*2369 1. Held that all the income earned on petitioner's share in a partnership was taxable to him, notwithstanding a contract between himself and wife that they were partners in all of his property, where the books of the partnership and its income-tax returns did not indicate the wife's ownership of a share, and where all profits earned were paid to the husband and deposited in a joint account.
2. Even if a subpartnership existed between petitioner and his wife, he would be taxable on the income received from the original partnership of which he only was a member.
*621 In these proceedings redetermination is asked of proposed deficiencies for the years 1920 to 1923, inclusive, in the respective amounts of $1,529.15, $2,282.60, $3,105.15, and $2,285.90. Two issues are presented. First, the validity of the action of the Board in extending time for respondent to answer, and second, the claim of petitioner that a coequal partnership existed between him and his wife in a certain one-half interest in the Eagle Laundry Co., which one-half interest*2370 stood in petitioner's name. It was agreed by counsel that *622 in event of a decision favorable to petitioner there would be no deficiencies for the years 1920 and 1921 and deficiencies of $240.58 for 1922 and $184.36 for 1923.
FINDINGS OF FACT.
In 1898 a partnership known as Eagle Laundry Co. was organized by petitioner and one M. G. Monaghan, each owning a one-half interest. In 1904 Monaghan died and his wife, Mary T. Monaghan, succeeded to his interest in the firm and on the books of the company. In 1920 Mary T. Monaghan transferred by bill of sale her interest to her children. The entire Monaghan interest was thereafter carried on the books in the name of Marcus A. Monaghan. The partnership returns for the years 1921, 1922, and 1923 filed by the Eagle Laundry Co. disclose the partners to be petitioner and M. T. Monaghan and the income to be distributable one-half to each. Each of the three children of Mary T. Monaghan, however, returned a proportionate part of the income for taxation.
During the latter part of 1920 a written agreement confirmatory of a preexisting oral agreement, was entered into between petitioner and his wife, wherein it was acknowledged*2371 that petitioner's wife had been and was a full equal partner with him in the interest in the Eagle Laundry Co., entitled to share equally in the profits and obligated to bear equally any losses. The contract was effective from the beginning of 1920. The written agreement was not produced, probably having been lost in a fire at the plant. The fact of this transfer was communicated to Marcus A. Monaghan, who represented the owners of the other one-half interest in the Eagle Laundry Co. The Leininger interest always stood in the name of C. P. Leininger on the partnership books, but Mrs. C. P. Leininger returned one-half of the profits of the Leininger interest for taxation.
Petitioner and his wife maintained prior to and throughout the period here involved a joint bank account on which each could draw unrestrictedly. The profits received from the partnership were deposited in this account by Leininger, no checks on the partnership being drawn to the wife. After the execution of the agreement the wife also maintained a small personal account in which were deposited checks received on account of earnings on her personal investments. Mrs. Leininger took no part in the management*2372 of the business and made no contribution to its capital. There was never any formal accounting between petitioner and his wife.
Petitioner never filed the contract between him and his wife with any public official or in any place of public record.
Petition was filed April 29, 1926, and a copy served on respondent May 3, 1926. On June 1, 1926, the Board granted respondent's motion *623 for 120 days' time in addition to the time allowed by the Board's rules for filing an answer. The answer was filed October 30, 1926.
OPINION.
VAN FOSSAN: The first issue is resolved adversely to petitioner on authority of .
The principal question for determination in these cases is whether petitioner is liable for tax on all of the profits of a one-half interest in a partnership or whether, under the facts, his wife may return for taxation one-half of such profits. In support of his position petitioner submits that during the latter part of 1920 a written agreement confirmatory of a preexisting oral agreement was entered into between petitioner and his wife, wherein it was agreed that petitioner's wife had been and was a full equal*2373 partner with him in the interest in the Eagle Laundry Co., entitled to share equally in the profits and obligated to bear equally any losses.
It is observed from the testimony in the case that the books and records of the Eagle Laundry Co., the partnership, contained no entry reflecting part ownership by the wife or any payments to her or for her account. Partnership returns for the taxable years 1921, 1922, and 1923 were sworn to by petitioner and state that the names of the partners are C. P. Leininger and M. T. Monaghan, each owning one-half. We note further that Mrs. Leininger contributed neither capital nor services to the partnership and that all checks covering profits were made to the husband and by him deposited in a joint account. This in spite of the fact that Mrs. Leininger had also a separate account in which were deposited profits on her personal investments. No accounting was ever had between Leininger and his wife.
On this state of facts we are of the opinion that respondent must prevail. See ; *2374 ; Hellman v.United States (Ct. Cls., May 2, 1927), Am. Fed. Tax Rep. 6781; .
Even if petitioner's wife be considered as a subpartner or in partnership solely with her husband, the incidence of the taxing statute would not thereby be avoided, for the income earned on the one-half interest standing in the name of C. P. Leininger would first be income to him, taxable as such before its division with his wife. See ; affd., ; .
Reviewed by the Board.
Judgment will be entered for the respondent.
PHILLIPS dissents.