase, the assets of the business were to be converted into cash and the money divided equally between the parties, such money to be the separate property of the distributee, free of any right or claim thereto by either party against the other; and that profits and losses of the business*246 would be shared equally by the parties.
Saving of taxes was one of the factors considered in organizing the partnership.
On January 2, 1941, petitioner and his wife informed their bank of the formation of a partnership by them and made arrangements for the withdrawal of funds from the account of the Capitol Cadillac Co. Notice of the formation of the partnership was also given to insurance companies and Dun & Bradstreet.
The corporation owned no real estate. It leased necessary premises for its business, including property known as the "Annex," from petitioner. On January 2, 1941, the petitioner donated the property known as the "Annex" to the partnership and the property was entered on the books as an asset of the partnership. A new lease or an assignment was obtained for the other two properties.
Prior to 1941 petitioner paid all of his household expenses. On January 1, 1941, petitioner and his wife signed a letter directed to K. H. Moore, secretary and treasurer of the corporation, reading, in part, as follows:
It is agreed between us that all household maintenance, living expenses, family entertainment and other mutual obligations of like nature are to be shared equally and*247 consequently charged on that basis to our drawing account. It is specifically agreed that in addition to above items, the personal Federal Income tax of Floyd D. Akers for year 1940 will be charged to our drawing account on a 50-50 basis.
All real estate jointly owned is to be set up on books but will be classified as that used in business and that not used in business.
Amounts, as the value of undivided one-half interests in the property received by petitioner in the liquidation of the corporation and the "Annex," were included in a gift tax return filed by petitioner for 1941 as gifts made to his wife.
On January 2, 1941, the General Motors Sales Corporation issued franchises to the Capitol Cadillac Co., as a partnership, for the sale of Cadillac, La Salle, and Oldsmobile automobiles.
The petitioner and his wife were married in 1927. At that time she had been a designer of hats for a wholesale millinery company for two or three years. She had never had any other business experience. She had no property prior to her marriage and to the end *698 of 1940 had no property other than property owned jointly with petitioner which he had purchased.
Prior to January 2, 1941, petitioner's*248 wife was known to the principal officials of the General Motors Corporation, and her connection with the partnership was discussed by some of them prior to the issuance of the franchises to the partnership.
There was no change in the key personnel of the Cadillac Motor Co. when the partnership was formed. The service and new and used car departments had no change of managers at any time important after 1934. Kenneth H. Moore, as secretary and treasurer of the corporation, had charge of its books. He remained as an employee of the partnership, with similar duties. The petitioner was president and operator of the corporation and the heads of the departments were responsible to him. They continued to be responsible to him after the formation of the partnership.
Petitioner's wife had no official connection or duties with the corporation. She took an interest in its affairs, and indicated it by attending meetings of officers and employees held once or twice each year, generally at Christmas time, at which salary and wage adjustments or awards of bonuses were announced, and getting acquainted with the employees and their families. She frequently went to Detroit, Michigan, with petitioner*249 to meet factory officials of the General Motors Corporation and was called upon to entertain officers of the General Motors Corporation and their wives at times when they were in Washington. She also accompanied petitioner on business trips to New York. The petitioner discussed personnel matters with his wife, particularly those relating to the heads of departments of the corporation, and important policy questions, but she had no authority to fix salaries or wages or determine policy questions.
Such services as petitioner's wife rendered for the partnership were similar to those rendered to the corporation. Neither petitioner nor his wife performed manual labor for the partnership or directly engaged in the sale of cars. Petitioner's wife, while a member of the partnership, attended agency meetings with petitioner in Detroit and Washington, rendered assistance to petitioner in developing closer relations with employees of the partnership and factory officials, took part in a meeting held in 1941 to discuss with employees the effect the war would have on the business, and at times criticized the uncleanliness of cars as they were about to be delivered to customers. She was comaker*250 on notes of the partnership and endorsed checks and other papers requiring her signature as a partner. She did not have a desk at the place of business of the partnership.
No restrictions were placed upon the withdrawal of partnership funds by petitioner and his wife. Distributions of partnership profits were made to them on an equal basis.
*699 The books of the partnership disclose that the net income of the partnership for the taxable period ended September 30, 1941, was used for the following purposes:
| Purchase residence, Washington, D. C. in names of petitioner and | |
| his wife as tenants by the entirety | $ 27,947.40 |
| Payments on property owned jointly by petitioner and his wife | 4,893.02 |
| Expense Alaska trip of petitioner and his wife | 3,139.51 |
| U. S. bonds for children of petitioner and his wife | 750.00 |
| Private school for children | 490.13 |
| Expense California and Florida trips of petitioner and his wife | 3,728.50 |
| Furniture for residence | 1,537.76 |
| Payment loans of petitioner | 3,535.11 |
| Mink coat for petitioner's wife | 2,400.00 |
| Premiums insurance policies on life of petitioner | 1,644.29 |
| Income tax of petitioner for 1940 | 24,566.59 |
| Miscellaneous living expenses, clothes, food, rent, etc | 3,721.24 |
| Left in business, including $ 32,000 for purchase of real property | |
| for use of business | 106,939.55 |
| Total | 185,293.10 |
*251 The net income of the partnership for the fiscal year ended September 30, 1942, was $ 108,528.44.
The partnership return filed by the Capitol Cadillac Co. for the taxable period January 2, 1941, to September 30, 1941, reported net income of $ 191,166.08, distributable to petitioner and his wife, one-half to each. The amounts so reported as distributable to them were included in separate individual income tax returns filed by petitioner and his wife for 1941.
In his determination of the deficiency the respondent included in his computation of capital gain realized by petitioner upon the liquidation of the corporation the amount of $ 55,719.75 as "going concern" value received and taxed petitioner on all of the net income of the partnership.
OPINION.
The contention of the petitioner under the first issue is that the corporation had no going-concern value or good will and, consequently, no amount was received by him for such an asset as a liquidating dividend upon the dissolution of the corporation. Upon brief the respondent contends that the "going business" received by petitioner had a value of not less than $ 55,719.75 in excess of the net tangible assets distributed to him. As*252 proof of the receipt of an asset as determined by him, respondent refers to the large annual earnings of the corporation, the net income of the partnership, and the fact that General Motors Corporation had agreed, prior to the dissolution of the corporation, to the transfer of the franchises to the partnership.
*700 The corporation's right to conduct the business in which it was engaged was dependent upon franchises from the General Motors Corporation, and the franchises granted to it for the sale of Cadillac, La Salle, and Oldsmobile cars in specified territory were subject to termination by the General Motors Corporation on 90 days notice, effective in July, August, and September in any year, without cause and without notice for specified causes. The franchises were not assignable and by their terms were made personal contracts between the parties. Such good will or going-concern value as the corporation might have created during its existence was subject at all times to be divested by termination of the franchises without action by the corporation. Termination of the franchises not only meant the loss of the right to receive new cars, parts, etc., under the agreements, *253 but the right to use the words "Cadillac," "Olds," or "Oldsmobile" in the name of the corporation. These names and the good will attached thereto were specifically reserved to the General Motors Corporation in the franchise agreements, in which no provision was made for payments for good will or going-concern value in the event of their termination. Thus the good will, if any, was bound to the franchises and ceased as something out of which the corporation could use or derive profit when the franchises were terminated.
The fact that the General Motors Corporation had agreed in advance of the dissolution of the corporation to enter into new agreements with the partnership, when formed, does not alter the situation. The good will, if any, continued to be embodied in the franchises and they, under the circumstances, were not property subject to transfer or other disposition by the corporation. .
Accordingly, it was error for the respondent to include the amount of $ 55,719.75 in question as part of the assets received by the petitioner upon liquidation of the corporation.
Turning now to the question of *254 partnership between the petitioner and his wife, the recent decisions of the Supreme Court in , and , involved the question now at hand. The Tower case reversed , which had reversed this Court. Therein, as the Supreme Court set forth, we had found that the petitioner had conveyed to his wife stock of a corporation which he had long managed and controlled, and in which he owned 445 out of 500 shares. The conveyance was on condition that the wife would place the corporate assets represented by the stock into a partnership. This was done 3 days after the transfer of the stock. The petitioner continued to control the business, and his wife was prohibited from participation therein. That part of her share which the wife actually *701 expended appeared used for family purposes. On these facts we concluded that the husband was taxable upon the entire "partnership" income, and, as above seen, the Supreme Court affirmed our conclusion. In doing so, that Court inquired: "Did the husband, despite*255 the claimed partnership, actually create the right to receive and enjoy the benefit of the income, so as to make it all taxable to him under sections 11 and 22 (a)?" Later the Court said: "The issue is who earned the income and that issue depends on whether this husband and wife really intended to carry on business as a partnership." -- going on to state that the issue must be decided by considering all steps in the transaction. Validity of partnership under state law was held not controlling, proof of motive to reduce taxes was considered as relevant to the inquiry into reality of partnership, and a question as to whether a gift was incomplete as conditional was considered unnecessary of decision, in the light of the conclusion of this Court, the question of ownership of the property conveyed being regarded as only evidential on the "broader question of whether an alleged partnership is real or pretended." It was stated that there may be partnership between husband and wife, under some circumstances and, "If she invests capital originating with her or substantially contributes to the control and management of the business, or otherwise performs vital additional services, or does*256 all of these things, she may be a partner * * *. But when she does not share in the management and control of the business, contributes no vital additional service, and where the husband purports in some way to have given her a partnership interest, the Tax Court may properly take those circumstances into consideration in determining whether the partnership is real." Emphasis was placed on the command of the taxpayer over the income.
A number of cases have considered facts in issues similar to, though of course not identical with, those here involved, e. g., ; ; affd., ; , and have found that alleged partnership was not real, or a basis for division of income in a family. We can not consider it requisite to examine the details in the varied situations involved. Here, much as we found in the Tower case, a husband made his wife a gift of distributed corporate assets conditioned upon formation of partnership and continued as before to manage the business. *257 She had no official connection or duties with the corporation, though she took an interest and did such things as attending meetings involving the business and entertaining her husband's business associates. She did essentially the same after formation of the partnership. The capital did not originate with the wife. On the evidence, we do not regard *702 such services as she performed either "vital" or additional to what she had performed while the business was corporate. Money from her share of profits, as noted in the Tower case, was utilized, so far as spent by her, largely for family matters. Tax-saving was a motive in formation of the "partnership." Though there are some factors in this case not found in the Tower case or others, we think that they do not affect the "end result" and that the conclusion here should be that the alleged partnership was not real for the purpose of determining income tax of the husband. We are unable to distinguish this case in essential principle from those considered by us in the Tower and other cases. See also .
We hold, therefore, that the Commissioner did not err*258 in including the entire net income of the business conducted in the name of a partnership in the gross income of the petitioner.
Decision will be entered under Rule 50.